Abstract

Financial institutions such as banks have been active in the development of a variety of expert systems. Several banks have developed expert systems that capture the experience of their top loan officers in evaluating loan applications. The research literature reveals a number of criteria and measures that have been employed by researchers and lenders. While some consensus is apparent for several measures, the research clearly indicates that both quantitative and qualitative information must be employed in evaluating a loan proposal. Further, the research on rural lending has shown that subjective assessments play an important role in the evaluation of agricultural loans, but they have rarely been included as part of an expert system to appraise agricultural loan applications. Several agricultural loan evaluation systems are operational, but not all are ‘true’ expert systems. While they have all focused on analysing the borrower's financial position given the current market and economic conditions, most have not taken into account qualitative factors such as the character of the borrower. The purpose of this paper is to present an expert system that has been specifically designed and developed to incorporate both qualitative and quantitative assessments in agricultural loan evaluation. The development of the expert system is outlined; the knowledge acquisition process is described; system validation is explained, as is the loan officers’ perception of the expert system. An evaluation of several agricultural loan evaluation expert systems is also included in this paper.

Author Keywords: Expert systems; Banking industry; Banking IS; Knowledge-based software

Article Outline

1. The lending decision and basic credit considerations

1.1. Analyses and variables used during agricultural loan evaluation

2. Evaluation of the agricultural loan appraisal systems

3. Evaluation summary

4. Agricultural loan evaluation expert system

4.1. Acquisition of subjective knowledge

4.2. Development of the knowledge base

4.3. Validation of ALEES

4.4. Loan officer acceptance and view of ALEES

5. Critical evaluation of the usefulness of the research

6. Conclusion

References

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