ABSTRACT
Purpose – To develop a model, based on a farmer’s characteristics, that can be used to minimize the risk of loan defaults for palm oil traders in Nagan Raya Regency of Aceh Province.
Design/methodology/approach – This research was conducted by interviewing palm oil traders in three sub-districts in Nagan Raya Regency in order to collect data regarding loan size and status, as well as the characteristics of the farmers who had been given the loan, and then analyzing the data with logistic regression.
Findings – Based on the Hosmer–Lemeshow test, logistic regression equations are able to explain the relationship between the 12 characteristics that were chosen for measurement and the probability of the farmers defaulting on the loan.
Research limitations/implications – An increase in the amount of data is expected to improve the model goodness of fit.
Practical implications – Palm oil traders are expected to use the model developed in this study to determine whether or not existing or prospective customers are eligible for a working capital loan.
Originality/value – Previously, default risk modeling research has generally been conducted on banking institutions, whereas this study focuses on SMEs that provide working capital loans as an incentive to farmers.
