Explainable Machine Learning Models for Credit Rating in Colombian Solidarity Sector Entities

María Andrea Arias-Serna (), Jhon Jair Quiza-Montealegre, Luis Fernando Móntes-Gómez, Leandro Uribe Clavijo and Andrés Felipe Orozco-Duque
Additional contact information
María Andrea Arias-Serna: Faculty of Engineering, Universidad de Medellín, Cra. 87 #30-65, Medellín 050026, Colombia
Jhon Jair Quiza-Montealegre: Faculty of Engineering, Universidad de Medellín, Cra. 87 #30-65, Medellín 050026, Colombia
Luis Fernando Móntes-Gómez: Faculty of Engineering, Universidad de Medellín, Cra. 87 #30-65, Medellín 050026, Colombia
Leandro Uribe Clavijo: Faculty of Engineering, Universidad de Medellín, Cra. 87 #30-65, Medellín 050026, Colombia
Andrés Felipe Orozco-Duque: Department of Applied Sciences, Instituto Tecnológico Metropolitano, Cl. 73 #76A-354, Medellín 050034, Colombia

JRFM, 2025, vol. 18, issue 9, 1-23

Abstract: This paper proposes a methodology for implementing a custom-developed explainability model for credit rating using behavioral data registered during the lifecycle of the borrowing that can replicate the score given by the regulatory model for the solidarity economy in Colombia. The methodology integrates continuous behavioral and financial variables from over 17,000 real credit histories into predictive models based on ridge regression, decision trees, random forests, XGBoost, and LightGBM. The models were trained and evaluated using cross-validation and RMSE metrics. LightGBM emerged as the most accurate model, effectively capturing nonlinear credit behavior patterns. To ensure interpretability, SHAP was used to identify the contribution of each feature to the model predictions. The presented model using LightGBM predicted the credit risk assessment in accordance with the regulatory model used by the Colombian Superintendence of the Solidarity Economy, with a root-mean-square error of 0.272 and an R 2 score of 0.99. We propose an alternative framework using explainable machine learning models aligned with the internal ratings-based approach under Basel II. Our model integrates variables collected throughout the borrowing lifecycle, offering a more comprehensive perspective than the regulatory model. While the regulatory framework adjusts itself generically to national regulations, our approach explicitly accounts for borrower-specific dynamics.

Keywords: credit risk modeling; explainable machine learning; internal ratings-based approach; LightGBM; SHAP values (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.mdpi.com/1911-8074/18/9/489/pdf (application/pdf)
https://www.mdpi.com/1911-8074/18/9/489/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jjrfmx:v:18:y:2025:i:9:p:489-:d:1740695

Access Statistics for this article

JRFM is currently edited by Ms. Chelthy Cheng

More articles in JRFM from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().