ZENITH International Journal of Multidisciplinary Research _______________ISSN 2231-5780

Vol.3 (12), DECEMBER (2013) Online available at zenithresearch.org.in

DIGITAL NERVOUS SYSTEM-BASED CREDITWORTHINESS SYSTEM FOR NIGERIAN BANKS

DR. AJAH IFEYINWA ANGELA
DEPARTMENT OF COMPUTER SCIENCE, EBONYI STATE UNIVERSITY,ABAKALIKI. NIGERIA

ABSTRACT A bank can lend successfully only when a borrowers creditworthiness is accurately assessed. In Nigeria, the challenge of lending in banking industry is that of who to lend to. This is as a result of inability of banks to determine creditworthiness of a borrower. The challenge is due to lack of comprehensive Information Technology (IT) based system with suitable technology that will capture all key customer personal and loan data, poor system of identification, absence of standard Credit Bureau for credit information sharing and obtaining credit history. The paper therefore sets out to study the creditworthiness system used in Nigerian banks, its shortcomings in determining the creditworthiness of an obligor and finally proposed a Digital Nervous System (DNS) based Creditworthiness System that will help a great deal in mitigating the problem of granting loan to fraudulent borrowers as well as those that lacks capacity to pay. DNS supports business process by providing the infrastructure needed to consume data and information, filter, sort and analyze data, and extract meaningful information which is delivered to authorized users who needs it, at the right time, and in the right place. Object oriented approach of system analysis and design is adopted in this work. KEYWORDS: Biometrics, Credit history, Creditworthiness, Digital Nervous System, Global Positioning System, Object oriented; ______________________________________________________________________________ 1. INTRODUCTION This paper is multi-disciplinary in nature being the novel application of Information Technology (IT) in the field of banking. Therefore it is pertinent to introduce the issues in the problem domain namely, banking before presenting the solution package proffered by IT. 1.1. Background of the Study Creditworthiness can be defined as a presumed ability to meet agreed deadlines related to repaying the credit and the interest accrued without affecting the vitality of the borrower, i.e. the repayment process should be based on the income received in the process of the borrower's usual activity, without affecting adversely his financial situation, his financial results as well as other business entities. Establishing sound, well-defined credit-granting criteria is essential to approving credit in a safe and sound manner. The criteria should set out who is eligible for credit and for how much, what types of credit are available, and under what terms and conditions the credits should be granted. Credit analysis is used in determining the current creditworthiness of the loan applicant and forecasting the tendencies in its future development. This process is
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ZENITH International Journal of Multidisciplinary Research _______________ISSN 2231-5780

Vol.3 (12), DECEMBER (2013) Online available at zenithresearch.org.in

connected with the financial and accounting analysis of the current and future activity and the financial situation of the loan applicant in the specific economic environment and the expected changes in the forthcoming periods. The information gathered during the credit analysis is of great significance to the accurate structuring of the credit, which would contribute to lowering the credit risk. This information can also be used if the need arises for restructuring the extended credit in such a way that it brings higher profits to the borrower from utilizing the resources and respectively the profitability of the bank-creditor. The major risk that a bank faces is the probability of a customers default. This means that looking at the overall financial status of the applicant is important. Assets such as property, savings and stock accounts, current indebtedness, employment status and annual net salary or wages, and overall credit rating are all components that factor into determining the bank credit of the applicant. The values if recorded could serve as a point upon which the customer should be judged. Todays economic growth poses a big challenge to lenders to predict borrowers performance in recessionary conditions. Credit assessment techniques such as credit scoring which is used to evaluate whether customers should or should not be granted credit, loan screening aids such as advances in data technology, changes in regulatory environment, the firms future profitability, the amount of the owners equity in the business to mention but a few have often not been fully revealing and are imperfectly correlated across banks (Lewis, 1992). Banks and micro finance institutions often rely on information to screen loan applicants and for monitoring borrowers through repeated interaction with their customers. This normally applies to the subsequent borrowers than the new entrants since it requires ample time to determine the true creditworthiness of individual borrowers. McKenzie, (2002) states that when assessing creditworthiness of loan applicants, banks usually refer to their past experience with similar borrowers in similar markets. This may imply that, when a bank expands into a new market, the negative effects of lack of expertise may overcome the benefits from risk diversification. He further noted that, with statistical models, which go with credit cards, auto home mortgage, home equity and small businesses, loan lenders simply plug the variables and later the computer does the work. This helps the lenders make decisions more quickly and cheaply compared with old style judgmental underwriting, and also more accurately and consistently. As a rule, a lender must decide whether to grant credit to a new applicant. The methodology and techniques that provide the answer to this question is called credit scoring. Credit scores assess the likelihood that a borrower will repay a loan or other credit obligation. Credit scores indicate the risk of customers based on their behaviour. They Provide Powerful credit intelligence as they represent customer credit risk profile and can be used in a variety of automated applications. Bureaus typically have a large amount of time series information which is useful to develop bureau scores. E.g., US Fair Isaacs Corporation (FICO) scores. 1.2 Problem Statement In Nigeria, the challenge of lending in banking industry is that of who to lend to. This is as a result of inability of banks to determine creditworthiness/integrity of a borrower, multiple lending to the same individual with the same collateral, use of fake collateral and use of same landed/housing collateral for different loan facility, and use of fake identity in obtaining loan. These problems are powered by lack of comprehensive IT system with suitable technology that will capture all key customer personal and loan data, poor system of identification, absence of standard Credit Bureau for credit information sharing and obtaining credit history. Moreover, the
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Vol.3 (12), DECEMBER (2013) Online available at zenithresearch.org.in

weight of analyzing the information for loan processing is on account officer. Thus, the credibility of a customer is based on the evaluation made by the account officer of the customer who goes out to the field to evaluate the collateral and signs a document to confirm that the security provided by the customer can carry the weight of the loan. The evaluation made by this account officer in most cases is not recorded against the customers. Most times, loan officer adopt some sharp practices in analyzing loan in a bid to meet his risk asset target giving to him by his employer; they connive with a customer with good credit rating to secure loan from where they can now extend part of loan to other customers that do not meet requirements for loan but have great need for it to boost their business. This implies that loan officers extend loan to customers whom they know from day one lack capacity to pay for the sake of meeting his target and safeguarding his job. The practice is possible because the management of banks permit approval of some kinds of loan at the branch level. Sometimes a branch may be stopped from booking loan as result of poor performance. The manager of such branch can decide to book loan through another branch. The manager of the booking branch due to his personal relationship with the requesting manager books the loan based on the assessment done by the requesting manager. The big questions here are, whether the said target can be met when these loans go bad? Who will be held responsible, the defaulters, the loan officer, the man with good credit rating, or the manager from another branch who based on the information provided by another manager booked the loan? These aforementioned problems formed the following research questions that guided this study; How can we determine the creditworthiness of an obligor prior to loan processing? How can we stop identity fraud in loan processing? How can we stop multiple lending to the same individual with the same collateral? How can we stop usage of same landed/housing collateral for different loan facility? and How can we handle moral hazard exhibited by loan officers. Providing answers to these questions led to modeling a viable Creditworthiness System that will help banks combat identity fraud as well as track effectively the multiple loan of one individual/corporate business by means of Biometric-based (fingerprint) information. It will uniquely identify collateral in the form of a landed/housing property using geographical positioning system technology and track effectively where the collateral is currently used to secure credit. It will also verify business registration details of the borrower across corporate affairs commission and obtain his credit rating via credit bureau. It deals with the problem of moral hazards by granting only head of credit of various banks access to approve loan while loan officers activity is limited customers verification and keying in of values of required credit measurement parameters while the system computes the score. This is achieved through effective integration of features that will permit personal and credit information sourcing from relevant external agencies that hold vital information needed for the aforementioned verification. The system will achieve this by implementing DNS approach. DNS is not a program nor a hardware product, but a combination of IT infrastructures, different software applications, Internet technology and the web concept, which enables the efficient exchange of information on an organizational network (Shelkh et al, 2005). DNS will capture credit risk information and provides it where it is needed for decision making and when it is needed. This will enhance the efficiency and effectiveness of lending business processes. The interesting strength of the proposed system is its capability of interconnecting loan processing of all banks, credit agencies including Central Bank of Nigeria (CBN) credit bureau for effective information sharing. This promotes high level of transparency in loan assessment and thus there is no hiding place for fraudulent borrowers. Major security
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Vol.3 (12), DECEMBER (2013) Online available at zenithresearch.org.in

considerations taken include ensuring Data Privacy and Security to encourage bank use the system. This is achieved by designing the system to use the login details of the user (Loan officer) to retrieve the bank of the user and then enforces him to do business concerning his bank alone. A server scripting language is totally implemented to protect the system from hackers. The main contributions of this work are; _To the best of our knowledge the DNS based credit worthiness system (CWS) is the first in Nigeria that combines biometric and GPS technology to assist banks do instant creditworthiness as well as deal effectively with the problem of identity fraud, use of fake collateral, and reduce moral hazard associated with loan. It tracks and relate to loan officer if the borrower has multiple loan with other banks and this information is very vital in taking loan decision. _DNS approach promotes high level of transparency in loan assessment and enables credit information sharing among banks and credit agencies. It enables banks to easily and swiftly obtain credit information and provide it where it is needed and when it is needed. _Biometrics fingerprint and GPS technology help in detecting identity fraud and use of fake collateral respectively prior to loan processing. We strongly believe that the system has mechanism that heightens borrowers incentive to repay, every borrower knows that if he defaults his reputation with all other potential lenders is ruined, cutting him off from credit or making it more expensive. 1.3 Methodology Questionnaires and interviews are used to elicit information from credit officers and stakeholders on how customers creditworthiness is determined. Articles from the national daily, internet, and journals were accessed and this helped in understanding the concept of creditworthiness in bank loan processing. Object Oriented Methodology (OOM) is used for modeling the proposed system. Object-oriented analysis (OOA) applies object-modeling techniques to analyze the functional requirements for a system. OOA focuses on what the system does and looks at the problem domain, with the aim of producing a conceptual model of the information that exists in the area being analyzed. This is typically presented as a set of use cases, activity diagram, sequence diagram, and class diagram. 2. OVERVIEW OF CREDITWORTHINESS ASSESSMENT IN NIGERIAN BANK The approach used for determining the creditworthiness of a borrower in Nigerias financial institutions, has not proved efficient in determining the borrowers creditworthiness. This has therefore resulted in many poor decisions in credit offers to both creditworthy and credit risky borrowers, hence a need to design a mechanism to address the situation. 2.1 How the System Works Description on how the existing system works is based on information gathered from credit officers and stakeholders of some commercial banks. Figure 1 is the flow diagram of the existing system. Creditworthiness assessment begins after a bank customer (borrower) fills and submit a loan application form which include information such as personal and credit history, purpose for the loan, amount of loan requested and collateral details.

ZENITH International Journal of Multidisciplinary Research _______________ISSN 2231-5780

Vol.3 (12), DECEMBER (2013) Online available at zenithresearch.org.in

Fig. 1. Loan Processing Flow Diagram of the Existing System When the loan request is received by the account officer, the personal information supplied by the user is manually analyzed based on the bank Risk Asset Acceptance Criteria (RAAC). RAAC uses PARTS (Purpose, Amount, Repayment source, Tenure and Security) as a metrics; The purpose for the loan must be clear, amount to be granted is determined by the customers account turnover. The borrowers repayment source is the major determinant of lending. The tenure must fall within the banks acceptance tenure. The customers detail is sent to the CBN Credit Risk Management System (CRMS) to verify across an existing database if the applicant is indebted to any bank. Approval is granted or rejected based on these information. on a company upon which a bank decide if it can carry on with the loan processing. After certain formalities are fulfilled, a report, in the form of an offer letter, is generated and sent to the user for signing, confirming the approval and acceptance of the loan respectively. This report is usually not tabulated and calculated in a manner a borrower will understand at a glance the total amount including interest and other charges he is expected to repay. Rather, it is defined in percentage which most customers are unable to calculate and as a result they not clearly aware at hand his total indebtedness to the bank If the loan is rejected for some reason, then a report showing the reason for the rejection is generated and a hardcopy is given to the customer. A sample of the CBN CRMS report shown in Figure 2 below is a credit history of a company requesting for loan.

Fig. 2. A sample of CBN CRMS / Credit Bureau report on corporate borrower

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Banks takes loan decision based on this report. It refers to credit information on a corporate loan that went bad. It shows the borrowers code, the type of credit, number of banks indebted to, credit limit, outstanding amount and the performance status. Here, only indebtedness to banks is being reported. The customers credit relationship with other public sectors like Tax office, Power Holdings Company of Nigeria Plc (PHCN), Water corporation, Phone company, Business company, and so on are not recorded. 2.2 Limitations of the Existing System The Limitations of the existing system are summarized below; 1. The information shown on CBN CRMS report is not sufficient to access and determine the repayment ability of a borrower. The system shares customer past indebtedness with other banks and has no other credit information from other financial institution such as PHCN, Tax Office, Water corporation, phone companies and so on that a consumer has had a financial relationship with. Banks sometime do not report bad credit to CBN and this encourages fraudulent customers to obtain multiple loans from various banks. 2. Apart from CBN CRMS there is no other credit bureau that provides banks with borrowers credit history. Though there are few private credit bureaus in operation in the country, banks do not use them. From information we gathered, these private bureaus have a great challenge of getting true personal and credit history of individual as a result of lack of standard system of identification in the country. 3. Non availability of Credit registers encourages fraudulent customers in using fake collaterals to obtain loan or same collaterals to obtain multiple loans from various banks. 4. The system has not got customer risk scoring feature. The criteria for creditworthiness judgment is based on PART as earlier described. 5. Lack of a standardized national system of identification; driving license or national identity number, is a weak tool for identifying a customer. This is because there is great laxity in a way these numbers are obtained in the country. The institution issuing the identity has no robust database to enable them check for duplication. Moreover, Know Your Customer (KYC) and Know Your Customer Business (KYCB) adopted by banks today do not completely guaranty customers identity. 6. There is no IT- based creditworthiness system present in banks that can check on- the- spot customers creditworthiness. Banks depend mainly on the information provided by the customer in the application form and have no way of checking for the genuineness of data filled in the form. The current system introduces much delay in loan processing. As a result successful loan applicant gets the loan when the need for it must have past or irrelevant for the purpose for which it is done. 3. REQUIREMENT DEFINITION The study conducted was on the existing creditworthiness system in Nigerian commercial bank. Analysis was made out of the prevailing information structure and the critical success factors of the organization were vital in finding out the information requirements for the system. In determining requirements for the new system, Business Process Reengineering (BPR) techniques that involves a substantial amount of change was used BPR was preferred because it seek to radically improve the nature of the business and also a high-level of business requirements is needed for developing high quality system that satisfy users need. The BPR
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activity that was adopted is technology analysis. Lists of important and interesting technologies were developed and how each of these technologies could be applied to the business process and how the business will benefit is discussed below. The functionalities that will be provided by the new system will apply the combination of the following technologies are discussed below; 1. Biometrics based Personal Identification Number called National Reference Number (NRN) is introduced to uniquely identify each customer. The NRN will be assigned by Federal Inland Revenue for every permanent worker and directors of corporate business as a proof of identity. This idea must be backed with strong policies that will (i) stop registration of corporate business whose directors have not got NRN. ( ii) mandate directors of already registered business to obtain NRN and update their record with Corporate Affairs commission. ( iii) stipulate one NRN per person no matter the number of company he /she has got. This will check or stop using fake collaterals to obtain loan or same collaterals to obtain multiple loans from various banks. (iv) Deny access to loan to individual/directors with no NRN. Biometrics fingerprint identification system integrated in the creditworthiness will spot out fake NRN. 2. Global Positioning System (GPS) will be used to read and record the coordinates of landed/ housing collateral obtained by a loan officer or bank approved property valuer. This will also guard against use of fake collateral in obtaining loan. The values read in this exercise will be keyed in the creditworthiness system (CWS) and the values will be matched with the existing values in the land Registration database. A DNS approach leverages the power of the Internet to interconnect various credit agencies, CBN CRMS, and banks to the CWS. The unified connection will enable the system captures credit information and provides it where it is needed for decision making and when it is needed. 4. REQUIREMENTS ANALYSIS Out of the analysis carried out, the following were identified as the user requirements for the system. 4.1 Functional Requirements This relates directly to the process the system must perform or information it needs to contain. Process- oriented 1. The system must validate bank employee access; only loan officer and loan committee member is allowed access to the system. 2. The system must verify applicants identity with the National Identity register. 3. The new system should be able to verify information provided by the customer in the loan application and stop further analysis on any that is found incomplete or fraudulent. This include identity, collateral and business registration verification 4. The system must determine applicants creditworthiness as this will give the bank pre information on the probability of the customer defaulting. 5. The new system should be able to limit errors during data entry by users. 6. The system should provide a high level security for networked transactions. Information oriented 1. The system must retain information about good and fraudulent customers. 2. The system should include information on currently running loan.
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3. The system must include credit information that is updated at least weekly.

4.2 Non functional requirements This refers to the behavioral properties that the system must have, such as performance and usability. They include; Navigability Requirements 1. The system should allow easy record entry and deletion of records should only be done by authorized personnel. 2. The system should be able to save and retrieve and print information Operational: this describes the physical and technical environment in which the system will operate. 1. The system should be able to integrate with the existing network of various bank and relevant database like National Identity Register, Credit Bureau database, and Corporate Affairs Commission database. 2. It should be able to work on any web browser. Reliability The system has no availability requirements. The system is to be used during standard working hours (8:30am to 7:00pm) Performance: This defines the speed, capacity, and reliability of the system. 1. The system should support 100 simultaneous users at all time 2. The system should be efficient, reliable, and should allow timely acquisition of information whenever needed. Security: This addresses who has authorized access to the system under what circumstances. 1. Only authorized trained bank staff usually the credit officers, has authority to operate the system. 2. The system includes all available safeguard from viruses, worm, Trojan Horses and hackers. 3. Any user with insufficient fund is automatically disabled from accessing the system. Cultural and Political: This describes cultural, political factors and legal requirement that affects the system. 1. Customers personal and credit information is protected in compliance with the Data Protect Act. 2. Data privacy and security of banks must be enforced by the system to encourage banks use the system. 3. The system should be secured from hackers. The three security requirements will be achieved by ensuring that 1. The system uses the login details of the user(Loan officer) to retrieve the bank of the user and then enforces him to do business concerning his bank alone. 2. Server scripting language such as PHP, is totally implemented

ZENITH International Journal of Multidisciplinary Research _______________ISSN 2231-5780

Vol.3 (12), DECEMBER (2013) Online available at zenithresearch.org.in

5. DOMAIN ANALYSIS Behavior and structure diagrams are used in doing domain analysis. Behavior diagrams used are Use Case, Activity, Sequence and Behavioral State diagram. They are used to depict the dynamic relationships among the instances or objects that represent the business information system. These diagrams provide support in modeling the functional requirements of the system. Class diagram is the Structure diagrams used to represent data and static relationship that are in the system. 5.1 Main Use Case for the CRMS Use cases that capture business requirements for the system and illustrate the between the system and its environment.

interaction

5.1.1 Identifying Actors in the System The following actors are identified. Actors provide services to the system under discussion. Loan Officer Bank employee who analyze loan applications. He can also view usage information to know if he has login available and change password his password. Admin A CRMS staff that manages users access to the system, change password his password create and updates users account.

Change Password

Admin
Users

Usage Information

Assess Loan

Loan officer
Change Password

CRMS
View usage information

Fig. 3. Main Use Case Diagram for CRMS 5.1.2 Assess Loan Use Case Primary Actor: Loan officer Supporting Actor: Billing system. Brief Description: This use case begins when the loan officer logs in to the CRMS and supply his credentials (username, and password) for proper logging into the system. The system verifies the credentials are valid (E-1). The system then loads the main menu for the loan officer to assess loan. Pre-conditions: The user must have registered and made sufficient payment to use the system. Post-conditions: The loan officer is successfully logged in to use the system
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Main flow of events: Loan officer logs into the CWS and enters his username and password. The system verifies that the login details are valid (E-1), and that the loan officer has sufficient fund to assess loan (E-2). If the loan officer is logging in for the first time, the system prompts him to change his password (E-3). After password has been changed, the system login window displays again for the loan officer to re- login in with his user-defined password. A web page that has links for performing loan assessment operations is displayed. Alternative Flows and Exceptions: E-1: An invalid login details is entered. The system prompts the customer to enter a valid login details. The user can re-enter the login details or terminate the use case. E-2 : Payment made has been used up or no payment made. The user is disabled from using the system and informed about insufficient fund. The use case terminates. E-3: An invalid password is entered or the new password and confirm password does not match. The user can try again . 5.1.3. Verify Customer Use Case Primary Actor: Loan officer Brief Description: This use case begins when the loan officer has successfully logged in. It provides interfaces for the verification of customer information provided in the application form. The system validates information on the loan application. Pre-conditions: The customer must have valid NRN. Post-conditions: Customer identity, Collateral details, Business incorporation details is successfully verified, credit history is obtained from credit bureau.
s >> c lude << in

Identity
> tend> <<ex

Customer's fingerprint capturing

> tend> <<ex

Collateral <<extend>>
<<ex tend> >

Verify Customer Details <<extend>>

Loan officer

Business Registration

Determine Customer's Creditworthiness

<<ex tend> >

Ext. Bureau Report

<< ex te nd >>

Financial Risk > tend> <<ex

Business Risk
<<extend>>

Calculate Creditworthiness

<<ex tend> >

<< ex ten d> >

Ext. Bureau Rating

Fig. 4. Verify Customer and Compute Creditworthiness Use Case

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<<extend>>

Management Risk

Security Risk

Relationship Risk

ZENITH International Journal of Multidisciplinary Research _______________ISSN 2231-5780

Vol.3 (12), DECEMBER (2013) Online available at zenithresearch.org.in

Main flow of events The loan officer clicks on verify customer and the system displays various activity that can be done (IDENTITY, COLLATERAL,BUSINESS INCORPORATION AND EXT BUREAU REPORT). 1.If the activity selected is IDENTITY, the S-1: Identity verification subflow is performed. 2.If the activity selected is COLLATERAL, the S-2: Collateral verification subflow is performed. 3.If the activity selected is BUSINESS INCORPORATION, the S-3: Business incorporation verification subflow is performed. 4.If the activity selected is EXT. BUREAU REPORT, the S-4: Bureau report subflow is performed. Sub-flows S-1: Identity: The system displays a biometric application. With the fingerprint machine attached to the computer. The customer swipe the exact finger he/she used to register with the National Identity Commission (E-11). The loan officer compares displayed information with that on the application form (E-5). Alternative Flows and Exceptions: E-4: An invalid NRN is entered. The system prompts the user to enter a valid NRN. If NRN does not exist, the customer is marked fraudulent and customers record is updated. The use case is terminated. E-5 : Information mismatch. Customer record is updated .The use case is terminated. E-11: An invalid finger is swiped or the customer is not registered. The customer swipes the correct finger. But if the customer is not registered the use case is terminated. S-2: Collateral: The system displays a search window containing a field for Collateral Number. The loan officer enters valid Collateral Number (E-6). The system displays details for the entered Collateral Number. The loan officer compares coordinates information with that on the application form (E-7). Alternative Flows and Exceptions E-6: An invalid Collateral Number is entered. The system prompts the user to enter a valid Collateral Number. If Collateral Number does not exist , the customer is marked fraudulent and customers record is updated . The use case is terminated. E-7: Information mismatch. Customer record is updated .The use case is terminated S-3: Business Incorporation The system displays a search window containing a field for Incorporation Number. The loan officer enters valid Incorporation Number (E-8). The system displays details for the entered Incorporation Number. The loan officer compares Incorporation information with that on the application for (E-9). Alternative Flows and Exceptions E-8: An invalid Incorporation Number is entered. The system prompts the user to enter a valid Incorporation Number. The user can re-enter the Incorporation Number. If Incorporation

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Number does not exist , the customer is marked fraudulent and customers record is updated . The use case is terminated. E-9: Information mismatch. Customer record is updated .The use case is terminated S-3: Ext. Bureau Report Use case The system displays a search window containing a field for Bureau Ref. Number. The loan officer enters valid Bureau Ref. Number (E-10). The system displays details for the entered Bureau Ref. Number. The loan officer records bureau report. Alternative Flows and Exceptions: E-10: An invalid Bureau Ref. Number is entered. The system prompts the user to enter a valid Bureau Ref. Number. If Bureau Ref. Number does not exist , the customer is marked fraudulent and customers record is updated . The use case is terminated. 5.1.4 Creditworthiness Use Case Primary Actor: Loan officer Brief Description: This use case begins after loan officer has completed verification of customer information.. It provides the interface to input creditworthiness parameter for determining creditworthiness of a borrower. Pre-conditions: The Verify Customer Use Case must execute before this use case begins Post-conditions: The result of the creditworthiness computation is stored in the database Main flow of events: Loan officer clicks the creditworthiness link and the system displays the creditworthiness form in which the loan officer enters values for the specified parameter (E11). The Next and Back button are used to navigate to and fro the form .When the form is submitted, the system uses the entered values to calculate the creditworthiness. The result for all the parameters assessed is displayed before the loan officer finally save the final result in the database. Alternative Flows and Exceptions E-11: No value is entered. The user is informed of the particular field that is required. The user can enter value. 5.2 Activity Diagram for CWS An activity diagram represents the dynamics of the system. They are flow charts that are used to show the work flow of the system; that is, it shows the flow of control from activity to activity in the system, what activities can be done in parallel, any alternate path through the flow, and what are the various verifications that should be made. The activity diagram for calculating creditworthiness is described in Figure 5 below.

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Verify customer

Initiate Loan Analysis

[invalid details]
[valid details]

Display Creditworthiness form

Reject Loan

Input values for customer

produce report
No

[All values entered]

Yes

Update customer Information

Notify Customer

Calculate Creditworthiness

Display result

Send result to database

Fig. 5. Activity Diagram for Creditworthiness Assessment 1. A user initiates loan analysis activity. 2. The user verifies customer information by comparing retrieved customer record with the one on the application form. A loan can be rejected if invalid record is discovered and the customer will be notified and his record updated as well. 3. The system displays the creditworthiness form and the user inputs values for the specified parameters and submits. 4. The system calculates the creditworthiness and displays result. 5. The user submits the result to the database. 5.3 Sequence Diagram for CWS The sequence diagram is a dynamic model that supports a dynamic view of the evolving system. It shows the explicit sequence of messages that are passed between objects in the defined interaction. It emphasizes the time-based ordering of the activity that takes place among a set of objects, they are helpful for understanding real-time specifications and complex use cases. The sequence diagram helped the researcher to model the dynamic part of the system. In figure 6, actor and objects that participate in the sequence are placed across the top of the diagram using actor symbols from the use case diagram and rectangles. They participate in a sequence by sending and/or receiving messages. A line runs vertically below each actor and object to denote the life line of the actors/objects over time. A thin rectangular box, called the execution occurrence, is overlaid onto the lifeline to
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show when the classes are sending and receiving messages. A message conveys information from one object to another one. The UML diagrams (use case, activity, sequence and class diagrams) have helped the researcher to get a great deal of information about the customer, loan officer and the loan.
Bank Network
Loan Officer
Login Request

Database

Validate Login Details

Valid

Fetch Customer History

Retrieve Customer History

Display Customer History
Fetch Collateral Registration Info.

Retrieve Collateral Details

Display Collateral Info. Fetch Business Registeration Info

Retrieve Business Registration Details
Display Business Registration Info Fetch Customer Ext. Bureau Rating

Retrieve Customer Credit Rating

Display Customer Credit Rating

Click Creditworthiness
Enter values,Compute, and Store Creditworthiness

Fig. 6. Sequence Diagram for the Credit Risk Management System

5.4 Data Modeling A data model presents the logical organization of data in the system without indicating how the data are stored, created, or manipulated. This helps the researcher to focus on the business without being distracted by technical details. Class diagram that shows the data components of a business system is used to model the data in the new system and this is presented in Figure 7 below. The data to support the CWS can be organized into 16 main classes:- customers, banks,
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loan officers, loan, verification, identity, bureau, creditworthiness computation and so on. Attributes having asterisks next to them is used to uniquely identify an entity. For example, the customer id is used to identify a particular customer. Class diagram also communicates highlevel business rules. Business rules are constraints or guidelines that are followed during the operation of the system. The new system should support the business rules described below and it should ensure that users do not violate the rules when performing the processes in the system.
Customers *customer id *branch name address industry phone Getcustomerinfo() email

requests

Loan *loan id *customer id loan type loan amount purpose tenure Getloaninfo()

generates
results in makes
Bill Payment
*receipt number amount date

Bill

covers

*Bill number date num of loan accessed unitcost totalcost

*branch name address phone

works

Fig. 7. Class Diagram for Bank Creditworthiness System Business Rules 1. A customer can belong to one or more bank (communicated by crowss foot placed on the line closest to Bank class). 2. There are several loan application in the system and each customer may request one to many loan contracts. This is communicated by a line on the crowss foot nearest the Loan class . However, it should be noted here that the system does not support the use of same collateral for multiple loan; This is checked by the Verification class; During this stage the system uses the customers biometric id to check across the database if the collateral is encumbered or free. 3. Consumer and Corporate/Commercial are kinds of loan and therefore inherits the same properties and operation of Loan class (communicated by a solid line from the subclass (Consumer, Corporate/Commercial) to the superclass (Loan) and a hollow arrow pointing to the Loan.
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belongs
Banks

Showpayment() Showpayment()

Consumer

Corporate/Commercial

Identity

fingerprint
Verification
Loan Officer
*loanofficer id *branch name

Getbankinfo()

performs

type Showresult() Collateral

Collateral num

leads to

Getloanofficerinfo()

Incorporation

Incorporation num
Creditworthiness Computation

Management Risk Experience Succession Teamwork Caculatemanscore()

Financialrisk Score Businesssrisk Score Managementrisk Score Security Score Relationshiprisk Score Bureaurating Score Compute() Bureau score

Bureau Security
Secoverage Location Guarantee

customer id

Caculatesecscore()
Business Risk Businesssize Businessoutlook Industrygrowth Markecompetition Entryexitbarrier Caculatebusscore()

Financial Risk Leverage Liquidity Profitability Coverage Calculatefinscore()

Relationship Risk Accountconduct Personaldeposit Compliance Limitutilization Caculaterelscore()

Bureau Rating

Bureauratingcode Bureauscore
Caculatebureauscore()

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4. A loan officer can only determine creditworthiness for one bank (communicated by a line close to the Bank class but can verify one to many loan application (communicated by a line on the crowss foot nearest the Verification class). 5. Since there are several Banks using the CWS, there are likely to be several loan contracts requested by different customers and processed by different loan officer concurrently . To uniquely identify an individual loan contract, I. The Loan class has added the customer id as an additional identifier attribute. II. The Customer class has added the branch as an additional identifier attribute to know the branch and bank of the customer. III. The class Loan officer has added the branch as an additional identifier attribute to track the branch office of the bank of the loan officer in charge. 6. Application verification is made up of Identity, Collateral, Incorporation and Bureau (communicated by a diamond placed nearest Application verification class). 7. Each verified application leads to zero to one creditworthiness computation (communicated by a zero on a line nearest Creditworthiness Computation class). This means that there exist conditions under which the loan officer cannot continue with creditworthiness computation. Such conditions include situation where fake identity or fake collateral, unregistered business was detected. 8. Credit computation consist of Financialrisk, Businessrisk, relationshiprisk, Bureau Rating, Managementrisk, and Security (communicated by a diamond placed nearest Creditworthiness Computation class). 9. One or more loan request generates one or more bill (communicated by the crowss foot nearest the Loan and Bill class ) . 10. Each bank makes one to several payments depending on the number of loan processed (communicated by the two bars on the line closest to Banks and the crowss foot nearest the Bill Payment).

5.5 Behavioral State Machine Diagram for a Loan Officer Behavioral State Machine Diagram is a dynamic model that shows the different states that a single class passes through during its life in response to events, along with its responses and actions. Figure 8 presents a behavioral state machine diagram representing the loan officer class in the context of a customers creditworthiness determination.

Customer Fingerprints Read

[ Identity = Valid ]
Biometrics Identity Verification

[ Credit History = Avaliable ]

Credit History Check

[ Collateral = True ] Business Reg. Check

[ Bussi. Reg = Correct ]

Creditworthiness is computed
Computed

Collateral Verification

Entering Creditworthiness Parameters

[ Identity = Invalid ]
Creditworthiness Process Terminated

[ Credit History = Unavaliable ] [ Collateral = False ]

Creditworthiness Computation Completed

[ Bussi. Reg = Incorrect ]

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Fig. 8. Behavioral State Machine Diagram for a Loan Officer The diagram tells that a customers fingerprints are read to verify his/her identity and if it is valid his credit history is checked. If the customer has credit history, the business registration verification is done. If the business registration information is correct, the loan officer then enters creditworthiness parameters that are used to calculate the creditworthiness. The creditworthiness computation is terminated if at any point during verification the Identity, credit history, collateral and business registration records is found to be invalid. 6. SYSTEM DESIGN AND IMPLEMENTATION 6.1 Interface Design Prototype Interface design prototype was done using Storyboard approach. The storyboard shows handdrawn pictures of what the screens will look like and how they flow from one screen to another.

Verify Customer Menu

Retrieve Identity Information

Identity Collateral Business Incorporation Ext Bureau Report

Customer NRN: lear

Clear

Search

Identity Information NRN Firstname Lastname Date of Birth Term Address City State Hometown State of origin Marital Status Occupation Work Address Phone Number Email Term Address Duration LGA

Retrieve Bureau Rating

Retrieve Collateral Information

Bureau Ref. Number: Clear

Collateral Number: Clear

Clear

Search
Clear

Search

Retrieve Business Incorporation Information Incorporation Number: Clear

Clear

Search

Bureau Rating Code PHCN payment Water Rate payment Phone Bill Payment Score

Collateral Information Id Type Location Value coordinates

Business Incorporation Information Name Date of Incorporation Reg. Number State Registered Shares Issue Paid Capital Directors Major Shareholders Secretary

Fig. 9. Storyboard for Verify Customer 6.2 Interface Template Design For the interface template, the researcher uses two different templates, one for the verification process and another for the rest of other interfaces for the system. For the verification page, the use of frameset was adopted to divide a browser window into sections called frames. Each frame can display a separate web page. A Fixed left frameset was used. The left frame contains navigational elements, and the main frame that displays the verification site content. This is shown in figure 10.

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Left frame

Main Frame

Fig. 10. Customers Verification Interface Template The researchers choice of using frameset is because of the numerous advantages it offers and because verification process has numerous activities which include, collateral and business registration verification as well as credit bureau record check. All these processes are achieved in one page. This helps in improving site performance, providing separate scrollbars for each frame, and simplifies site performance. For other interfaces, the researcher decided on a simple, clear design that had a modern background pattern, with the CWS banner on the top, the copyright statement on the bottom page, and the left edge for the CRMS animation. Main menu follows immediately after banner for navigation within the CRMS. The menu contained the links to the four top-level screens (About us, Contact us Register and Help). The center area of the screen is used to present the main page (Home page) for a particular level of user. This page contains links (navigational system) to all activities for the user. It is also used for displaying forms and reports when the appropriate link is clicked. 6.3 User Interface Forms The user interface forms were designed using Hypertext Preprocessor (PHP). Different screens were developed. 6.3.1 Creditworthiness Input Forms. Figure 11 and 12 show parts of the form in which the user enters customers value for the creditworthiness computation. The user (loan officer) first enters the customers details and click on Next button. This takes him to the next page where he enters the financial risk details. Then followed by business risk, management risk, security risk, relationship risk and finally clicks on

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finish button to send the result of the computation to the database. Figure 12 shows an input form and the corresponding input data for business risk analysis.

Fig. 11. A Fragment of Creditworthiness Input Form

Fig. 12. Another Fragment of Creditworthiness Form 6.4 Input Validation This was achieved using Javascript & PhP script. All data entered into the system were validated to ensure accuracy. The system does not accept data that fail any important validation check to prevent invalid information form entering the system. The system identifies invalid data and notify the user to resolve the information problem. `6.5 Creditworthiness Computation Design The visual representations of conceptual classes or real situation objects in this domain are figured out in Figure 13. The class diagram shows the implementation-specification artifacts, like windows, forms, and other objects used to builds the creditworthiness subsystem. Each class shows the classs name at the top, attributed in the middle, and methods (operations) at the bottom. Customers, Banks, Financialrisk, Businessrisk, relationshiprisk, Bureau Rating, Managementrisk, Security and Creditworthiness Computation are classes. The attributes are properties of the class about which we want to capture information. For example the Security
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class above contains the attributes Secoverage, Location, and Guarantee. The Financialrisk class attributes contains a derived attributes indicated by placing a slash (/) in front of the attributess name example /Leverage. Derived attributes are calculated from other attributes. For example Leverage is calculated by dividing total current assests by total current liabilities.
Customers CUS_name: Varchar(20) CUS_groupname: Varchar(25) CUS_industry: Varchar(50) Getcustomerinfo()

Banks BAN_branch:Num(9) BAN_bankname: Vchar(25) Getcusbankinfo()

Managementrisk Experience: Num(1) Succession: Num(1) Teamwork: Num(1) Caculatemanscore()

Security Secoverage: Num(1) Location: Num(1) Guarantee: Num(1)

Caculatesecscore()
Financialrisk /Leverage: Num(1) /Liquidity: Num(1) /Profitability: Num(1) /Coverage: Num(1) Calculatefinscore()

Creditworthiness Computation

Creditworthiness
Customeratingcode:Vchar (9) AggregateScore: Num(3) RiskGrading: Char(20) CustomerRatingDescription:Blob

Financialrisk Score: Num(2) Businesssrisk Score:Num(2) Managementrisk Score: Num(2) Security Score: Num(2) Relationshiprisk Score: Num(2) Compute() Bureaurating Score: Num(2) Bureau score: Num (2)

Storeresult()

Business risk Businesssize: Num(1) Businessoutlook: Num(1) Industrygrowth: Num(1) Markecompetition: Num(1) Entryexitbarrier: Num(1) Caculatebusscore()

Relationshiprisk Accountconduct: Num(1) Personaldeposit: Num(1) Compliance: Num(1) Limitutilization: Num(1) Caculaterelscore()

Bureau Rating

Bureauratingcode:Varchar(9) Bureauscore: Num(1)

Caculatebureauscore()

Fig. 13. Class Diagram for Creditworthiness Subsystem Method/operation that is unique to each class is shown with parenthesis. For example Caculatesecscore() and the parenthesis represents a parameter that the operation needs for it to act. Figure 13 also communicates that Creditworthiness Computation represent aggregation. This shows that it comprises of other classes. This relationship is denoted by a diamond placed nearest the class representing the aggregation(Creditworthiness Computaion),and lines are drawn from the arrow to connect that classes that serves as it parts (Customers, Banks, Financialrisk, Businessrisk, relationshiprisk, Bureau Rating, Managementrisk, Security). The creditworthiness class represents a class that stores the result of the creditworthiness computation. The creditworthiness for all the advances will be calculated by this class. The computation is done by the business logic (handled by the PHP code) and the result of the computation is stored in the database. 6.6 Modules of the Creditworthiness System 1 Verify Customer Module: The user (loan officer) after successful log in clicks Analyze link. The system displays a web page that contains all the links for credit risk analysis. The user then clicks on the verify link which displays an interface for the verification of the customers identity, collateral, and business incorporation details. The details provided in the loan application on the aforementioned are matched with the corresponding records in the database. Any false information detected during the verification is recorded against the customer and the application is automatically rejected. The customers external credit bureau rating is also retrieved by this module. The user proceeds to the creditworthiness module if the customers verification is successful.

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2. Creditworthiness Computation Module: The module is initiated by a click event on the creditworthiness. The system displays a creditworthiness form where the user enters value for the specified fields. This is six pages form that collect data to analyze customers financial, business, relationship, management, and security risk. The system computes the creditworthiness based on the data entered by the user. The score retrieved form the external credit bureau is also used in this computation. The result of this computation is stored in the database. 6.7 System Packaging Package diagrams use packages that represent the different layers of a CWS to illustrate the layered architecture of the system. 6.7.1 Package Diagram for Customer Verification Module This package deals about the verification of information provided by the customer .This verification is the first task performed by the loan officer when he successfully logs in to analyze loan. It will use the customers data and collateral data to match that with the external agencies database like, National identity register, credit bureau database, and business incorporation database .
Customer Verification Package

Customer
Customer ID: NUM(10) Name: VARCHAR(45) SOL: VARCHAR(6) Industry: VARCHAR(45)

Collateral Value: VARCHAR(45)

External Agency

Type: object

Showvalue()
Getcustomerinfo()

Showdetails()

Fig. 14. Package Diagram for Customer Verification Module 6.7.2 Package Diagram for Creditworthiness Module This package deals with the creditworthiness computation of a customer which can be done once the loan officer finish customers verification and clicked on creditworthiness. It will use the customer data and bank data, business risk, management risk, financial risk security risk and relationship risk data to determine customers creditworthiness. The result obtained here is stored in the database.

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Creditworthiness Package

Customer
Customer ID: NUM(10) Name: VARCHAR(45) SOL: VARCHAR(6) Industry: VARCHAR(45)

Banks BAN_branch:Num(9) BAN_bankname: Vchar(25) Getcusbankinfo()

Business risk Businesssize: Num(1) Businessoutlook: Num(1) Industrygrowth: Num(1) Markecompetition: Num(1) Entryexitbarrier: Num(1) Caculatebusscore()

Getcustomerinfo() Managementrisk Experience: Num(1) Succession: Num(1) Teamwork: Num(1) Caculatemanscore()

Financialrisk /Leverage: Num(1) /Liquidity: Num(1) /Profitability: Num(1) /Coverage: Num(1) Calculatefinscore()

Security Secoverage: Num(1) Location: Num(1) Guarantee: Num(1)

Relationshiprisk Accountconduct: Num(1) Personaldeposit: Num(1) Compliance: Num(1) Limitutilization: Num(1) Caculaterelscore()

Caculatesecscore()

Fig. 15. Package Diagram for Creditworthiness Module 7. CONCLUSION We have presented a Digital Nervous System based creditworthiness system that combines biometric and GPS technologies to help Nigerian Banks effectively detect fraudulent loan application before determining the probability of default of a borrower. The use of UML as adopted by object oriented approach in analyzing and designing the system makes future enhancement of this system possible. Moreover the system will expedite loan processing time thereby making loans available to diligent applicants on time. Determining borrowers creditworthiness is an important step to reducing credit risk. The value (PD) obtained at this point is an essential parameter for calculating expected loss of a loan if given. The DNS approach promotes high level of transparency in banks loan processing as well as help in strengthening the Credit Appraisal Procedures of banks. Integration of biometrics fingerprint and use of GPS system helps in detecting loan fraud. The researcher strongly believes that the system has mechanism that heightens borrowers incentive to repay, and stop identify fraud, stop use of fake collateral, reduce moral hazard; every borrower knows that if he defaults his reputation with all other potential lenders is ruined, cutting him off from credit or making it more expensive. Future work: The use of OOM in analyzing and designing DNS based CWS makes future enhancement simple and possible. Additional modules like credit risk, operational and market risk computation can be added thereby upgrading the system to handle the core risk elements of banks. REFERENCES Lewis,E.M.1992. An Introduction to Credit Scoring. Athena Press, San Rafael Mckenzie,D. 2002. Payment Systems and Infrastructure; Banks and Banking Reform. The World Bank Group, Washington D.C. Shelkh H., Mohammed B, and Rashid A. 2005. Digital Nervous System-DNS. Retrieved May 11, 2011 from http://www.itep.ae/english/EducationalCenter/Articles/dns_01.

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