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

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 R2 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.

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Publication Details

Journal
Journal of risk and financial management
Published
2025-09-02
DOI
https://doi.org/10.3390/jrfm18090489
Primary Topic
Financial Distress and Bankruptcy Prediction
Type
article
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article

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

Jhon Jair Quiza Montealegre, María Andrea Arias Serna, Andrés Orozco‐Duque, Luis Fernando Móntes-Gómez et al.
Journal of risk and financial management
Financial Distress and Bankruptcy Prediction
article

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

Jhon Jair Quiza Montealegre, María Andrea Arias Serna, Andrés Orozco‐Duque, Luis Fernando Móntes-Gómez, Leandro Uribe Clavijo
article en

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 R2 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.

Journal of risk and financial managementVol. 18(9)
Universidad de Medellín (CO), Instituto Tecnológico Metropolitano (CO)
Openalex Percentile: Top 65%
Financial Distress and Bankruptcy Prediction
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Explainable Machine Learning Models for Credit Rating in Colombian Solidarity Sector Entities — Jhon Jair Quiza Montealegre, María Andrea Arias Serna, et al. · Journal of risk and financial management (2025) | TGRS Research Map | TGRS