Business Understanding

The loan providing companies find it hard to give loans to the people due to their insufficient
or non-existent credit history. Because of that, some consumers use it as their advantage by
becoming a defaulter. Suppose you work for a consumer finance company which specialises
in lending various types of loans to urban customers. You have to use EDA to analyse the
patterns present in the data. This will ensure that the applicants capable of repaying the loan
are not rejected.

When the company receives a loan application, the company has to decide for loan approval
based on the applicant’s profile. Two types of risks are associated with the bank’s decision:
 If the applicant is likely to repay the loan, then not approving the loan results in a loss
of business to the company
 If the applicant is not likely to repay the loan, i.e. he/she is likely to default, then
approving the loan may lead to a financial loss for the company.

The data given below contains the information about the loan application at the time of
applying for the loan. It contains two types of scenarios:
 The client with payment difficulties: he/she had late payment more than X days on at
least one of the first Y instalments of the loan in our sample,
 All other cases: All other cases when the payment is paid on time.

When a client applies for a loan, there are four types of decisions that could be taken by the
client/company):
 Approved: The Company has approved loan Application
 Cancelled: The client cancelled the application sometime during approval. Either the
client changed her/his mind about the loan or in some cases due to a higher risk of the
client he received worse pricing which he did not want.
 Refused: The company had rejected the loan (because the client does not meet their
requirements etc.).
 Unused offer: Loan has been cancelled by the client but on different stages of the
process.

In this case study, you will use EDA to understand how consumer attributes and loan
attributes influence the tendency of default.
Business Objectives
This case study aims to identify patterns which indicate if a client has difficulty paying their
installments which may be used for taking actions such as denying the loan, reducing the
amount of loan, lending (to risky applicants) at a higher interest rate, etc. This will ensure that
the consumers capable of repaying the loan are not rejected. Identification of such applicants
using EDA is the aim of this case study.

In other words, the company wants to understand the driving factors (or driver variables)
behind loan default, i.e. the variables which are strong indicators of default. The company can
utilise this knowledge for its portfolio and risk assessment.

To develop your understanding of the domain, you are advised to independently research a
little about risk analytics - understanding the types of variables and their significance should
be enough).

Data Understanding
This dataset has 3 files as explained below:
1. 'application_data.csv' contains all the information of the client at the time of application. The data
is about whether a client has payment difficulties.
2. 'previous_application.csv' contains information about the client’s previous loan data. It contains
the data whether the previous application had been Approved, Cancelled, Refused or Unused
offer.
3. 'columns_description.csv' is data dictionary which describes the meaning of the variables.

Results Expected by Learners

 Present the overall approach of the analysis in a presentation. Mention the

Hint: Note that in EDA, since it is not necessary to replace the missing value, but if you have
to replace the missing value, what should be the approach. Clearly mention the approach.
 Identify if there are outliers in the dataset. Also, mention why do you think it is
an outlier. Again, remember that for this exercise, it is not necessary to remove
any data points.
  Identify if there is data imbalance in the data. Find the ratio of data imbalance.

Hint: How will you analyse the data in case of data imbalance? You can plot more than one
type of plot to analyse the different aspects due to data imbalance. For example, you can
choose your own scale for the graphs, i.e. one can plot in terms of percentage or absolute
value. Do this analysis for the ‘Target variable’ in the dataset ( clients with payment
difficulties and all other cases). Use a mix of univariate and bivariate analysis etc.

Hint: Since there are a lot of columns, you can run your analysis in loops for the appropriate
columns and find the insights.
 Explain the results of univariate, segmented univariate, bivariate analysis, etc. in
business terms.
 Find the top 10 correlation for the Client with payment difficulties and all other
cases (Target variable). Note that you have to find the top correlation by segmenting
the data frame w.r.t to the target variable and then find the top correlation for each of
the segmented data and find if any insight is there. Say, there are 5+1(target) variables
in a dataset: Var1, Var2, Var3, Var4, Var5, Target. And if you have to find top 3
correlation, it can be: Var1 & Var2, Var2 & Var3, Var1 & Var3. Target variable will
not feature in this correlation as it is a categorical variable and not a continuous
variable which is increasing or decreasing.
 Include visualisations and summarise the most important results in the presentation.
You are free to choose the graphs which explain the numerical/categorical variables.
Insights should explain why the variable is important for differentiating the clients
with payment difficulties with all other cases.

You need to submit one/two Ipython notebook which clearly explains the thought process
behind your analysis (either in comments of markdown text), code and relevant plots. The
presentation file needs to be in PDF format and should contain the points discussed above
with the necessary visualisations. Also, all the visualisations and plots must be done in
Python(should be present in the Ipython notebook), though they may be recreated in Tableau
for better aesthetics in the PPT file.