Assessing a knowledge-based approach to commercial loan underwriting

We discuss the challenges in developing decision support tools for commercial underwriting and discuss how several different approaches to the underwriting problem have been addressed. We then describe an expert system-based approach to credit underwriting that has been in commercial usage for over ten years in a variety of financial institutions. The expert system approach addresses many features of the underwriting process that alternative approaches do not. The system is characterized by a functional representation of knowledge and a graph-based inference mechanism. The inference mechanism is unique in its pragmatic approach to the implementation of probability theory. This approach offers flexibility for modeling various aspects of real world credit decisions not always treated by traditional approaches. We give examples of how this approach can be and is currently being applied to facilitating underwriting decisions in commercial lending contexts. q 2005 Published by Elsevier Ltd.