Psychometrics as a Tool to Improve Credit Information
This paper studies the use of psychometric tests, designed by the Entrepreneurial Finance Lab (EFL), as a tool to screen out high credit risk and potentially increase access to credit for small business owners in Peru. We compare repayment behavior...
| Main Authors: | , , |
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| Language: | English |
| Published: |
Published by Oxford University Press on behalf of the World Bank
2019
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/999861565615232538/Psychometrics-as-a-Tool-to-Improve-Credit-Information http://hdl.handle.net/10986/32232 |
| Summary: | This paper studies the use of
psychometric tests, designed by the Entrepreneurial Finance
Lab (EFL), as a tool to screen out high credit risk and
potentially increase access to credit for small business
owners in Peru. We compare repayment behavior patterns
across entrepreneurs who were offered a loan based on the
traditional credit scoring method versus the EFL tool. We
find that the psychometric test can lower the risk of the
loan portfolio when used as a secondary screening mechanism
for already banked entrepreneurs—that is, those with a
credit history. The EFL tool can also allow lenders to offer
credit to some unbanked entrepreneurs—that is, those without
a credit history—who were rejected based on their
traditional credit scores, without increasingthe risk of the portfolio. |
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