Publication: 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 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.
“Arraiz, Irani; Bruhn, Miriam; Stucchi, Rodolfo. 2016. Psychometrics as a Tool to Improve Credit Information. © Published by Oxford University Press on behalf of the World Bank. http://openknowledge.worldbank.org/handle/10986/32232 License: CC BY-NC-ND 3.0 IGO.”