Publication: Psychometrics as a Tool to Improve Credit Information
Date
2016-03-30
ISSN
Published
2016-03-30
Author(s)
Arraiz, Irani
Bruhn, Miriam
Stucchi, Rodolfo
Abstract
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.
Citation
“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.”