Evening the Credit Score? Impact of Psychometric Loan Appraisal for Women Entrepreneurs

Abstract

Women’s lower rates of ownership of collateralizable assets are a constraint to accessing larger business loans. This paper tests the impact of using psychometric credit scoring as a substitute for collateral for loans up to US$7,500, via a randomized controlled trial with a microfinance institution in Ethiopia. The paper finds positive impacts on women’s access to credit, and survival of their firms during the COVID-19 pandemic and conflict. Firms that remained operational were profitable; but there is limited evidence of impact on firm growth under these circumstances. The study showcases the potential for using innovative technologies to extend entrepreneurial finance to underserved markets.