Psychometrics as a Tool to Improve Credit Information

Irani Arraiz, Miriam Bruhn and Rodolfo Stucchi

The World Bank Economic Review, 2017, vol. 30, issue Supplement_1, S67-S76

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 increasing the risk of the portfolio.

JEL-codes: D82 G21 G32 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (5)

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