Psychometrics as a Tool to Improve Screening and Access to Credit

This paper studies the use of psychometric tests, which were designed by the Entrepreneurial Finance Lab as a tool to screen out high credit risk and potentially increase access to credit for small business owners in Peru. The analysis uses...

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Main Authors: Arráiz, Irani, Bruhn, Miriam, Stucchi, Rodolfo
Format: Working Paper
Language:English
en_US
Published: World Bank, Washington, DC 2015
Subjects:
ID
Online Access:http://documents.worldbank.org/curated/en/2015/12/25516966/psychometrics-tool-improve-screening-access-credit
http://hdl.handle.net/10986/23471
id okr-10986-23471
recordtype oai_dc
spelling okr-10986-234712021-04-23T14:04:15Z Psychometrics as a Tool to Improve Screening and Access to Credit Arráiz, Irani Bruhn, Miriam Stucchi, Rodolfo BUSINESS OWNERS CREDIT MARKETS ALTERNATIVE CREDIT SMALL-BUSINESS LOAN BARRIERS TO GROWTH ECONOMIC GROWTH DEPOSITS PEOPLE FINANCING FORMAL FINANCIAL INSTITUTIONS LOAN PERFORMANCE INTEREST CREDIT SCORE CREDIT AVAILABILITY BIAS PRIVATE CREDIT LACK OF FINANCE ENTREPRENEURS CAPITAL STRUCTURE FINANCIAL STATEMENTS INFORMATION SHARING CREDIT SCORING LOAN ASYMMETRIC INFORMATION PROBABILITY OF DEFAULT BORROWERS PAYMENTS INTERNATIONAL BANK BUSINESS SUCCESS CASH FLOWS INFORMATION ASYMMETRIES LENDER BANK COMPETITION MICROFINANCE INSTITUTIONS WILLINGNESS TO PAY PUBLIC CREDIT SMALL-BUSINESS SMALL BUSINESS INTERNATIONAL FINANCE LOAN APPLICANTS CREDIT UNIONS FINANCIAL INSTITUTION LOAN DEFAULTS COMMERCIAL BANK CONSUMER CREDIT CREDIT BUREAUS UNION FINANCES LENDING DECISIONS CREDIT SCORES PAYMENT BUSINESS LOAN FINANCIAL INSTITUTIONS DEBT LIMITED ACCESS LENDERS GOOD CREDIT LOANS ENTERPRISES PROPRIETARY INFORMATION APPLICATION PROCESS FINANCIAL SYSTEM FINANCE BANKS UNIONS LOAN REPAYMENT CREDIT DECISIONS FORMAL FINANCIAL INSTITUTION FEDERAL RESERVE CREDIT CONSTRAINTS CREDIT-SCORING BUSINESS MANAGEMENT CAPITAL FEDERAL RESERVE BANK CREDIT HISTORY INFORMATION SMALL ENTERPRISES BUSINESS CREDIT FAMILY ACCESS TO FINANCE GENDER BANK CREDIT WORKING CAPITAL REPAYMENT POTENTIAL LENDERS CREDIT INFORMATION CREDIT HISTORIES PROPERTIES LOAN PORTFOLIO CREDIT REPORTING JOB CREATION PAYMENT HISTORY ACCESS TO LOANS ASSETS SMALL BUSINESS OWNERS DEFAULT EMPLOYERS CREDIT BUREAU MICROCREDIT PROFITABILITY CREDIT RISK ACCESS TO CREDIT MICROFINANCE ECONOMIC DEVELOPMENT FINANCING OBSTACLES FUTURE—CASH FLOWS BANK LOANS BUSINESS OWNER SMALL BUSINESS CREDIT FINANCIAL INTERMEDIATION ID BANKRUPTCIES BALANCE SHEETS CREDIT- SCORING LOAN SIZE FINANCE CORPORATION LARGE FIRMS NET WORTH MARITAL STATUS COMMERCIAL LENDING RISK MANAGEMENT LENDING CREDIT APPLICANTS ENTREPRENEURIAL FINANCE ENTREPRENEUR ARREARS CREDIT HISTORY FINANCIAL CONSTRAINTS FORMAL CREDIT SMALL BUSINESSES CREDIT REGISTRY CASH FLOW DEVELOPMENT BANK CREDIT APPLICATION EMPLOYEES This paper studies the use of psychometric tests, which were designed by the Entrepreneurial Finance Lab as a tool to screen out high credit risk and potentially increase access to credit for small business owners in Peru. The analysis uses administrative data covering the period from June 2011 to April 2014 to compare debt accrual and repayment behavior patterns across entrepreneurs who were offered a loan based on the traditional credit-scoring method versus the Entrepreneurial Finance Lab tool. The paper finds 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. For unbanked entrepreneurs—those without a credit history—using the Entrepreneurial Finance Lab tool can increase access to credit without increasing portfolio risk. 2015-12-18T22:33:42Z 2015-12-18T22:33:42Z 2015-12 Working Paper http://documents.worldbank.org/curated/en/2015/12/25516966/psychometrics-tool-improve-screening-access-credit http://hdl.handle.net/10986/23471 English en_US Policy Research Working Paper;No. 7506 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research Peru
repository_type Digital Repository
institution_category Foreign Institution
institution Digital Repositories
building World Bank Open Knowledge Repository
collection World Bank
language English
en_US
topic BUSINESS OWNERS
CREDIT MARKETS
ALTERNATIVE CREDIT
SMALL-BUSINESS LOAN
BARRIERS TO GROWTH
ECONOMIC GROWTH
DEPOSITS
PEOPLE
FINANCING
FORMAL FINANCIAL INSTITUTIONS
LOAN PERFORMANCE
INTEREST
CREDIT SCORE
CREDIT AVAILABILITY
BIAS
PRIVATE CREDIT
LACK OF FINANCE
ENTREPRENEURS
CAPITAL STRUCTURE
FINANCIAL STATEMENTS
INFORMATION SHARING
CREDIT SCORING
LOAN
ASYMMETRIC INFORMATION
PROBABILITY OF DEFAULT
BORROWERS
PAYMENTS
INTERNATIONAL BANK
BUSINESS SUCCESS
CASH FLOWS
INFORMATION ASYMMETRIES
LENDER
BANK COMPETITION
MICROFINANCE INSTITUTIONS
WILLINGNESS TO PAY
PUBLIC CREDIT
SMALL-BUSINESS
SMALL BUSINESS
INTERNATIONAL FINANCE
LOAN APPLICANTS
CREDIT UNIONS
FINANCIAL INSTITUTION
LOAN DEFAULTS
COMMERCIAL BANK
CONSUMER CREDIT
CREDIT BUREAUS
UNION
FINANCES
LENDING DECISIONS
CREDIT SCORES
PAYMENT
BUSINESS LOAN
FINANCIAL INSTITUTIONS
DEBT
LIMITED ACCESS
LENDERS
GOOD CREDIT
LOANS
ENTERPRISES
PROPRIETARY INFORMATION
APPLICATION PROCESS
FINANCIAL SYSTEM
FINANCE
BANKS
UNIONS
LOAN REPAYMENT
CREDIT DECISIONS
FORMAL FINANCIAL INSTITUTION
FEDERAL RESERVE
CREDIT CONSTRAINTS
CREDIT-SCORING
BUSINESS MANAGEMENT
CAPITAL
FEDERAL RESERVE BANK
CREDIT HISTORY INFORMATION
SMALL ENTERPRISES
BUSINESS CREDIT
FAMILY
ACCESS TO FINANCE
GENDER
BANK
CREDIT
WORKING CAPITAL
REPAYMENT
POTENTIAL LENDERS
CREDIT INFORMATION
CREDIT HISTORIES
PROPERTIES
LOAN PORTFOLIO
CREDIT REPORTING
JOB CREATION
PAYMENT HISTORY
ACCESS TO LOANS
ASSETS
SMALL BUSINESS OWNERS
DEFAULT
EMPLOYERS
CREDIT BUREAU
MICROCREDIT
PROFITABILITY
CREDIT RISK
ACCESS TO CREDIT
MICROFINANCE
ECONOMIC DEVELOPMENT
FINANCING OBSTACLES
FUTURE—CASH FLOWS
BANK LOANS
BUSINESS OWNER
SMALL BUSINESS CREDIT
FINANCIAL INTERMEDIATION
ID
BANKRUPTCIES
BALANCE SHEETS
CREDIT- SCORING
LOAN SIZE
FINANCE CORPORATION
LARGE FIRMS
NET WORTH
MARITAL STATUS
COMMERCIAL LENDING
RISK MANAGEMENT
LENDING
CREDIT APPLICANTS
ENTREPRENEURIAL FINANCE
ENTREPRENEUR
ARREARS
CREDIT HISTORY
FINANCIAL CONSTRAINTS
FORMAL CREDIT
SMALL BUSINESSES
CREDIT REGISTRY
CASH FLOW
DEVELOPMENT BANK
CREDIT APPLICATION
EMPLOYEES
spellingShingle BUSINESS OWNERS
CREDIT MARKETS
ALTERNATIVE CREDIT
SMALL-BUSINESS LOAN
BARRIERS TO GROWTH
ECONOMIC GROWTH
DEPOSITS
PEOPLE
FINANCING
FORMAL FINANCIAL INSTITUTIONS
LOAN PERFORMANCE
INTEREST
CREDIT SCORE
CREDIT AVAILABILITY
BIAS
PRIVATE CREDIT
LACK OF FINANCE
ENTREPRENEURS
CAPITAL STRUCTURE
FINANCIAL STATEMENTS
INFORMATION SHARING
CREDIT SCORING
LOAN
ASYMMETRIC INFORMATION
PROBABILITY OF DEFAULT
BORROWERS
PAYMENTS
INTERNATIONAL BANK
BUSINESS SUCCESS
CASH FLOWS
INFORMATION ASYMMETRIES
LENDER
BANK COMPETITION
MICROFINANCE INSTITUTIONS
WILLINGNESS TO PAY
PUBLIC CREDIT
SMALL-BUSINESS
SMALL BUSINESS
INTERNATIONAL FINANCE
LOAN APPLICANTS
CREDIT UNIONS
FINANCIAL INSTITUTION
LOAN DEFAULTS
COMMERCIAL BANK
CONSUMER CREDIT
CREDIT BUREAUS
UNION
FINANCES
LENDING DECISIONS
CREDIT SCORES
PAYMENT
BUSINESS LOAN
FINANCIAL INSTITUTIONS
DEBT
LIMITED ACCESS
LENDERS
GOOD CREDIT
LOANS
ENTERPRISES
PROPRIETARY INFORMATION
APPLICATION PROCESS
FINANCIAL SYSTEM
FINANCE
BANKS
UNIONS
LOAN REPAYMENT
CREDIT DECISIONS
FORMAL FINANCIAL INSTITUTION
FEDERAL RESERVE
CREDIT CONSTRAINTS
CREDIT-SCORING
BUSINESS MANAGEMENT
CAPITAL
FEDERAL RESERVE BANK
CREDIT HISTORY INFORMATION
SMALL ENTERPRISES
BUSINESS CREDIT
FAMILY
ACCESS TO FINANCE
GENDER
BANK
CREDIT
WORKING CAPITAL
REPAYMENT
POTENTIAL LENDERS
CREDIT INFORMATION
CREDIT HISTORIES
PROPERTIES
LOAN PORTFOLIO
CREDIT REPORTING
JOB CREATION
PAYMENT HISTORY
ACCESS TO LOANS
ASSETS
SMALL BUSINESS OWNERS
DEFAULT
EMPLOYERS
CREDIT BUREAU
MICROCREDIT
PROFITABILITY
CREDIT RISK
ACCESS TO CREDIT
MICROFINANCE
ECONOMIC DEVELOPMENT
FINANCING OBSTACLES
FUTURE—CASH FLOWS
BANK LOANS
BUSINESS OWNER
SMALL BUSINESS CREDIT
FINANCIAL INTERMEDIATION
ID
BANKRUPTCIES
BALANCE SHEETS
CREDIT- SCORING
LOAN SIZE
FINANCE CORPORATION
LARGE FIRMS
NET WORTH
MARITAL STATUS
COMMERCIAL LENDING
RISK MANAGEMENT
LENDING
CREDIT APPLICANTS
ENTREPRENEURIAL FINANCE
ENTREPRENEUR
ARREARS
CREDIT HISTORY
FINANCIAL CONSTRAINTS
FORMAL CREDIT
SMALL BUSINESSES
CREDIT REGISTRY
CASH FLOW
DEVELOPMENT BANK
CREDIT APPLICATION
EMPLOYEES
Arráiz, Irani
Bruhn, Miriam
Stucchi, Rodolfo
Psychometrics as a Tool to Improve Screening and Access to Credit
geographic_facet Peru
relation Policy Research Working Paper;No. 7506
description This paper studies the use of psychometric tests, which were designed by the Entrepreneurial Finance Lab as a tool to screen out high credit risk and potentially increase access to credit for small business owners in Peru. The analysis uses administrative data covering the period from June 2011 to April 2014 to compare debt accrual and repayment behavior patterns across entrepreneurs who were offered a loan based on the traditional credit-scoring method versus the Entrepreneurial Finance Lab tool. The paper finds 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. For unbanked entrepreneurs—those without a credit history—using the Entrepreneurial Finance Lab tool can increase access to credit without increasing portfolio risk.
format Working Paper
author Arráiz, Irani
Bruhn, Miriam
Stucchi, Rodolfo
author_facet Arráiz, Irani
Bruhn, Miriam
Stucchi, Rodolfo
author_sort Arráiz, Irani
title Psychometrics as a Tool to Improve Screening and Access to Credit
title_short Psychometrics as a Tool to Improve Screening and Access to Credit
title_full Psychometrics as a Tool to Improve Screening and Access to Credit
title_fullStr Psychometrics as a Tool to Improve Screening and Access to Credit
title_full_unstemmed Psychometrics as a Tool to Improve Screening and Access to Credit
title_sort psychometrics as a tool to improve screening and access to credit
publisher World Bank, Washington, DC
publishDate 2015
url http://documents.worldbank.org/curated/en/2015/12/25516966/psychometrics-tool-improve-screening-access-credit
http://hdl.handle.net/10986/23471
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