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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| Format: | Working Paper |
| Language: | English en_US |
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World Bank, Washington, DC
2015
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| Online Access: | 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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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 |
| _version_ |
1764453936249438208 |