Psychometrics as a Tool to Improve Screening and Access to Credit

38 Pages Posted: 20 Apr 2016

See all articles by Irani Arraiz

Irani Arraiz

InterAmerican Development Bank

Miriam Bruhn

World Bank - Development Research Group (DECRG)

Rodolfo Stucchi

InterAmerican Development Bank

Date Written: December 3, 2015

Abstract

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.

Keywords: Financial Structures

Suggested Citation

Arraiz, Irani and Bruhn, Miriam and Stucchi, Rodolfo, Psychometrics as a Tool to Improve Screening and Access to Credit (December 3, 2015). World Bank Policy Research Working Paper No. 7506, Available at SSRN: https://ssrn.com/abstract=2698969

Irani Arraiz (Contact Author)

InterAmerican Development Bank ( email )

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Miriam Bruhn

World Bank - Development Research Group (DECRG) ( email )

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Rodolfo Stucchi

InterAmerican Development Bank ( email )

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Washington, DC 20577
United States
+1 (202) 5237619 (Phone)

HOME PAGE: http://https://www.sites.google.com/site/rodolfostucchi/

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