Credit Score, by Multiple Choice

Wednesday, January 8, 2014

No credit? No problem — just take a test.

That’s the message being delivered to more than 70,000 small-business owners in developing countries where credit ratings are rare and many potential entrepreneurs keep their money in cash rather than bank accounts.

Banks in 16 countries are using a psychometric test to predict future behavior — specifically, whether someone will pay back a loan. Originally a Harvard doctoral project, the Entrepreneurial Finance Lab’s test has increasingly won the confidence of risk-averse bankers in places where, many economists believe, credit bottlenecks are severely stunting growth.

Now, a new partnership with MasterCard has potential to speed the model’s proliferation.

Source: New York Times (link opens in a new window)

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Tags
credit scoring, financial inclusion, financial innovation