Personality can be a factor in identifying good credit clients, according to IDB Invest

  • New study analyzes the results of the use of a psychometric tool to evaluate credit risk in a pilot with almost 2,000 MSME
  • The analysis found that through the tool, 72 percent of MSME with no credit history were granted a loan within the first six months

A new study by IDB Invest, Are Psychometric Tools a Viable Screening Method for Small and Medium Enterprise Lending?, explains the potential of alternative approaches that assess the personality, intelligence and character of people without credit history who apply for loans from banks to determine their repayment potential.

In Peru, this methodology was implemented in a bank that wanted to expand its portfolio of micro, small and medium enterprises (MSME). The study found that entrepreneurs without a credit history and who received a rating above the established threshold were almost four times more likely to be granted a loan.

Approximately 20 percent of the applicants analyzed would not have received a loan offer from the bank based only on conventional evaluation methods.

The tool was applied in Peru for commercial use through the combined work of IDB Invest, the Multilateral Investment Fund and the Entrepreneurial Finance Lab.

As part of this pilot, IDB Invest provided a risk-sharing guarantee to the bank to cover part of its new credit exposure.

The financing gap for MSME in Latin America and the Caribbean was estimated at $1.2 trillion in 2017, almost a quarter of the total for global emerging markets.

These alternative tools offer a practical solution for commercial banks, particularly in countries where credit bureaus are in the process of consolidation.

About IDB Invest
IDB Invest, the private sector institution of the Inter-American Development Bank (IDB) Group, is a multilateral development bank committed to supporting businesses in Latin America and the Caribbean. It finances sustainable enterprises and projects to achieve financial results that maximize economic, social and environmental development for the region. With a current portfolio of $11.2 billion under management and 330 clients in 23 countries, IDB Invest works across sectors to provide innovative financial solutions and advisory services that meet the evolving demands of its clients. As of November 2017, IDB Invest is the trade name of the Inter-American Investment Corporation.