Andrée Simon: Psychometric Credit Scoring Helps Reach Unbanked

In a new op-ed titled “New Ways to Keep Score”, FINCA Impact Finance (FIF) President & CEO Andrée Simon discusses the power of psychometric credit scoring to empower entrepreneurs in developing countries.

Writing in PaymentsJournal, Simon recognizes that fintech and digital financial services have made banking possible for more people around the world. But while bank accounts and digital payments are more available, for many entrepreneurs in low-income countries, getting a loan is more difficult. For someone with no credit history, proving creditworthiness can be a problem.

Psychometric credit scoring, a way of assessing creditworthiness that relies on personality testing, can help. Writes Simon:

We can get much of the information we need using psychometric credit scoring, which relies on personality testing rather than repayment history. And while “psychometric” may sound innovative and complex, it’s based on a simple premise. A given borrower’s likelihood to repay depends in large part on personal and behavioral traits. We can assess those traits by asking the right questions.

This can be very impactful for someone with no formal credit history:

For borrowers, the benefits can be massive. For a small factory owner buying new equipment or a shopkeeper looking to expand her range of products, a small loan can make a life-changing difference. Psychometric credit scoring is especially impactful when you consider that a large proportion of those with no borrowing history are young—the very people with the most economic potential.”

FIF is using psychometric credit scoring to expand financial inclusion in Guatemala and Honduras, two countries in need of financial inclusion:

Last year [2018], we formed a partnership with CreditInfo to use their psychometric model in both Guatemala and Honduras. According to the World Bank’s Findex report, only 45 percent of adults in Honduras have a bank account and even fewer, 12 percent, have ever borrowed money from a financial institution. In Guatemala, those figures are event lower. Psychometrics can help us reach more people without taking on higher levels of risk.

Read the full op-ed here:

New Ways to Keep Score