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Are psychometric tools a viable screening method for small and medium-size enterprise lending ? evidence from Peru

Author

Listed:
  • Arraiz,Irani
  • Bruhn,Miriam
  • Ruiz Ortega,Claudia
  • Stucchi,Rodolfo Mario
  • Arraiz,Irani
  • Bruhn,Miriam
  • Ruiz Ortega,Claudia
  • Stucchi,Rodolfo Mario

Abstract

This study collaborated with the Entrepreneurial Finance Lab and a large bank in Peru to use psychometrics for small and medium-size enterprise lending. Applicants used a psychometric tool and those who achieved a score higher than a threshold were offered a loan. Using a regression discontinuity design and credit bureau data, the study finds that the tool increased small and medium-size enterprise loan use by up to 59 percentage points for applicants without a credit history, without leading to worse repayment behavior. This increase in borrowing resulted primarily from financial institutions other than the partner bank. For applicants with a credit history, the tool did not increase small and medium-size enterprise loan use.

Suggested Citation

  • Arraiz,Irani & Bruhn,Miriam & Ruiz Ortega,Claudia & Stucchi,Rodolfo Mario & Arraiz,Irani & Bruhn,Miriam & Ruiz Ortega,Claudia & Stucchi,Rodolfo Mario, 2017. "Are psychometric tools a viable screening method for small and medium-size enterprise lending ? evidence from Peru," Policy Research Working Paper Series 8276, The World Bank.
    • Handle: RePEc:wbk:wbrwps:8276
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    Citations

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    Cited by:

    1. Woodruff, Christopher & De Mel, Suresh & McKenzie, David, 2019. "Micro-equity for Microenterprises," CEPR Discussion Papers 13698, C.E.P.R. Discussion Papers.
    2. Arráiz, Irani & Bruhn, Miriam & Roth, Benjamin N. & Ruiz-Ortega, Claudia & Stucchi, Rodolfo, 2021. "Borrower leakage from costly screening: Evidence from SME lending in Peru," Journal of Development Economics, Elsevier, vol. 153(C).
    3. Luisa Roa & Alejandro Correa-Bahnsen & Gabriel Suarez & Fernando Cort'es-Tejada & Mar'ia A. Luque & Cristi'an Bravo, 2020. "Super-App Behavioral Patterns in Credit Risk Models: Financial, Statistical and Regulatory Implications," Papers 2005.14658, arXiv.org, revised Jan 2021.

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