Enterprising Psychometrics and Poverty Reduction

Khwaja, Asim; Klinger, Bailey; del Carpio, Carlos (2013)


Khwaja, Asim, Bailey Klinger, and Carlos del Carpio. 2013. Enterprising Psychometrics And Poverty Reduction. Cambridge: Entrepreneurial Finance Lab.
Over 300 million entrepreneurs in developing countries need access to credit to expand their businesses and fuel economic growth, but without credit history and collateral, banks are unable to evaluate their risk. Psychometric tools can help solve this problem, as high-growth low-risk business owners share characteristics that these tools can detect. We administer a credit application with psychometric content to 1500 entrepreneurs across four countries in Africa and Latin America, and show relationships are statistically significant and collectively can distinguish differences in credit risk of 50%. The results shed further light on the drivers of entrepreneurial performance, and point to practical tools that, when combined with the right modeling techniques, enable profitable lending and entrepreneurial growth where it is needed most.