Access to finance remains a challenge for some micro, small, and medium-sized
enterprises (MSMEs) in Peru, particularly informal enterprises with no borrowing
history in the formal financial system. Lenders lack the tools to reach these
borrowers with sufficient scale and control over risk due in part to the
shortcomings of current screening technologies. For this paper, the authors carried
out a pilot test of an innovative psychometric tool aimed at evaluating credit risk
for business owners seeking a loan from Financiera Confianza, the fourth largest
Empresa Financiera in Peru. Applicant responses were compared to self-reported
sales, subsequent loan repayment performance, and credit bureau data to
determine if psychometric-based credit scoring models could reduce the
constraints on MSME finance. The authors created a scorecard based on that
information using data from other countries and evaluated its effectiveness on this
sample. It achieved a Gini coefficient of between 20 and 40 percent. Those
MSMEs rejected by a psychometrically enhanced application scorecard with this
Gini coefficient have a probability of defaulting that is up to four times greater
than those accepted by the scorecard. Along with other policies to reduce
information asymmetry in MSME lending, such a tool could help relieve
constraints on MSME finance in Peru.