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> Posted by Danielle Piskadlo, Manager, Investing in Inclusive Finance, CFI
It is an exciting time at the nexus of technology and financial services. For assessing creditworthiness, for example, there are now tools available that move beyond traditional methods. Financial service providers are able to identify high potential, low risk entrepreneurs through Entrepreneurial Finance Lab’s (EFL) psychometric testing, which assesses a borrower’s character, abilities, and attitude. DemystData uses the big data available about potential customers to help financial service providers evaluate and validate their loan applications. Along with these two groups, there are many more entering this space, harnessing technologies and data types once separate from financial services to better understand potential clients.
In recent news, banks in Russia are now using GPS to assess borrowers’ credit ratings. Yet-to-be-disclosed banks in Russia have signed an agreement with AlterGeo, the “Foursquare of Russia,” to build a “picture” of users through their location services. At this time it remains unclear what specific information will be collected and how it will be assessed.
> Posted by Mary Hansen, Organizational Development and Training Associate, Accion
842 million people struggle through the hunger games yearly. The games begin as food and money run low sometime before harvest and last until the first ripe crops. This is better known as los meses flacos, the thin months, in Latin America. Or as I knew it in East Africa, wanjala in Swahili and nyengo yonjala in Chichewa (the hunger season). These recurring hunger games are not state sponsored and the participants do not fight each other to the death, but they do fight individuals, families, or communities to survive. Every day, 25,000 people around the world die from hunger-related causes, including 16,000 children. That’s one child every five seconds.
The regions deeply affected by hunger depend heavily on smallholder farming. Around 75 percent of the world’s poor are smallholder farmers. Half of the world’s undernourished people, including three-quarters of Africa’s malnourished children and the majority of those living in absolute poverty live on small farms.
Many of these farmers face the struggle of the hungry season. To understand their situation, consider how you would budget if you were only paid a few times a year.
Personally, I struggle with budgeting when paid twice a month. When I was in the Peace Corps in Malawi and was paid monthly, I struggled even more. Yet, smallholder farmers often receive payment only during harvest, or twice a year. I still do not fully understand how families survive with this income structure, even though I lived in a rural town in Malawi for two years. Yet, this is the reality for many of the 2.5 billion people that depend on smallholder agriculture for their livelihoods.
> Posted by Bailey Klinger, Asim Ijaz Khwaja, and DJ DiDonna, Co-Founders and COO, Entrepreneurial Finance Lab
The recent Financial Inclusion 2020 conference took a very private-sector focus to financial inclusion, with headliners such as Citigroup and MasterCard CEOs, demonstrating the shared importance of financial inclusion across all types of institutions. It also illustrated the enormity of the problem at hand, and subsequently the proximity of the year 2020 by which to address it. Participants agreed that an integral aspect of this gap is solving the puzzle of how financial institutions can evaluate risk for information-scarce micro, small, and medium-sized enterprises (MSMEs), and do so while keeping transaction costs low.
Industrial and organizational psychology has been working for decades on a problem with similar characteristics: how to screen people applying for jobs. Firms must decide which individuals to hire, often based on little available information. Moreover, firms must evaluate a large number of applicants in a low-cost way, particularly for entry-level positions. In response to this challenge, industrial psychology has developed a series of assessments of individuals that predict a person’s future success in a job in an objective, quantitative, scalable way. This field, which assesses skills, abilities, personalities, and intelligence, is known as psychometrics.
Our innovation at the Entrepreneurial Finance Lab (EFL) is to use psychometrics to assess an assortment of features of potential entrepreneurs and to bring this testing method to developing countries. Starting as a research project at Harvard in 2010, we have developed a 30-60 minute automated psychometric application that incorporates the potential borrower’s attitude and outlook, ability, business acumen, and character. It can measure risk without relying on business plans, credit history, collateral, or group liability.
> Posted by Arielle Salomon, Account Manager, Entrepreneurial Finance Lab
Providing financial services to entrepreneurs is a challenging operation in developing countries where small businesses may be isolated in a rural village without reliable roads or internet coverage. Service providers must pay the high costs of employing staff to reach out to remote villages while capturing limited revenue from small-scale products. Yet entrepreneurs in these regions need tools like credit and insurance to make investments and grow their businesses as just as do their counterparts in more developed regions.
Mobile phones are changing the financial landscape helping to expand the possibilities of service models. With novel mobile solutions to bridge the financial access gap, innovators can provide entrepreneurs with new tools and opportunities to support their businesses.
Here are a few cutting-edge models rendering financial services more portable:
Portable Bank. Opportunity International (OI) is putting its bank on wheels. With a portable bank that offers savings, loans, and other such financial services regularly circulating within walking distance of clients’ farms or small businesses, entrepreneurs do not have to miss out on business to trek to the bank. OI is developing these portable bank branches in locations around the world. OI also offers electronic wallets that allow customers to make deposits on mobile phones. With this cashless solution, the bank reduces both the risk of client theft/robbery and also the likelihood of staff fraud. OI’s electric wallets are currently in use in Malawi and seven other African countries.
Portable Credit. The Entrepreneurial Finance Lab (EFL) is helping banks, MFIs, and other partners improve operations with portable technology. Not only can loan officers complete credit applications electronically on a mobile phone or tablet, but they can also collect photos and the precise location of their clients with the use of mobile GPS. With near-real-time scoring of the EFL Tool, an application that captures the ability and willingness of customers to repay a loan, banks have the opportunity to pre-approve clients on the spot. The improved efficiency of automated data collection and credit assessment decreases service turnaround time and increases credit access. The EFL Tool has been used in over 20 countries to date and has processed over 50,000 credit applications. Read the rest of this entry »
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