Pakistani-American Prof's Tool Helps SME Financing in Emerging Economies
Pakistani-American Prof. Asim Khwaja and his doctoral student Bailey Klinger at Harvard’s Kennedy School of Government observed that banks have money to lend, but even profitable small businesses in developing nations often cannot access it, choking growth. Prof Asim Khwaja of Harvard's Kennedy School Looking into the reasons, they found it was the lack of access to tools like credit agency reports and FICO credit scores which are common in developed economies. This discovery gave birth to Entrepreneurial Finance Lab to develop alternative tools for bankers to assess risks to lend money to small business owners. Their basic tool is a multiple-choice psychometric test. Here's how New York Times describes it: The lab’s model asks questions that do not necessarily have a right answer; using an algorithm, it aims to predict whether an individual is likely to default based on how the answers relate to one another. For example, to assess their sense of personal control o...