19 Aug 2016
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Lending a Hand to Small Businesses in Emerging Markets


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In emerging markets, where traditional credit scores are rare, how can lenders decide who is creditworthy? Just ask, says DJ DiDonna (MBA 2010), cofounder and chief strategy officer of the for-profit Entrepreneurial Finance Lab. The company has developed a 20- to 30-minute credit test that gives lenders a better understanding of both the skills and the personality of loan applicants.

Based on psychometrics research conducted at the Harvard Center for International Development, the questions on this test seek not to mimic the data collection behind a conventional credit score, but rather to do the more sophisticated due diligence of a venture capital deal. “It’s asking a lot of the same questions that you would try to tease out in a conversation with someone. Are they reliable? Are they confident? Are they optimistic?” says DiDonna.

With this type of information, lenders are more inclined to make the type of small business loans—just $5,000 for working capital or $20,000 for machinery—that can help grow developing economies.

In its first six years, Entrepreneurial Finance Lab administered 500,000 tests, which became the basis for lending approximately $1 billion in developing countries, including Kenya, India, Indonesia, and Peru.

“Most of those people would not have had access to finance otherwise,” says DiDonna. “Now they can fulfill their potential.”

(Published August 2016)

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Class of MBA 2010, Section E
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