Do the belief, attitudes, and personality of business owners or managers matter in determining the probability of business success and the creditworthiness of the enterprise?
Winsome Leslie is the Multilateral Investment Fund's regional supervisor for the English-speaking Caribbean and Haiti. Previously, she was the economic attaché at the Embassy of Jamaica in Washington, D.C. She has a PhD in International Relations from Columbia University.
Do the belief, attitudes, and personality of business owners or managers matter in determining the probability of business success and the creditworthiness of the enterprise? And if so, could this "psychological capital" be leveraged as a predictive tool not only for credit appraisal decisions, but also to provide broader support to small businesses? Pioneering work done in Jamaica suggests that it could.
The use of psychometric tools in pre-employment screening is now an established practice among human resource professionals. Applying a similar logic to the identification of entrepreneurs with the capacity and willingness to successfully manage a credit relationship with financial institutions has been gaining traction. This is particularly the case in developing economies, where many small and micro entrepreneurs have limited amounts of capital, and thus are unable to meet the collateral requirements for accessing finance from commercial banks.
The Entrepreneurial Finance Lab (EFL)has tested various psychometric instruments on more than 2,000 entrepreneurs across Africa and Latin America. EFL's psychometric credit-scoring tool focuses on a psychological profile--the entrepreneur's attitudes and beliefs, performance, and integrity. This has established the fundamentals for the emergence of the concept of "psychological collateral"--the psychological dispositions that affect business success and probability of loan repayment. EFL has pilot tested this concept in Peruand Haiti with the support of the Multilateral Investment Fund (MIF) of the Inter-American Development Bank Group.