EFL makes India entry; provides credit scores to entrepreneurs, SMEs

Within the vision to transform the banking sector, Deputy Governor, Reserve Bank of India (RBI)  Dr. K.C. Chakrabarty, stated the importance of the MSME sector in fuelling larger economic growth. “MSMEs play a pivotal role in generating employment, increasing cross-border trade and fostering the spirit of entrepreneurship,” he said.

There are an estimated 26 million enterprises that contribute to 40% of India’s exports, 45% of manufactured output, and 8% of GDP and employ almost 60 million people. In contrast, almost 93% of MSMEs are excluded from the formal financial sector, limiting their potential growth.

The RBI cites that part of the reluctance of the formal financial sector to extend credit to micro and small enterprises arises from lenders’ inability to assess the potential of applicants with thin credit histories.

The Entrepreneurial Finance Lab (EFL), an analytics and technology firm, founded at Harvard University, fills this credit gap to self-employed individuals and micro and small enterprises. Through leveraging psychometric principles, EFL is able to generate a credit score for any entrepreneur.

EFL partners with some of the largest lenders across 20 emerging markets, including India. Lenders use EFL’s innovative credit-scoring technology to expand their MSME portfolios, decrease defaults and improve operational efficiency.

Emily Silberstein, Head Asia, states, “We calibrate our analytical model to reflect the differences in cultural contexts. The preliminary Indian model is proving to be highly predictive of applicant default. As we continue to collect more data, the model becomes more refined, incorporating nuances of the diverse regions and cultures of India.”

 
Upon entering the Indian market in March of 2013, EFL has partnered with several lending institutions including Janalakshmi Financial Services (JFS), a large Indian NBFC serving the urban under-banked.

Ram Ramdas, CEO, Jana Urban Foundation (JFS holding company), explains, “We are proud to be the forerunners in using psychometric credit evaluations for entrepreneurs in India. Our partnership with EFL has come at an important growth point in the company, where additional transparency in applicant risk assessment enables us to serve more of the under-banked urban population of India."