MasterCard and Entrepreneurial Finance Lab (EFL) are offering a reputation-based scoring system to improve credit underwriting for unbanked small businesses, a move designed to increase non-cash payments in developing countries.
Small business in these markets are often shut out of the financial system because they lack traditional prerequisites for finance, such as credit bureau and bank performance information. EFL uses a psychometric risk-scoring technology in vetting process that includes business acumen, honesty and integrity.
"There is a huge challenge in the developing markets in that small businesses don't have the data," says Ed Glassman, group executive of global commercial products and solutions at MasterCard.
Issuers will use the alternative scores to vet businesses for credit cards that can be used to pay for goods and services. "Every small business is looking for added cash flow, and the fact that this is a payment card will also allow businesses to make electronic payments," Glassman says.
EFL's model is based on Harvard research into the attributes of successful entrepreneurs, says Dennis DiDonna, cofounder and chief operating officer of EFL. "They model quantified behavior, looking at optimism, desire, motivation and even intelligence," he says.
The MasterCard/EFL program is offered in Latin America, Southeast Asia, the Middle East and Africa. By using EFL's credit scoring tool, small businesses can qualify to join a payments network, which allows them to reduce cash paymentswhich are considered risky in a number of emerging markets. The first announced client is Bunco BHD of the Dominican Republic, a card issuer that is using the system to vet small and medium sized applicants of MasterCard business credit cards.
On the consumer side, digital payments and mobile money programs have proven to be an effective way to introduce financial services to unbanked regions and developing markets. MasterCard also has a partnership with Western Union to provide tax prep, prepaid services and remittance programs in developing markets. The companies also support international business payments.