Scotiabank to use psychometrics to evaluate SME loan applicants

Scotiabank to use psychometrics to evaluate SME loan applicants

BY KARENA BENNETT Business reporter

Tuesday, February 16, 2016

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Scotiabank Jamaica is now in the process of analysing the results of credit behaviour from tested information collected over the past two years as the bank seeks to increase financing options available to SMEs.

The commercial bank pilot programme, dubbed Scotiabank Enterprise-Wide Risk Management and Financing (SERMAF) Programme, aims to enhance entrepreneurs’ likelihood of receiving credit through a risk management and risk-rating model that uses psychometric tools to evaluate each entrepreneur’s credit behaviour.

Based on results, the credit behaviour of SMEs will be incorporated in the accessing loans from the Bank. Ultimately, the Bank wants to have SME loans financed on psychometrics.

"The results show that psychometrics can provide invaluable information about credit worthiness of SMEs. We are in the process of analysing the results to determine how best to use psychometrics to supplement our existing small and medium enterprise business credit policies," director of Scotia’s professional partnerships SME Pamela Douglas told the Jamaica Observer in an emailed response.

She added that it is difficult to establish a timeframe for when the project will be fully implemented, noting: "Once the analysis is fully completed then we will know definitively the next step."

far, 1008 individuals have been studied on their behaviour through the use of short, open-ended questions related to ethics, attitudes, skills and intelligence. SME-specific elements for both male and female-owned businesses were also incorporated, as the Bank seeks to reach more women-owned businesses. This was based on studies concluding that the average loan disbursement to men was higher than that to women.

The SERMAF programme was signed off on back in 2013, at a cost of US$970,000 funded by the Inter-American Development Bank (IDB) Multilateral Investment Fund, Development Bank of Jamaica and Scotiabank. It has been executed over a 24-month period.

SERMAF Risk Rating Consultant, Vanus James, in his review noted that psychometric indicators were very significant in explaining business efficiency, and in turn, the riskiness of businesses in Jamaica.

According to Scotiabank, this kind of risk assessment will inform not only the business’s capacity to repay loans — which has been the traditional focus of financial institutions — but also their willingness to repay loans. It has marked the beginning of a significant step in the financing landscape of small businesses.

"While we have not identified a pool of funds specifically for this initiative, it is one approach that we will explore in the short term," Douglas told the Business Observer.

The initiative has already resulted in the psychometric profiled database of more than 1,000 SMEs including their gender, credit, participation in the banking system, financial status, location, employment, registration status, business failure rate and age — 150 of which have been supported in capacity building services including internet entrepreneurship training, business planning and business mentorship coaching.


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