Enterprising Psychometrics and Poverty Reduction

Bailey Klinger is CEO & co-founder of the Entrepreneurial Finance Lab. He is the original co-inventor of the EFL technology, and has led both the research and business initiatives to bring that technology to the market. His previous research has centered on entrepreneurship, structural transformation, and private sector growth in developing countries, and he has been published in leading Journals such as Science and the Journal of the Economics of Transition. Bailey has performed extensive field research throughout Latin America, Africa and Asia, and consulted for the World Bank, United Nations and Inter-American Development Bank as well as various other national governments and international organizations. Bailey has a Masters in Public Administration in International Development from the Kennedy School of Government, and a PhD in Public Policy from Harvard University. Asim Khwaja is co-founder of EFL and Chairman of the Board. He is also professor of Public Policy at the Harvard Kennedy School of Government. His areas if interest include economic development, finance, education, political economy, institutions, and contract theory/mechanism design. His research has been published in the leading economics journals, such as the American Economic Review and the Quarterly Journal of Economics, and has received coverage media outlets such as the Economist, NY Times, Washington Post, Al-Jazeera, BBC, and CNN. Asim received BS degrees in economics and mathematics with computer science from MIT and PhD in economics from Harvard. Carlos del Carpio is Head of Analytics in EFL's Lima office, responsible for data quality control, analysis, and model building. Prior to joining EFL, Carlos worked for the largest commercial bank in Perú where he developed credit risk models for corporate clients using a variety of credit scoring technologies. Carlos has research experience in credit and market risk modeling, as well specialized training in financialeconomics and applied econometrics. He holds a B.A. in economics from Pontificia Universidad Católica del Perú.

• Innovations in Poverty Reduction: An Introduction.- The Development Problem.- A Psychology-Enabled Solution to small and medium-sized enterprise finance.- Methodology.- Results and Discussions.

"This book is of particularly importance for all those who are interested in the question how micro-credits can be given to individual micro-entrepreneurs in developing countries. The problem for the bank is that there is no credit-history of the micro-entrepreneur and the amount of credit is too small to warrant a detailed evaluation of a business plan. Most often there will also not be a business plan that can be evaluated. What to do? The three economists provide a very sensible and important answer: Evaluate the person him- or herself by psychological tests. Two issues are important for paying back the loan: First the person must be able to build a good enterprise and make enough money to pay back the loan. Second, the person must be willing to pay back the loan. Psychological research on entrepreneurship has made enough headway to provide good data for understanding which person characteristics lead to good entrepreneurial success. Moreover, there has been a long tradition to evaluate a person's integrity to understand whether somebody is willing to cheat others by not paying back a loan. The authors take these issues as their starting point and describe how they produce the results. This is practical and useful. Recently the New York Times has written a long piece on the company build by these three authors and how successful they have been in helping banks to help micro-entrepreneurs to get the resources to be able to succeed. This is a "must-read" book for anybody who is interested to advance sustainable credits for micro-entrepreneurs." Prof. Michael Frese, NUS Business School, Singapore