MasterCard (NYSE:MA) and the Entrepreneurial Finance Lab (EFL) today announced a global partnership to promote small business (SMB) growth in developing countries.
The partnership, signed during a ceremony at the SIBOS Conference in Dubai, provides international issuers in developing markets with new tools to help improve credit underwriting for unbanked small businesses. The cost-effective approach to screening and risk evaluation increases SMBs' access to capital, unlocking entrepreneurial potential and driving economic growth around the globe.
Throughout emerging markets, SMBs are often shut out of the financial system due to a lack of traditional prerequisites for finance, including reliable credit bureau and bank performance information being available to financial institutions. EFL's psychometric risk-scoring technology narrows the financing gap for high potential, growth-generating SMBs, by providing a unique vetting process that evaluates business acumen, honesty and integrity. Through the partnership with EFL, MasterCard is extending its strategic mission of financial inclusion across all customer segments and regions.
"Around the world, SMBs lack access to low cost financing, and banks are handcuffed from lending by lack of data on them. In developing countries, only 20 percent of SMBs have a positive bank performance while only another 20 percent have credit bureau references," said Ed Glassman, Group Executive, Global Commercial Products & Solutions at MasterCard. "With EFL's innovative credit scoring tool, even the smallest business will be able to join a payments network, avoiding the inefficiencies and risks of checks and becoming able to compete for the same customers as the largest global retailers."
Among the first banks to benefit from the partnership is Banco BHD of the Dominican Republic which will utilize the EFL model to credit score MasterCard small and medium size businesses credit cards in addition to its traditional SMB term loan business. MasterCard and EFL are working globally across Latin America, South East Asia, Mid-East and Africa to promote the use of psychometriic scoring as an alternative to traditional credit scoring where SMB credit underwriting challenges exist.
"Since our inception out of the Harvard University Research Lab in 2010, EFL has enabled close to $200 million in new loans to unbanked small businesses in emerging markets," confirmed D.J. DiDonna, co-founder and Chief Operating Officer of EFL. "Across 26 languages in over 20 countries, EFL's psychometric risk scoring provides new, crucial information which enables banks to lower restrictive lending hurdles for SMBs. EFL partner banks have observed increased lending and profitability along with the new customer-base of underbanked, many of whom enjoy their first risk-product relationship with a formal financial institution."