The SME Opportunity

Bailey Klinger, CEO of the Entrepreneurial Finance LabFelaban ConferenceNovember 18, 2012

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And how to capture it with new screening tools

Why Do So Few SMEs Receive Loans?

Potential clients

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SME Loan Approvals

Potential clients Self-selection reduces

applications

SME Finance Challenge

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Potential clients Self-selection reduces

applications

Loan officers decide not to present

potential applicants

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SME Finance Challenge

Self-selection reduces

applications

Loan officers decide not to present

potential applicants

Formal credit screening

Potential clients

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SME Finance Challenge

Potential clients Self-selection reduces

applications

Loan officers decide not to present

potential applicants

Formal credit screening

SME Loan Approvals

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SME Finance Challenge

EFL provides psychometric credit scores for any

entrepreneur. Banks use EFL to expand their SME portfolio and

improve control over risk.

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EFL’s SME Solution

The questionnaire takes 45 minutes to complete,

EFL’s SME Solution

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EFL questionnaire is administered

The questionnaire takes 45 minutes to complete,

and can be taken on aPC or a Tablet,

EFL’s SME Solution

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EFL questionnaire is administered

The questionnaire takes 45 minutes to complete,

and can be taken on aPC or a Tablet,

with or without an internet connection.

EFL’s SME Solution

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EFL questionnaire is administered

The questionnaire takes 45 minutes to complete,

and can be taken on aPC or a Tablet,

with or without an internet connection.

EFL’s SME Solution

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Analyzes: Honesty, Business Skills, Attitudes & Intelligence

EFL questionnaire is administered

Ethics & Honesty

37. Other people’s opinions are not important.

True False

Analysis of Borrower

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Business Skills

101. Which of the following should you take into account when calculating costs?

Rent Inventory

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Analysis of Borrower

12. A big part of success is luck.

True False

Attitudes & Beliefs

Analysis of Borrower

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78. Remember this number for

5 seconds, then repeat it: 823460

Right Wrong

Fluid Intelligence

Analysis of Borrower

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EFL sorts applicants from safest to most risky and banks choose who to accept

EFL Scores Applicants

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Developed based on:40 years of academic research on entrepreneursPre-employment screening tools used successfully by over a

third of US companies

Psychometric Credit Scoring

“Being computerized [psychometric tests provide], a simple and low cost, it is ideal for use by small-scale entrepreneurs lacking the traditional credit scoring inputs.”

“Credit-scoring complemented by the use of psychometric testing to assess an SME’s willingness to pay and ability to absorb the loan.”

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RESULTS

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Champion Challenger

Bank credit risk target:10%

Loan given: If EFL or the Bank said “Yes”

% of Portfolio NPL Bank Yes Bank No

EFL No

# Loans Bank Yes Bank No

EFL No

+64% of new loans classified as EFL “Yes” and Bank “No,” meaning they were inaccessible without EFL

Percentage of Non-Performing Loans

Number of Clients

4.1%

12.6% 20.1%

166

138 123

EFL Yes 9.9%

EFL Yes 529

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Currently Accepted

EFL Results

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Currently Accepted

Increased Approvals

One bank increased approvals of applicants that they would have rejected by 251%, while maintaining their target PD.

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EFL Results

Currently Accepted

Increased Approvals

Loan officers present more than double the number of applicants knowing that they can now be scored.

More good clients presented by loan

officers

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EFL Results

More good clients presented by loan officers

Currently Accepted

Increased Approvals

Requirements Streamlined

Mexican bank started approving loans to firms with less than 2 years of documentation.

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EFL Results

More good clients presented by loan officers

Currently Accepted

Increased Approvals

Requirements Streamlined

Foot traffic to African bank increased by 3x as more people heard they could get loans.

More potential clients come through

the door

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EFL Results

EFL History

Harvard researchers and EFL co-founders Bailey Klinger and Asim Khwaja developed a credit screening tool for unbanked SMEs2006

2008 Received a grant from Google.org and SNV Latin America to launch the Entrepreneurial Finance Lab project

The Entrepreneurial Finance Lab became an independent, private organization 2010

2011

Winner 2012 African Business Award for Innovation1.7M+ USD in Lending per Week44,000+ EFL Applications

2012

G-20 Award: One of the most innovative solutions to SME finance in the world. With IFC & G-20 assistance, major global expansion

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Where is EFL Today

Partner

EFL Offices

26

Other Partners:

THANK YOUEFL Global

Calle Mártir Olaya

129 Oficina 1002

Miraflores, Lima, Peru

EFL USA

Harvard Innovation Lab

125 Western Ave

Allston, MA 02125

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EFL Brazil

Avenida Cidade Jardim

400 20º andar.

CEP: 01454-000 Jardim

Paulistano. Brazil

EFL South Africa

286 Fox St

CBD, Johannesburg, 2094