MasterCard and EFL partner to underwrite unbanked SMEs
MasterCard and Entrepreneurial Finance Lab (EFL) have announced a global partnership to promote small business growth in developing countries. The partnership, agreed yesterday at Sibos, provides international issuers in developing markets with new tools to help to improve credit underwriting for unbanked small businesses.
US-based EFL says it “combines non-traditional data with sophisticated analytics and modelling techniques to deliver highly predictive credit scores via a scaleable technology platform”. The company is one of the finalists in the Swift Innotribe Startup Challenge.
The partnership addresses a considerable problem in emerging markets, where small businesses are often shut out of the financial system because of a lack of traditional prerequisites for finance, including reliable credit bureau and bank performance information.
“Small businesses account for 97 per cent of the world’s business and represent about one third of the world’s payments flows,” said Ed Glassman, group executive, global commercial products, MasterCard (above left, with D.J DiDonna, founder of EFL). “However, they are significantly under-served from a payments perspective.”
EFL’s psychometric risk-scoring technology narrows the financing gap for high potential, growth generating small businesses by providing a vetting process that evaluates business acumen, honesty and integrity. “With EFL’s credit scoring tool, even the smallest business will be able to join a payments network, avoiding the inefficiencies and risks of cheque payments. They will be able to compete for the same customers as the largest global retailers,” said Glassman.
One of the first banks to use the service is Banco BHD of the Dominican Republic, which will use the EFL model to credit score MasterCard small and medium sized businesses’ credit cards, in addition to its traditional small business term loan business. MasterCard and EFL will promote the service in Latin America, South East Asia, the Middle East and Africa to promote the use of psychometric scoring as an alternative to traditional credit scoring where credit underwriting challenges exist.
It is not only large businesses that want to make cross-border payments easily and efficiently, said Glassman. The same is true for small businesses and payments cards can be a very valuable payment mechanism for small businesses, be they suppliers or buyers.