inclusive credit

Blog | The LenddoEFL Assessment Part 2: Measuring how people answer questions with metadata

By: Jonathan Winkle, Manager of Behavioral Sciences, LenddoEFL

The last post showed how our psychometric content reveals people’s personality traits, but our assessment also captures an abundance of metadata. Metadata is information about how people process the questions and exercises they complete. Here are some examples.

  • How long did an applicant take to answer a question compared to their average response time?

  • How many times did an applicant change their mind and switch their response before submitting their answer?

  • Is the applicant’s information consistent with their written request to the financial institution? (e.g., requested loan amount)

By measuring metadata, LenddoEFL’s approach goes beyond what is possible in traditional credit applications to reveal more information about applicants. Consider the following question from our test:

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For this question, we consider how long it took the applicant to slide to one answer or another and whether they changed their opinions in the middle. Someone who is confident that they are an organized person should move the slider in only one direction and relatively quickly. Quick, smooth answers belie confidence, whereas slow, wavering responses demonstrate uncertainty.

The relationship between response time and default rate can be complex. Consider another psychometric exercise:

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In this case response time was a non-linear predictor of default, where both slow and fast response times were associated with a greater credit risk!

There are many ways to interpret response time metadata. If an applicant answers a question quickly, are they confident or are they cheating? If they are taking a long time to respond, are they having difficulty understanding the question or putting extra effort into getting their answer right? By collecting metadata across all questions, we can compare a single response time to the applicant’s overall response time distribution to differentiate things like confidence and cheating (see graph below).

An example distribution of response times generated from artificial data

An example distribution of response times generated from artificial data

Conclusion

Metadata reveals another layer of behavior on top of the personality traits we target and can be used to identify features such as confidence, cheating, and confusion. These behavioral traits can be used for predicting default and ensuring that we are collecting high quality data for our models.



Blog | On the use (and misuse) of Gini Coefficients in Credit Scoring: Gini and Acceptance Rate

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This is part 3 in a series of blog posts about Ginis in Credit Scoring. Read part 1 and part 2.

The relationship between Gini Coefficients and Acceptance Rate

One of the most frequent uses of Credit Scores is to decide whether to admit or reject an applicant applying for loan. This is usually called an “Admission score” or “Origination score”. A key decision around this use case is the selection of a score cut-off that will determine a threshold for admission. This cut-off value determines the acceptance rate of the population.

If the score is working well and predictive power is good, the relationship between acceptance rate and default rate will be positive. The higher the acceptance rate, the higher the default rate of the accepted population and vice versa. The direction of this relationship also has two implications: when acceptance rate is higher, the absolute number of bad loans (i.e. non-performing loans) or “bads” will also be higher, and the proportion of these “bads” in respect to the total loans in the accepted population will be higher too.

 

What does this mean in practical terms?

It means that the predictive power as measured by a Gini coefficient for the exact same score at different levels of acceptance rate for the exact same population will be different. The higher the acceptance rate, the higher the Gini coefficient and vice versa.

This is something that can be easily tested. If you have a portfolio and a score with good predictive power, you can calculate the Gini coefficient for different score cutoffs or acceptance thresholds and the results should look something similar to this example of a typical credit portfolio:

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So for example, if there is a change in credit policy and the acceptance rate is lowered from 60% to 40%, the Gini coefficient for the same score over the new sample may also be lower. Does that mean the model is not working anymore? Absolutely not. All the contrary, it’s probably just a good signal that the score is doing a good job. Once a change in acceptance rate is implemented, results should be assessed by the change in default rate, not in predictive power.

Bottom-line:  To judge the predictive power of a Credit Score by the means of Gini, you also need to take into account the Acceptance Rate at which the Gini coefficient is measured. Lower Acceptance Rates will tend to have lower Gini coefficients by construction, even if it is the same exact score over the same population.

The fundamental reason behind this phenomenon was discussed in the part 2, where we explained why Gini coefficients should only be directly compared over the exact same data samples, even if the two samples correspond to the same population.


By: Carlos Del Carpio, Director of Risk and Analytics, LenddoEFL

By: Carlos Del Carpio, Director of Risk and Analytics, LenddoEFL

Blog | Lessons from the field: How we created new group psychometrics to increase financial inclusion in Mexico

While Jonathan takes notes, Gerardo helps an applicant navigate our psychometric assessment on a mobile device. An essential component of our field work was to get direct usability feedback from applicants as they completed new psychometric content.

While Jonathan takes notes, Gerardo helps an applicant navigate our psychometric assessment on a mobile device. An essential component of our field work was to get direct usability feedback from applicants as they completed new psychometric content.

By Jonathan Winkle, Behavioral Sciences R&D Manager, LenddoEFL

An experimental psychologist by training, I am relatively new to the world of financial technology. Since joining LenddoEFL, I have embraced terms like information asymmetry, alternative data credit scoring, and financial inclusion. Yet it was only during a recent trip to the field that I was able to meet the people behind the FinTech jargon we use in our day-to-day, the small business owners whose lives we help improve in our mission to #include1billion.

In April of this year, I traveled with colleagues to Veracruz, Mexico to test new psychometric content for one of the top 3 microfinance institutions (MFI) in the country. Their group loan product extends a line of credit to a collection of business owners, but liability for payments is joint: if one person misses a payment, the group must still make that payment in full. Since many of those applying for these loans lack traditional credit histories, this MFI asked LenddoEFL to develop psychometric exercises that could quickly and reliably assess group traits that predict creditworthiness.  

There are traits that define a strong social group which are nonexistent for individual borrowers. A successful group has strong internal relationships that ensure they will help each other in times of need. A tenacious group can generate creative ideas to solve problems that arise when life presents hardships, as it is wont to do. And a cohesive group exhibits decision making abilities that allow it to act deliberately and with confidence. We designed new psychometric exercises to measure these core traits, and tested them in the field with groups of small business owners applying for loans.

Hiding from the Veracruz heat underneath a family’s palapa, Gerardo leads a collection of applicants through our group psychometric exercises while Jonathan makes observations about their behavior.

Hiding from the Veracruz heat underneath a family’s palapa, Gerardo leads a collection of applicants through our group psychometric exercises while Jonathan makes observations about their behavior.

Measuring interpersonal relationships through social pressure
To measure the strength of a group’s interpersonal relationships, we examined the social pressure that exists among group members. Do individuals feel that they can answer sensitive questions honestly? Or do they feel pressure to conform to the opinions of the group majority? While the group was sitting together in one room, we asked them to raise their hands if they agreed with statements about the trustworthiness, fairness, and helpfulness of their local communities. We then asked individuals to answer these questions privately. The discrepancy between how the questions were answered in each setting could reveal how much social pressure exists, and thus how comfortable group members are being honest with each other. We expect that less social conformity means the group’s interpersonal relationships are stronger, an important factor for predicting whether the group will cover individuals who may miss payments throughout the loan cycle.

Measuring creativity through brainstorming
To measure a group’s creativity, we created a set of generative exercises. For both an easy and a hard problem, we had groups brainstorm as many solutions as they could in 60 seconds. The number of solutions generated was recorded as a creativity metric, and, as predicted, groups generated many fewer ideas for the harder exercise. We were also interested in the group’s dynamic as they performed these tasks. Were they apathetic or engaged? Was there a dominant member of the group? Ultimately, when a loan payment is due and some individuals are short on money, can the group come up with ideas for how to get the extra money? We hope that these generative exercises will shed light on this critical group trait.

Gerardo snags a picture with one of the applicants we met and her business, a stand selling eggs, candy, and other sundries. The small scale of some businesses we encountered, such as the one pictured above, reinforces their need for access to financial products. This woman’s entrepreneurial endeavors are only limited by the capital she can acquire.

Gerardo snags a picture with one of the applicants we met and her business, a stand selling eggs, candy, and other sundries. The small scale of some businesses we encountered, such as the one pictured above, reinforces their need for access to financial products. This woman’s entrepreneurial endeavors are only limited by the capital she can acquire.

Measuring decision making abilities through consensus
To measure a group’s decision making abilities, we created a time-to-consensus task. This exercise asks the group to solve a problem where all members must agree on the answer they provide. While we asked the groups to estimate the population of the state they live in, we actually don’t care how accurate their answer is! What’s more important in this exercise is how the group reaches consensus. Are they indifferent and accept the first estimate suggested? Or do they take their time and argue intensely while deliberating over possible solutions? What kind of strategies did they use to reach their estimate? Importantly, this task provides loan officers with a window into the group dynamic that might not otherwise be seen if the assessment merely collected static information such as sociodemographics and business revenues.

Financial inclusion is the mission of LenddoEFL, but working directly with the people we want to include allowed me to better understand how our assessments must be tailored to their cultures and experiences. The better we can measure group dynamics that predict creditworthiness, the more successfully we can extend financial services to those in need. As we continue to expand our credit scoring offerings across the world, looking past the business jargon we use and maintaining empathy for the humans we touch is essential on our path to #include1billion.

 

Yahoo Japan | Can Japanese banks use big data with "AI loan"? (日本の銀行は「AI融資」でビッグデータを活用できるか)

Attempts to calculate the creditworthiness of individuals by AI (artificial intelligence) and to finance using it are expanding. This is called "AI score lending". 

 The meaning of AI doing loan screening, which is one of the most important tasks of banks, is quite large. 

 However, the question is whether Japanese financial institutions can handle big data. If it can not do it, it will repeat the failure of the past score lending. 

Singapore's Lenddo is a service in emerging countries such as India, Vietnam, Indonesia, which have never had a history of credit. 

Read full article

Forbes | Could Personality Tests One Day Replace Credit Scores?

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If someone gave you an unexpected $100, what would you do with it? Give it to charity? Save it? Splurge on something fun?

We see questions like this in personality quizzes online, and sometimes even when applying for jobs. Your answers are supposed to help others predict your behavior using what’s called psychometrics.

And companies looking to avoid hiring potential problem employees aren’t the only institutions interested in psychometrics. The financial industry might get in on it, too.

What if, instead of a lender checking your credit score, they gave you a personality test?

Read full article.

Spore Magazine | Réduire les risques : Des systèmes innovants d’évaluation du crédit pour aider les agriculteurs

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La difficulté d’emprunter, pour de nombreux petits agriculteurs ne disposant ni de garanties ni d’antécédents de crédit, a fait apparaître de nouveaux systèmes pilotes d’évaluation du crédit pour aider les banques à apprécier les risques que présentent réellement les emprunteurs et tirer parti de ce secteur potentiellement lucratif.

L’évaluation psychométrique

Pour augmenter les taux d’acceptation et réduire les délais de traitement des prêts aux agriculteurs, Juhudi Kilimo, prestataire de solutions financières pour les petits agriculteurs d’Afrique de l’Est, teste la méthode d’EFL Global, une entreprise privée qui utilise l’évaluation psychométrique pour créer les profils de risque d’emprunteurs africains, asiatiques, européens et latino-américains. Cette méthode pilote – financée par la Fondation Mastercard – mobilise les représentants de six agences kényanes de Juhudi qui visitent et incitent les demandeurs de prêts à passer des tests psychométriques sur tablette. Ces tests permettent, selon EFL, de définir leur personnalité, y compris leur self-control en matière de dépenses et budgétisation. Sur cette base, une cote de crédit à trois caractères est alors attribuée aux demandeurs. À partir de son évaluation initiale d’environ 6 000 clients réalisée à l’aide de l’outil d’EFL, Juhudi a constaté que 6 % des personnes classées dans le quintile le plus bas avaient au moins une fois des arriérés de remboursement de 60 jours pour un prêt type d’un an, contre 1,5 % dans le quintile le mieux noté.

Read full article.

Medici | How BigTech Challenges Banks

The evolution of bank-FinTech narrative brought us to a logical point, when FinTech is no longer perceived to be a threat to traditional banking, but rather as an instrument in re-establishing their position in the financial services industry. The narrative, however, doesn’t end there. As Citi emphasized in its March 2018 Bank of the Future: The ABCs of Digital Disruption in Financereport, traditional banking is being challenged not by small FinTech startups, but by established tech giants because of:

Big data customer insights

"Social media has been recognized by Wharton as an important data source for credit scoringback in 2014, although the practice of judging a stranger based on his/her social environment is not really new. One of the core ideas is that “who you know matters.” Companies like LenddoFriendlyScore, and ModernLend use non-traditional data to provide credit scoring and verification along with basic financial services. Those companies are creating alternative ways to indicate creditworthiness. The information contained about a person in social networks can provide some sort of verification that the person exists at all and who that person is."

Read full article

 

Microfinance Gateway | Malaysia: Fintech Heavyweight CTOS Expands Services for A Better Financial Inclusion

CTOS has been Malaysia’s largest in terms of credit reporting, just announced a partnership with LenddoEFL to achieve a joint vision of financial inclusion for the people who had difficulties securing loans in Malaysia due to the lack of credit history. 

Read article in MicroFinance Gateway website: https://www.microfinancegateway.org/announcement/malaysia-fintech-heavyweight-ctos-expands-services-better-financial-inclusion

Malaysian Business Online | CTOS and LenddoEFL partner up to boost Financial Inclusion in Malaysia

CTOS Data Systems Sdn Bhd, Malaysia’s largest credit reporting agency, has entered into a partnership with LenddoEFL.

CTOS Data Systems Sdn Bhd, Malaysia’s largest credit reporting agency, has entered into a partnership with LenddoEFL.

AstroWani | CTOS, LenddoEFL extends financial inclusion in Malaysia

30% of Malaysians with good potential is still denied access to loans. This is because they lack or directly have no credit history. In order to curb this issue, Malaysia's Largest Credit Reporting agency, CTOS Data Systems Limited, partnered with Fintech LenddoEFL company and emerged with a new solution.

30% of Malaysians with good potential is still denied access to loans. This is because they lack or directly have no credit history. In order to curb this issue, Malaysia's Largest Credit Reporting agency, CTOS Data Systems Limited, partnered with Fintech LenddoEFL company and emerged with a new solution.

Karangkraf | Beri peluang rakyat akses perkhidmatan kewangan

AGENSI pelaporan kredit terbesar Malaysia, CTOS Data Systems Sdn Bhd (CTOS), menjalin kerjasama dengan LenddoEFL bagi memperluaskan perangkuman kewangan pengguna Malaysia yang kurang atau tidak mempunyai sejarah kredit melalui ‘CTOS Non-Traditional Data Score’.

Ketua Pegawai Eksekutif Kumpulan CTOS Holdings Sdn Bhd, Dennis Martin berkata, walaupun markah kredit ramalan tentang tingkah laku pembayaran telah meningkat tahun demi tahun, namun sekumpulan besar peminjam yang berpotensi baik ketika ini dinafikan akses kepada kredit disebabkan kurangnya sejarah kredit.

“Disebabkan pemberian pinjaman pengguna lazimnya bergantung kepada skor kredit, individu ini mendapati diri mereka terpinggir daripada ekosistem kredit dan juga sukar menambah baik markah kredit mereka.

“Dengan memanfaatkan sepenuhnya data tingkah laku dan data digital yang diizinkan penggunaannya oleh pengguna, CTOS dan  LenddoEFL akan melancarkan platform keputusan kredit universal yang mampu menaksir kebolehpercayaan kredit mana-mana rakyat Malaysia, baik yang ada sejarah kredit mahupun kurang sejarah kredit,” katanya dalam kenyataan media.

Menurut Dennis, kini banyak individu yang dahulunya kurang dilayan oleh institusi kredit atas alasan risiko kredit tradisional mereka, akan menikmati peluang untuk akses kredit. 

Read full article.

Finance Digital Africa | Can big data shape financial services in East Africa?

Psychometric big data—including online quizzes to judge character or personality traits and analysis of Facebook “likes”—is garnering increased attention. Suppliers of psychometric data or psychometric tools, such as EFL, believe not only that their data and analytics are predictive but also that they have a key advantage in their applicability to everyone, even clients with limited credit history (“thin-file” clients), as a starting point. When layered with other big and traditional data sources (e.g., social media, mobile phone, bureau data, bank historical data), proponents expect psychometrics to become even more powerful. Indeed, Equity Bank conducted an experiment with EFL’s psychometric scoring model and found it both predictive and useful; they plan to integrate it into applicable models across their regional subsidiaries.

 

 Moreover, Juhudi Kilimo decided to partner with EFL in order to evaluate character as part of their risk assessment. This was previously carried out by loan officers, but they believed the EFL approach would be more objective.

Read full article.

World Bank | Using a PhD in development economics outside of academia: interviews with Alan de Brauw and Bailey Klinger

Today's interviews are with Alan de Brauw, a Senior Research Fellow in the Markets, Trade, and Institutions Division at the International Food Policy Research Institute; and Bailey Klinger, the founder and (until recently) CEO of the Entrepreneurial Finance Lab

Read full interview with Bailey Klinger.

New Strait Times | CTOS & LenddoEFL partner to boost financial inclusion in Malaysia

KUALA LUMPUR: CTOS Data Systems Sdn Bhd (CTOS), Malaysia’s largest credit reporting agency, has entered into a partnership with LenddoEFL to enable access to financing for Malaysian consumers with little to no credit history.

Both CTOS and LenddoEFL have aided banks, lending institutions, utility and credit card companies to reduce risk, increase portfolio size, improve customer service and accurately verify applicants. Read full article.

Markets Insider | CTOS & LenddoEFL Partner to Boost Financial Inclusion in Malaysia

KUALA LUMPUR, Malaysia, and SINGAPORE, CTOS Data Systems Sdn Bhd (CTOS), Malaysia's largest credit reporting agency, has entered into a partnership with LenddoEFL to achieve a joint vision of financial inclusion for Malaysian consumers with little to no credit history. Both fintech leaders have aided banks, lending institutions, utility and credit card companies to reduce risk, increase portfolio size, improve customer service and accurately verify applicants. Read full article.

PRWeb | LenddoEFL Deepens Commitment to Financial Inclusion in India with New Leadership

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LenddoEFL, a Singapore-based fintech company powering data-driven decisions for financial services, has appointed Darshan Shah as Managing Director, India and South Asia. Darshan is a credit bureau veteran and he brings close to two decades of experience including credit reporting, scoring, analytics and technology.

“Having worked across geographies and being well-versed with the problem of credit coverage, I look forward to leveraging my experiences to work on the challenge of financial inclusion in India,” said Darshan Shah, Managing Director, India and South Asia. “The need is massive with less than 45% of Indian adults included in the credit bureau and less than 10% borrowing from a financial institution in the last year, as per the World Bank.”

Read full article.

Media Telecom | Orange Bank comienza a ofrecer micropréstamos personales

Micropréstamos: un negocio en aumento

La posibilidad de ofrecer micropréstamos a los usuarios tienta cada vez más a la industria. No solo a la banca digital. El año pasado, Telefónica de España presentó Movistar Money. Se trata un servicio de préstamos al consumo. Asimismo, una de sus principales características es que son preconcedidos a los clientes de la operadora.

En Latinoamérica esta tendencia es todavía más importante. Así, en México, Lenddo y Entrepreneurial Finance Lab (EFL) se fusionaron para brindar productos financieros para el sector no bancarizado. Read full article.

The Edge Markets | Cover Story: Scoring with big data

"The exponential rise in the use of smartphones, mobile wallets and e-payment systems has given birth to a new technology that uses big data to determine credit scores. The technology has been lauded for helping the underbanked gain access to credit, representing the first step towards financial inclusion.

The use of non-traditional data to churn out credit scores is now expanding beyond the underbanked and unbanked to reach even well-banked individuals who already have a credit score. This pool of data, which is used to discover patterns of users’ repayment behaviour based on their mobile phone and social media usage, is playing an increasingly important role in Asia alongside traditional credit scores." Read the full article.

The ASEAN Post | The potential of big data for microfinancing in Southeast Asia

"Microfinance is described by the Financial Times Lexicon as a service where financial institutions will back small start-ups and would-be entrepreneurs with small loans, in the poorest parts of the world. In Southeast Asia, the biggest microfinance players currently include Asia Pacific-based LenddoEFL, Singapore's CredoLab and the Philippines’ Lendr, for example..." Read full article.