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Responsible access to credit for sole-traders and micro-organizations under unstable market conditions with psychometrics
van Thiel,D. Elliott,K. Goedee,J. Leenders,R.
van Thiel,D.
Elliott,K.
Goedee,J.
Leenders,R.
Abstract
In a context of market volatility, the growing complexity of financial products, and a shift towards self-employment, there is an increasing demand for inclusive financial services for sole traders and micro-organizations. To address this need, we conducted a study using real-time data from a Fintech lender in the Czech Republic to assess the effectiveness of a new financial literacy based psychometric credit scoring model (PSM) in improving access to finance for micro, small and medium sized enterprises (MSME) sector, particularly sole traders, and micro-organizations, during volatile market conditions. This study affirms that PSMs play a significant role in responsibly including this underserved sector. Specifically, we observed a 30% higher approval rate and a 23% lower default rate when utilizing the PSM versus the traditional credit scoring model (TCSM). Moreover, during the period of substantial market volatility and instability, such as the state-of-emergency during the COVID-19 pandemic, the PSM exhibited a 13% higher approval rate at a 20% lower default rate than the TCSM. This evidence supports the proposition that PSMs offer a viable option for promoting financial inclusion and targeted financial education among MSMEs in the face of instable financial markets.
Description
Date
2024
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Volume Title
Publisher
Research Projects
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Keywords
COVID-pandemic, Small business lending, financial inclusion, innovative credit scoring, psychometrics, SDG 1 - No Poverty, SDG 8 - Decent Work and Economic Growth, SDG 9 - Industry, Innovation, and Infrastructure
Citation
van Thiel, D, Elliott, K, Goedee, J & Leenders, R 2024, 'Responsible access to credit for sole-traders and micro-organizations under unstable market conditions with psychometrics', The European Journal of Finance, pp. 1-33. https://doi.org/10.1080/1351847X.2024.2357569