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The SME Opportunity Bailey Klinger, CEO of the Entrepreneurial Finance Lab Felaban Conference November 18, 2012 © 2012 - EFL Global Ltd. All Rights Reserved1.

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Presentation on theme: "The SME Opportunity Bailey Klinger, CEO of the Entrepreneurial Finance Lab Felaban Conference November 18, 2012 © 2012 - EFL Global Ltd. All Rights Reserved1."— Presentation transcript:

1 The SME Opportunity Bailey Klinger, CEO of the Entrepreneurial Finance Lab Felaban Conference November 18, 2012 © EFL Global Ltd. All Rights Reserved1 And how to capture it with new screening tools

2 Why Do So Few SMEs Receive Loans? Potential clients © EFL Global Ltd. All Rights Reserved2 SME Loan Approvals

3 Potential clients Self-selection reduces applications SME Finance Challenge © EFL Global Ltd. All Rights Reserved3

4 Potential clientsSelf-selection reduces applications Loan officers decide not to present potential applicants © EFL Global Ltd. All Rights Reserved4 SME Finance Challenge

5 Self-selection reduces applications Loan officers decide not to present potential applicants Formal credit screening Potential clients © EFL Global Ltd. All Rights Reserved5 SME Finance Challenge

6 Potential clientsSelf-selection reduces applications Loan officers decide not to present potential applicants Formal credit screening SME Loan Approvals © EFL Global Ltd. All Rights Reserved6 SME Finance Challenge

7 EFL provides psychometric credit scores for any entrepreneur. Banks use EFL to expand their SME portfolio and improve control over risk. © EFL Global Ltd. All Rights Reserved7 EFLs SME Solution

8 The questionnaire takes 45 minutes to complete, EFLs SME Solution © EFL Global Ltd. All Rights Reserved8 EFL questionnaire is administered

9 The questionnaire takes 45 minutes to complete, and can be taken on a PC or a Tablet, EFLs SME Solution © EFL Global Ltd. All Rights Reserved9 EFL questionnaire is administered

10 The questionnaire takes 45 minutes to complete, and can be taken on a PC or a Tablet, with or without an internet connection. EFLs SME Solution © EFL Global Ltd. All Rights Reserved10 EFL questionnaire is administered

11 The questionnaire takes 45 minutes to complete, and can be taken on a PC or a Tablet, with or without an internet connection. EFLs SME Solution © EFL Global Ltd. All Rights Reserved11 Analyzes: Honesty, Business Skills, Attitudes & Intelligence EFL questionnaire is administered

12 Ethics & Honesty 37. Other peoples opinions are not important. True False Analysis of Borrower © EFL Global Ltd. All Rights Reserved12

13 Business Skills 101. Which of the following should you take into account when calculating costs? RentInventory © EFL Global Ltd. All Rights Reserved13 Analysis of Borrower

14 12. A big part of success is luck. TrueFalse Attitudes & Beliefs Analysis of Borrower © EFL Global Ltd. All Rights Reserved14

15 78. Remember this number for 5 seconds, then repeat it: Right Wrong Fluid Intelligence Analysis of Borrower © EFL Global Ltd. All Rights Reserved15

16 EFL sorts applicants from safest to most risky and banks choose who to accept EFL Scores Applicants © EFL Global Ltd. All Rights Reserved16

17 Developed based on: 40 years of academic research on entrepreneurs Pre-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 SMEs willingness to pay and ability to absorb the loan. © EFL Global Ltd. All Rights Reserved17

18 RESULTS © EFL Global Ltd. All Rights Reserved18

19 Champion Challenger Bank credit risk target:10% Loan given: If EFL or the Bank said Yes % of Portfolio NPLBank YesBank No EFL No # LoansBank YesBank 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% EFL Yes9.9% EFL Yes529 © EFL Global Ltd. All Rights Reserved19

20 Currently Accepted EFL Results © EFL Global Ltd. All Rights Reserved20

21 Currently Accepted Increased Approvals One bank increased approvals of applicants that they would have rejected by 251%, while maintaining their target PD. © EFL Global Ltd. All Rights Reserved21 EFL Results

22 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 © EFL Global Ltd. All Rights Reserved22 EFL Results

23 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. © EFL Global Ltd. All Rights Reserved23 EFL Results

24 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 © EFL Global Ltd. All Rights Reserved24 EFL Results

25 EFL History Harvard researchers and EFL co-founders Bailey Klinger and Asim Khwaja developed a credit screening tool for unbanked SMEs 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 Winner 2012 African Business Award for Innovation 1.7M+ USD in Lending per Week 44,000+ 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 © EFL Global Ltd. All Rights Reserved25

26 Where is EFL Today Partner EFL Offices 26 Other Partners:

27 THANK YOU EFL Global Calle Mártir Olaya 129 Oficina 1002 Miraflores, Lima, Peru EFL USA Harvard Innovation Lab 125 Western Ave Allston, MA © EFL Global Ltd. All Rights Reserved27 EFL Brazil Avenida Cidade Jardim º andar. CEP: Jardim Paulistano. Brazil EFL South Africa 286 Fox St CBD, Johannesburg, 2094


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