WASHINGTON, CMC – The Inter-American Development Bank (IDB) says it has found that “psychometric” testing is a “good predictor” of creditworthiness and a cost-effective way for financial intermediaries in Latin America and the Caribbean to reduce the costs of their credit assessment operations.
The Washington-based financial institution said the testing is a tool that has been successfully used by human resources departments for pre-employment screening for several years and more recently it has been adapted to help financial intermediaries assess the creditworthiness of potential borrowers.
“Simulated implementation of the testing by banks suggests a 20 to 45 percent reduction in defaults and a 15 to 30 percent increase in profits, with operational costs of the lending process at less than 40 percent of the cost of traditional evaluation and due diligence,” the IDB said.