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The Entrepreneurial Finance Lab (EFL) at the Center for International Development (CID) at Harvard University has been selected as a winner of the G-20 SME Finance Challenge for addressing the problem of access to finance for small and medium enterprises (SMEs) in developing countries.
The EFL was co-founded by Asim Ijaz Khwaja, professor of public policy at Harvard Kennedy School, and Bailey Klinger, a CID fellow. EFL is pioneering the use of psychometric screening tools of entrepreneurial ability and honesty to unlock large-scale bank finance for SMEs in developing countries.
In pilot tests administered by Khwaja and Klinger in Africa and Latin America, the test was found to reduce loan defaults by 25 % to 40%. Using EFL’s low-cost, automated screening tool to reduce risk, banks lend more to the “missing middle” – small and growing businesses that drive growth in emerging economies.
The Group of 20 and Ashoka’s Changemakers, with support from the Rockefeller Foundation, launched the SME Finance Challenge to identify the best models worldwide for public-private partnerships that catalyze finance for small and medium enterprises. EFL leaders and other winners of the competition will attend the G-20 Summit on November 11-12 in Seoul, South Korea.