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Beyond the Transaction: Every Transaction Has a Story

Giving Credit Where Credit Is Due: EFL and MasterCard

Dennis DiDonna is Co-Founder and Chief Operating Officer of EFL

Several years ago, research from the International Finance Corporation (IFC) estimated that the lack of credit information in emerging markets resulted in an over $2.5 trillion finance gap among small to medium enterprises (SMEs). The Entrepreneurial Finance Lab (EFL) was born at Harvard to attempt to solve this so-called “Missing Middle” problem, where SMEs, the engines of growth and GDP across the developing world, fail to grow. The research discovered an “information asymmetry” between banks and individuals seeking finance; a standoff created by the absence of reliable identification, credit bureau records, and other prerequisites for access to finance.

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EFL’s research produced a methodology to measure these businesses based on the willingness and ability of the individual using psychometrics. Aspects such as business skills, honesty and integrity, intelligence, and personality predicted business success and failure, and captured risk and opportunity, quantitatively. Financial institutions incorporate EFL into their loan application, enabling customers with little or no borrowing history, collateral, or formal financials to gain access to finance.

Along the way, EFL has been recognized by various organizations for our work, from the G-20 and the Inter-American Development Bank (IDB) to McKinsey and Boston Consulting Group (BCG). Through the help of over 14 financial institutions, EFL has enabled over 60,000 bank applications and close to $200M to reach entrepreneurs in emerging markets. Those applications represent tens of thousands of the highest potential growth engines in 20 countries.

EFL has grown with the help of many partners, but in MasterCard, EFL has found a partner with a shared vision of a financially inclusive future. MasterCard’s extensive network and drive in emerging markets provides footing for EFL’s innovation on a global scale. The EFL-partnership advances a shared commitment to bringing credit to the developing world’s most capable, yet previously unbankable entrepreneurs—those who deserve the credit after all.