MICROCAPITAL STORY: Google Grants $710,000 to Harvard Microfinance Technology Research

Harvard’s Entrepreneurial Finance Laboratory (EFL) received a grant from the philanthropic arm of Google last week. The grant totals $710,000 and will be used by EFL to develop ways to screen loan applicants in developing nations. Professor Asim ljaz Khwaja of the Kennedy School of Government, and Bailey Klinger, a fellow at the School’s Center for International Development, were the recipients of the grant. The two created the EFL in 2007 and have since directed its research.

The EFL was created as a partnership between the Center for International Development and the Netherlands Development Organization (SNV). EFL’s research focuses on utilizing technology to evaluate future earning potential of borrowers. This is in contrast with the common evaluation methods based on current wealth (collateral-based lending) or social reputation (microcredit). The tools that the EFL is developing are psychometric tests that relate cognitive and personal qualities to business success. Mr. Klinger noted that the research has not yet proven that these tools have “sufficient predictive power.” The EFL plans to use the Google grant money to implement programs in Africa and India to vet out their effectiveness.

The EFL claims that their technology has many valuable uses such as to:

  • Reduce costs and increase accuracy in screening of those segments that are already reached to some degree: microenterprises and large firms.
  • Allow financial institutions to penetrate new segments of undeserved small and medium enterprises.
  • Better targeting and customization of entrepreneurship training and assistance programs.
  • Generate millions of new firms, new jobs, and new incomes.

According to the Harvard Crimson, TechnoServe, a U.S.-based organization that provides training for entrepreneurs in poor rural areas, and Business Partners, Ltd., a South African lender, have already signed on to implement the program.

Sandra C. Oliveira, the EFL’s program manager, said “The eventual goal is for the technology to be fully integrated into lending organizations, helping to unlock a trillion-dollar small-enterprise economy hidden in the developing world.”

The EFL is looking for pilot testing partners, particularly banks and other financial institutions, who have access to a suitable sample of small-scale entrepreneurs. For more information on becoming a partner click here.

Scott Everett, Research Assistant

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