Scotiabank Jamaica is looking using behaviourial testing tools to predict if individiuals will repay loans.
The commercial bank's pilot — the Scotiabank Enterprise-Wide Risk Management and Financing (SERMAF) Programme — aims to enhance small and medium enterprises (SMEs) through a risk management and risk-rating model.
The psychometric tool being used for the project, the Entrepreneurial Finance Lab (EFL), examines individuals' psychology; tries to understand their behaviour and make projections, said Dr Rosalea Hamilton, Scotiabank chair, entrepreneurship and development, at the University of Technology (UTECH).
But the bank may not necessarily use the tool that extracts information about individual behaviour through short, open-ended questions related to ethics, attitudes, skills, and intelligence, according to Hamilton.
"From my perspective, it's really a measure best used for micro firms," she said. "In most cases the owners are the firms and it will more applicable in that respect."
SERMAF will be executed over 24 months at a cost of US$970,000 ($89.4 million), with US$550,000 funded through the Inter-American Development Bank's (IDB's) Multilateral Investment Fund and US$420,000 by Scotiabank.
"We (Scotiabank) believe that deepening the understanding of risk management among business owners will make important gains in helping them access financing to grow their businesses", said Patsy Latchman-Atterbury, Scotiabank's vice president, SMEs.
Scotiabank Jamaica will also review its current credit and risk management policies, procedures and practices.
SERMAF will check if the internal processes of SMEs are suitable to the lending sector.
There's a recognition that they (SMEs) have special needs, they don't have the same realities as other businesses, Hamilton said.
With a special mandate to reach women-owned businesses, one key component is risk management awareness and capacity building for SMEs, Scotiabank said."By mentoring business operators, the bank will help improve their knowledge of risk management and by extension their capacity to access financing provided by the bank."
According to the Scotia chair for entrepreneurship, it was discovered that the average loan disbursement to men was higher than that women, suggesting that the amount financial institutions lend to each gender is different.
"Some of the things we want to explore is the extent to which women have collateral as opposed to men," she said.
SME-specific elements for both male- and female-owned businesses will also be incorportated.
Not only can the programme improve the lending sector, it will include interventions that will ensure that before the SMEs approach the bank, they will have the necessary things in place, Hamilton said.
Some target sectors of the project include, health, education, housing, transport, and the visual and creative sectors.
"We have to build our local capacity to penetrate the global market...those sectors will matter to transform the economy," Hamilton said.
The massive challenge facing Jamaica in the form of unsustainable debt makes the project essential, said Gerard Johnson, general Manager of the Caribbean Country Department.
By linking small informal atomised Jamaican enterprises with large international partners such as Scotiabank, new doors can be opened to formality, networking and to export, which is our life- blood, he said.