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This book uses newly collected data with nearly 2000 observations across Africa and Latin America of SME owner/operators to examine if psychometric tools can distinguish the good ones from the bad ones. This book fully describes the development problem and how psychometric tools can help solve it. Moreover, it presents and develops the unique statistical
methodologies to deploy psychometric tools for credit screening. This will be the single complete publication of the work to date by the entrepreneurial finance lab, created by Klinger & Khwaja. This work started as a research project at Harvard University´s center for international development, with funding from Google.org. This work is very high profile, winning the G-20 SME Finance Challenge in 2010 (global open competition to identify the best scalable solutions to unlocking SME finance- winners honored at the G-20 summit in Seoul Korea and receiving significant funding from G-20 countries for the implementation of their models).

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Innovations in Poverty Reduction: An Introduction.- The Development Problem.- A Psychology-Enabled Solution to small and medium-sized enterprise finance.- Methodology.- Results and Discussions.

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"This book is of particularly importance for all those who are interested in the question how micro-credits can be given to individual micro-entrepreneurs in developing countries. The problem for the bank is that there is no credit-history of the micro-entrepreneur and the amount of credit is too small to warrant a detailed evaluation of a business plan. Most often there will also not be a business plan that can be evaluated.
What to do? The three economists provide a very sensible and important answer: Evaluate the person him- or herself by psychological tests. Two issues are important for paying back the loan: First the person must be able to build a good enterprise and make enough money to pay back the loan. Second, the person must be willing to pay back the loan.

Psychological research on entrepreneurship has made enough headway to provide good data for understanding which person characteristics lead to good entrepreneurial success. Moreover, there has been a long tradition to evaluate a person´s integrity to understand whether somebody is willing to cheat others by not paying back a loan. The authors take these issues as their starting point and describe how they produce the results. This is practical and useful. Recently the New York Times has written a long piece on the company build by these three authors and how successful they have been in helping banks to help micro-entrepreneurs to get the resources to be able to succeed.
This is a "must-read" book for anybody who is interested to advance sustainable credits for micro-entrepreneurs."

Prof. Michael Frese, NUS Business School, Singapore

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