Nairobi — Customers of Fina Bank in East Africa will no longer need collateral to get loans, thanks to a new technology being experimented.

Instead of screening new borrowers based on their current wealth (collateral-based lending) or social reputation (microcredit), the bank will use psychometric technologies.

The evaluation will be based on the entrepreneurial potential or future earning potential of applicants for small business finance.

Praised as a breakthrough in profitable lending to small and medium enterprises in Africa, the move will be piloted in Kenya, Rwanda and Uganda.

If successful, it will boost small and medium enterprises in the region financially.

It is a partnership between Fina Bank and the Centre for International Development at Harvard University's Entrepreneurial Financial Lab.

The goal is to test new technologies to evaluate the entrepreneurial potential of applicants.

The psychometric technology has been developed in partnership with psychologists and testing agencies worldwide, and piloted by financial organisations in South Africa.

Robert Warlow, Fina Bank's group chief executive officer, says looking at the psychometric aspects of a small business owner, as opposed to the more traditional lending appraisal tools, is a potential leap forward. It should benefit small and medium enterprises in the future when it comes to borrowing money, he adds.

"We are delighted to have partnered with Harvard University on this initiative. The goal is to unlock dormant capital in East Africa and bring small and medium enterprises of the "missing middle" into the formal financial system.

"These are enterprises which would otherwise not have access to capital," Mr Warlow said in a statement.

Fina Bank is the leading regional small and medium enterprises lender. It is penetrating the "missing middle" segment and providing finance to entrepreneurs who are often ignored by other financial institutions.

With headquarters in Nairobi, the bank currently operates in Kenya, Rwanda and Uganda.

It has a developmental emphasis, especially in rural areas, and aims to serve small and medium enterprises in East Africa.

The psychometric project will test the Entrepreneurial Financial Lab technology on a sample of new and existing Fina Bank clients.

The outcome of the project will help the bank "understand East African entrepreneurs and find ways that financial institutions can identify them".

"Evidence shows that access to finance is key to SME growth. Improving access to finance by making it easier for banks to identify high-potential entrepreneurs in an accurate and inexpensive way would help unlock the entrepreneurial potential of East Africa, with a significant impact on poverty reduction and economic growth," says Bailey Klinger, Entrepreneurial Financial Lab's director.

"By partnering with key innovators like Fina Bank, we hope to do just that," he said.

The Centre for International Development at Harvard University was established in 1998 as the primary centre for research on international development.