**<u>Table 3. Testing Hypothesis 1: Risk Reduction</u>**

||Banked+|Unbanked|Ban|ked|Unba|nked|
|---|---|---|---|---|---|---|
||(1)<br>EFL<br>Accepted|(2)<br>Diff §|(3)<br>EFL<br>Accepted|(4)<br>Diff §|(5)<br>EFL<br>Accepted|(6)<br>Diff §|
|Classification worse than "Normal" at SBS (12 months after app.)|0.275***|0.035|0.273***|0.037|0.294***|0.016|
||(0.019)|(0.025)|(0.020)|(0.027)|(0.064)|(0.078)|
|More than 90 days in arrears at SBS (12 months after app.)|0.125***|0.036*|0.122***|0.046**|0.152***|‐0.032|
||(0.015)|(0.020)|(0.015)|(0.022)|(0.053)|(0.063)|
|More than 90 days in arrears at SBS (during next 12 months following app.)|0.151***|0.075***|0.145***|0.086***|0.207***|‐0.007|
||(0.015)|(0.021)|(0.015)|(0.023)|(0.053)|(0.065)|
|Number of days in arrears (6 months after app.)|13.326***|5.868***|12.029***|8.101***|24.691***|‐10.847|
||(1.403)|(2.086)|(1.381)|(2.215)|(6.240)|(6.952)|
|Number of days in arrears (12 months after app.)|26.799***|8.961**|27.120***|10.074**|23.925***|4.048|
||(2.507)|(3.736)|(2.689)|(4.094)|(6.580)|(8.912)|
|Increase in debt at SBS (1 month after test wrt 1 month before app.)|0.466***|0.062**|0.505***|0.071**|0.316***|0.068|
||(0.019)|(0.026)|(0.022)|(0.029)|(0.040)|(0.052)|
|Increase in debt at SBS (6 month after test wrt 1 month before app.)|0.528***|0.089***|0.568***|0.095***|0.375***|0.106**|
||(0.019)|(0.026)|(0.022)|(0.029)|(0.042)|(0.054)|
|Classification at SBS (12 months after app.)|0.882***|0.006|1.000***|‐0.002|0.426***|0.129**|
||(0.013)|(0.017)|(0.000)|(0.002)|(0.043)|(0.054)|
|Loan from implementing institution|0.235***|0.058**|0.245***|0.064**|0.199***|0.047|
||(0.017)|(0.023)|(0.019)|(0.026)|(0.034)|(0.045)|
|Number of observations|15|19|11|67|35|2|

_Note_ : The sample includes all entrepreneurs accepted under the traditional method.

§ Difference between entrepreneurs rejected and accepted based on their EFL score. Ordinary least squares estimates. Outcome variables are for loans from all formal financial institutions, i.e., not limited to the implementing institution unless stated otherwise. Robust standard errors in parentheses: * p<0.1, ** p<0.05, *** p<0.01.

We did not observe that the EFL tool had the ability to screen out higher-risk borrowers for _unbanked_ entrepreneurs approved under the traditional method (column 6). The differences in repayment behavior here are smaller and not statistically different from zero. Moreover, the signs of the estimates do not point consistently in the same direction.

With respect to the use of credit, we found that a larger proportion of entrepreneurs who were rejected based on their EFL score increased their debt one and six months after they were screened by the EFL tool compared with entrepreneurs who were accepted based on their EFL score. EFL-rejected entrepreneurs were also more likely to obtain a loan from the implementing institution than EFL-accepted entrepreneurs. Since both groups were accepted under the traditional method, and, if anything, entrepreneurs with a high EFL score should be in a better position to get a loan—at least from the implementing institution—these results could be driven by the personality traits that make entrepreneurs less attractive according to the EFL tool. For example, EFL-rejected entrepreneurs may be less risk averse and may accept loan offers even under unfavorable conditions, whereas EFL-accepted entrepreneurs would be more likely to turn down unfavorable loan offers.

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