1. Information Infrastructure for SME Lending World Bank Conference Raffi Kassarjian, Vice President, Global Origination Solutions

2. Copyright © 2002 Fair, Isaac and Company, Inc. All rights reserved. Job # goes here 2 The “S” in SME are unique  Traditional commercial lending infrastructure doesn’t lend itself to “lots of little decisions”  Financial spreadsheeting used in commercial underwriting less relevant  Business bureau data (when available) is thin  Consumer credit bureau report/score (when available) doesn’t reflect profile of small business owner  Industry still coming up the learning curve Combination of data required to understand the risk

3. Copyright © 2002 Fair, Isaac and Company, Inc. All rights reserved. Job # goes here 3  “80% of measurable risk is decided upon at the time of origination.” MarketingSecuritizationServicing Origination Application Workflow And Business Policy + Credit Risk Decisions and Analytics + Loan Fulfillment And Documentation Importance of the right lending decision

4. Copyright © 2002 Fair, Isaac and Company, Inc. All rights reserved. Job # goes here 4 The big picture Strategy BusinessObjectives Marketing Process Technology Credit Policy Legal/Compliance Risk CustomerService

5. Copyright © 2002 Fair, Isaac and Company, Inc. All rights reserved. Job # goes here 5 Business goals of small business credit grantors  Increase number of profitable relationships  Manage overall portfolio risk  Realize operational efficiencies  Leverage IT resources and enabling technologies  Maintain regulatory compliance

6. Copyright © 2002 Fair, Isaac and Company, Inc. All rights reserved. Job # goes here 6 HighRisk Segment Applicant Population LowRisk Score and attributes MediumRisk Automated Decline Automated Accept Reducing the ‘gray area’

7. Copyright © 2002 Fair, Isaac and Company, Inc. All rights reserved. Job # goes here 7 Information Requirements  Lender’s existing data/relationship with applicant  Existing relationship with business applicant  Existing relationship with principal owners of business  Additional information provided by applicant  Business credit bureau information  Consumer credit bureau information (on the principal owners)

8. Copyright © 2002 Fair, Isaac and Company, Inc. All rights reserved. Job # goes here 8 Technology Requirements  Application Processing System  Application Input  Internal and external data access  Scoring capabilities  Decision capabilities  Workflow/queuing for credit officer review  Exception and performance tracking

9. Copyright © 2002 Fair, Isaac and Company, Inc. All rights reserved. Job # goes here 9 Example: model-assisted decision Export Decline Data Automated Decline Export Accept Data Automated Accept Judgmental Decline Generate Score Obtain Business/ Consumer Report Import or Enter Data Import or Enter Data Apply Decision Strategy Review Archive Apps ProduceReports Judgmental Accept Document / Book

10. Copyright © 2002 Fair, Isaac and Company, Inc. All rights reserved. Job # goes here 10 Score Business Debt Service Ratio Offer HighMedLow CCB Low Medium High ABCDEABCDE Line amount High Medium Low Interest Rate Level of automation LoMed CAAEDC Hi LoMed Hi LoMed Hi Approved applicants

11. Copyright © 2002 Fair, Isaac and Company, Inc. All rights reserved. Job # goes here 11 Example: complex term loan strategy

12. Copyright © 2002 Fair, Isaac and Company, Inc. All rights reserved. Job # goes here 12 Scoring Models can produce significant results Validation of SBSS 5.0 Models Original SBSS SBSS 5.0 RANDOM B A D C U M U L A T I V E P E R C E N T 00.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% GOOD CUMULATIVE PERCENT 00.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%100.0

13. Copyright © 2002 Fair, Isaac and Company, Inc. All rights reserved. Job # goes here 13 The potential impact of empirical modeling Example based on development sample. Individual results will vary.

14. Copyright © 2002 Fair, Isaac and Company, Inc. All rights reserved. Job # goes here 14 Implement the RIGHT overrides As of March 2002 for accounts opened Oct. 00 – Sept. 01 140 - 149 150 – 159 Subtotal 160 - 169 170 - 179 180 - 189 190 & up Total Scored Prev.Good Exp Hi Checking Bal Long Time as Owner Total Overrides SCORE 1814095906147057912,3145,014204238148590 # ACTIVE ACCTS 714211915132391115521 # EVER 60+ DAYS 3.9%3.4%3.1%2.1%1.6%1.0%1.8%5.4%2.1%3.4%3.6% % EVER 60+ DAYS BELOW CUTOFF

15. Copyright © 2002 Fair, Isaac and Company, Inc. All rights reserved. Job # goes here 15 Tracking performance  Reporting on applicant populations  Population Stability Reports  Characteristic Analysis Reports  Reporting on decisions  Override Tracking Reports  Approve/Decline Reports  Automated/Manual Decisions  Reporting on performance  Strategy performance  Override performance  Model performance  Policy performance  Process performance  Scorecard management

16. Copyright © 2002 Fair, Isaac and Company, Inc. All rights reserved. Job # goes here 16 Fair, Isaac and Small Business  Pioneered use of empirically-derived analytics  Recently released fifth generation of pooled origination models  Serve approximately 400 clients  22 of top 25 US lenders  Banking, leasing, captive finance, trade credit  Global presence – US, Canada, Chile, Hong Kong, Japan, Malaysia, Mexico, Singapore, South Korea, United Kingdom

17. Questions & Answers