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1 To dial-in: (866) Access Code: # If you are having technical difficulties, please Credit Builders Alliance, Inc. Some rights reserved Credit Builders Alliance, Inc. Some rights reserved.

2 Small Dollar Consumer Loans Nonprofit Lenders Making a Difference October 29, Credit Builders Alliance, Inc. Some rights reserved. CREDIT BUILDERS ALLIANCE and the accompanying Logo are trademarks of CreditBuilders Alliance, Inc. This document is licensed under a Creative Commons Attribution-Noncommercial-Share Alike License (US/v.3.0). Noncommercial uses are permitted on the condition that you include an attribution to Credit Builders Alliance. If you alter, transform, or build upon this work, you may distribute the resulting work only under the same or similar license to this one. More information regarding the license is at: Requests for permissions beyond the scope of the license should be directed to Credit Builders Alliance, Inc., at Credit Builders Alliance ("CBA"), a not-for-profit organization, makes this information available for informational purposes only. This information is not intended as legal, financial, other advice, and you and your clients should consult qualified [email protected] advisors before making any decisions. CBA does not represent 2013 Credit that Builders any of the Alliance, information Inc. Some will rights produce reserved. results.

3 Please TYPEany QUESTIONSinto the CHATbox during the webinar! This webinar is being recorded. All participants are on mute Credit Builders Alliance, Inc. Some rights reserved Credit Builders Alliance, Inc. Some rights reserved.

4 Credit Builders Alliance Mission & Philosophy To create innovative solutions for asset building organizations helping low-and modest income households build credit and financial access. Good Credit is an Asset Mission driven nonprofits and other entities are uniquely positioned to help the households they serve build credit as an asset often the FOUNDATIONAL asset.

5 Credit Builders Alliance One-Stop-Shop Network & Increase Visibility (Credit Building Community Build Capacity & Sustainability (Credit Building Toolkit) Credit Builder Community Members Report & Pull Reports (Credit Building Platform) Innovate & Engage with Field (Credit Building Hot Topics) Credit Builders Alliance, Inc. Some rights reserved Credit Builders Alliance, Inc. Some rights reserved.

6 Credit Builders Alliance Credit Builder Community

7 Key Questions Is there a needfor CDFIs to provide SDLs? Is there demandamong CDFIs to provide SDLs? What are the challengesto implementing SDLs? Are SDLs a good financial capability tool? What are some good models for underwriting SDLs? What are some high level ways to supportnonprofits offering or wishing to offer SDLs?

8 What this report OFFERS Synopsis of findings of research conducted in 2012 Recommendations for nonprofits offering or considering offering SDLs & other stakeholders to support them Tips on SDL program considerations

9 What this report does NOT OFFER A comprehensive assessment of the SDL landscape Details about current SDL programs Definition of a responsiblesdl

10 What is an SDL? For Purposes of CBA s Report Closed-End Loan with a minimum 90 day term Repaid in equal installments Made for the personal, family or household purposes

11 Why SDLs? Responsible SDLs Matter 1 in 7 Americans lives in poverty... Non-bank financial services is a $100 billion dollar industry that traps consumers in vicious cycles of debt and instability...

12 Who Offers SDLs? Traditional Financial Institutions Underserved not generally target market SDLs not widely marketed Unbanked consumers unable to access Retail Consumer Finance Companies May trap consumers in cycle of repetitive borrowing Nonprofit Lenders Demographic alignment: serve underserved communities Mission-driven: client success = organizational success Financial Capability by design: product + education

13 Why CBA s Research Nonprofit lenders are increasingly providing small dollar consumer credit options to help low income households transition out of poverty and build economic security. Nonprofit lenders experience real and perceived challenges as they attempt to improve efficiency, manage risk and bring small dollar loan programs to scale.

14 Methodology Identified over 100 nonprofits making or interested in making SDLs 44 organizations responded to 2012 survey 10 follow up interviews ACCION Texas ACE BiG Austin Black Hills Community Loan Fund, Inc Business Center for New Americans Butte County Self Sufficiency Loan Fund CASA of Oregon Champlain Valley Office of Economic Opportunity Central Vermont Community Action Council Citizen Potawatomi Community Development Corp Community Action of Northeast Indiana Community Development Finance ECDC Enterprise Development Group First Nations Community Financial Four Bands Greater Newark Enterprises Corporation Greater Southwest Development Organization Hartford Community Loan Fund Innovative Changes International Institute CDC Iowa Able Foundation IowaMicroLoan Just In Time for Foster Youth Justine PETERSEN Kansas Assistive Technology Cooperative Kentucky Domestic Violence Association META Mountain States Group Mission Asset Fund Montana Community Development Corporation North County Lifeline North Side Community Federal CU NYC Dept of Consumer Affairs Office of Financial Empowerment Office of Rural and Farmworker Housing Salt River Financial Services Institution The Capital Good Fund Transitional Living Communities UCEDC Ways to Work WECO Fund Inc. West End Neighborhood House Wind River Development Fund Women's Economic Ventures Women's Opportunities Resource Center

15 Findings: Why SDLs Matter Majority of respondents report that they offer or plan to offer: HOW DO SDL PRODUCTS MEET CLIENT NEEDS?* Installment products *RESPONDENTS CAN SELECT MULTIPLE ANSWERS 34 As direct lenders To help clients build credit & meet other consumer needs AS A PAYDAY LOAN ALTERNATIVE TO HELP WITH A STRATEGIC PURCHASE (APPLIANCE, CAR, ETC.) TO HELP BUILD CREDIT TO ADDRESS A SPECIFIC NEED (E.G. COVER IMMIGRATION COSTS, ETC.) TO ADDRESS A SPECIFIC UNDERSERVED TARGET MARKET

16 Findings: Why SDLs Matter Additional safe and affordable credit products will help clients cover short-term needs while also providing financial counselors with another tool to help clients build or improve credit. --NYC Dept of Consumer Affairs Office of Financial Empowerment, New York, NY It will directly help to meet our mission of helping low-income rural families build assets. -- Office of Rural and Farmworker Housing, Yakima, WA

17 Findings: Key Challenges STAFF CAPACITY ISSUES AS PERCEIVED BARRIERS TO SDL PROGRAMS 53% 53% 58% 42% 33% 33% [ON LOAN ORIGINATION/CREDIT APPLICATION FACILITATION] [ON SERVICING LOANS/CREDIT] [ON COLLECTIONS] Prospective Providers Current Providers

18 Findings: Key Challenges 83% CONCERNED THAT THE INTEREST RATES THEY CHARGE OR PLAN TO CHARGE ARE OR WILL NOT BE ENOUGH TO COVER THE COST OF THE LOAN PRODUCT 80% CONCERNED THAT THE INTEREST RATES THEY CHARGE OR PLAN TO CHARGE ARE OR WILL NOT BE ENOUGH TO COVER THE RISK OF LOAN LOSSES

19 Findings: Key Challenges DELINQUENCY AND LOAN LOSS RATES AS PERCEIVED BARRIERS TO SDL PROGRAMS 33% 33% 53% 53% Prospective Providers Current Providers DELINQUENCY RATES LOAN LOSS RATES

20 Findings: Technology IMPLEMENTATION ISSUE: TECHNOLOGICAL CAPACITY Currently offering SDLs Considering offering SDLs % 90.00% 80.00% 70.00% 65.22% 77.78% 82.61% 83.33% 86.96% 66.67% 60.00% 50.00% 40.00% 39.13% 33.33% 43.48% 33.33% 34.78% 33.33% 30.00% 20.00% 10.00% 0.00% IMPORTANCE BARRIER IMPORTANCE BARRIER IMPORTANCE BARRIER EFFECTIVELY UNDERWRITES EFFECTIVELY ORIGINATES/FACILITATES LOANS/CREDIT MEETS NEEDS FOR ACHIEVING SCALE

21 Findings: Regulations REGULATORY ISSUES AS PERCEIVED BARRIERS TO SDL PROGRAMS 9% 9% 33% 17% 32% 32% 47% 53% Prospective Providers Current Providers PROCESS OF OBTAINING STATE LICENSE COMPLIANCE WITH STATE LENDING REGULATIONS KEEPING UP TO DATE WITH REGULATION CHANGES COST OF COMPLYING WITH STATE REGULATIONS

22 Findings: Regulations Our state has embraced our desire to compete with predatory lenders. They have bent over backwards to accommodate our questions and work with us on our license application. --Montana Community Loan Fund, Missoula, MT Regulators have been a significant impediment to expanding operations. It has been difficult to get them to grant us a consumer finance lending license and they have even been extremely strict on the wording of educational materials, marketing materials, and signage, often causing long delays in material distribution. --Community Development Finance, San Francisco, CA creditbuildersalliance.org [email protected] 2012 Credit Builders Alliance, Inc. Some rights reserved.

23 Findings: Implementation Issues in General Addressing a critical need Balance sustainability with client impact Limited resources Need for flexibility in underwriting & servicing creditbuildersalliance.org [email protected] 2012 Credit Builders Alliance, Inc. Some rights reserved.

24 Findings: Underwriting Models Data Analytics Social Relationships Psychometrics The [social element and] level of involvement is not only critical -it allows folks to exercise power over their finances. MAF is merely the facilitator, recorder and guarantor of the social loans. --Mission Asset Fund, San Francisco, CA

25 Findings: Financial Capability Tool Interventions are: Relevant, Timely, Actionable, Ongoing

26 Findings: Financial Capability Tool CGF provides financial coaching for borrowers and Coaching Loans for loan applicants who do not qualify for loan products. Coaching Loan participants build credit and receive financial education in order to prepare to be a successful borrower in the future. --Capital Good Fund, Providence, RI The process educates the borrower about the American financial system -credit report, monthly payments, etc.; and it helps the client establish and develop a credit score which is an important and critical asset in this country as it affects all other financial activities and decisions of the client. --Business Center for New Americans, New York, NY

27 Findings: Recommendations Nonprofits should leverage their unique position to: Meet the short-term credit needs of their clients Provide a responsible alternative for underserved households without access to other SDL options Help households build credit and other financial assets Leverage as a powerful financial capability tool

28 Findings: Recommendations Nonprofits should explore existing --and new --options: Refer to/partner with community credit unions, banks, or other nonprofit lenders where feasible or optimal. Examples include: Texas Scalable Small Dollar Loan Program Mission Asset Fund s Lending Circles Ways to Work s vehicle purchase program for working parents Assess cost/benefit of referring to/partnering with responsible forprofit social enterprise lenders Develop a turnkey small dollar loan platform similar that could enable nonprofit lenders to efficiently review applications and make approval decisions that would increase loan cost recovery by reducing the risk of delinquencies and losses.

29 Findings: Recommendations Funders, policy makers and intermediaries can and should support nonprofit SDL lenders: Funders can offer grants to cover staff time, overhead, and other operating costs as well as grants or forgivable loans to help bolster loan capital needs and loan loss reserves. Policy makers can advocate for funding 12 US Code Grants to establish loan-loss reserve funds, authorized by the Dodd Frank Act in 2011 but currently unfunded, to help certified CDFIs defray the costs of operating small dollar loan programs. Intermediaries like CBA should create and promote forums for nonprofit lenders to help identify and share lessons learned and best practices in the small dollar loan space.

30 What our Members Say What to look for: Accessible to your clients Flexibility and Affordability Potential for graduation

31 What our Members Say Programmatic Articulate the need, but also the demand Cultivate allies Design a good product Measure success Operational Staff for success Be consistent but flexible Use technology to your advantage Manage data carefully Collect correctly Regulatory Know your state s lending licensing and other rules Comply with federal laws Financial Budget adequately

32 Next Steps Create an SDL Learning Community to share & connect Update CBA SDL Lender Member Products and Programs Advocate for CDFI Loan Loss Reserve Fund

33 Thank You Sarah Chenven