Much of the success of high-impact small dollar lending hinges on strong relationships—with community partners and borrowers. Doing the initial research and planning needed to develop a loan product that fits well within your organizational structures as well as within your community is critical. In addition to fostering organizational and community buy-in, offering a new loan product may require initial investments in staff capacity and technology. Investing in infrastructure that allows for program growth may be costly upfront, but could save your organization time and money down the line. Ultimately, the key is building a lending model that allows you to cultivate and maintain strong and supportive relationships through efficient and transparent processes.
Strong partnerships are key to effectively supporting borrowers. Different types of partners can help you achieve different program goals. Partners can help you:
Many CBA members specifically expressed difficulty with finding funds to cover the operational expenses associated with lending and other financial capability services. The Richmond Federal Reserve found that nonprofit lenders whose primary missions are driven by lending are able to recover 47% of their annual lending costs, whereas those for whom lending is an ancillary service typically only recover 16% of lending costs.38 Either way, combined with riskier loan products, balancing the provision of safe and affordable loans with covering the costs of providing those loans is challenging. Seeking to balance the pursuit of funding by offering services or products that can subsidize other services and/or finding creative ways to fund a program can be a way to achieve a sustainable balance. Nonprofit lenders typically depend on a mix of private and public funding to sustain operations and maintain loan capital.
38 Hoy, Tammie, Jessie Romero, Kimberly Zeuli. (2012, May). Microenterprise and the Small-Dollar Loan Market. The Federal Reserve Bank of Richmond, EB12-05.
39 This information is from the U.S Department of the Treasury Community Development Financial Institutions Fund website: https://www.cdfifund.gov
40 EQ2s are long-term subordinated loans that function similar to equity. They were created to expand access to investment vehicles for CDFIs, and investors receive CRA credits. For more information on EQ2s see: Lipson, Beth. (2002, March) Equity Equivalent Investments. Retrieved from https://www.cdfifund.gov/Documents/(22)%20Equity%20Equivalent%20Investments.pdf
There is no way around it, providing SDLs is a time and cost intensive endeavor. In a survey of CBA members who offer or were thinking of offering SDLs, 45% saw lack of staff time as a barrier to project implementation and were concerned with the time it may take for staff to service loans and collect payments.41 So, before implementing a loan product, it is important to ensure that everyone at your organization has the time and skills to execute their roles effectively. Below is a sample organizational chart developed by FIELD at the Aspen Institute. It provides a helpful visual of all the roles required to run a loan program. In many nonprofits, one person will wear many hats, so not each box necessitates a distinct staff person, but it is important to make sure that each box falls under someone’s job responsibilities.
While each organization is different, and time will depend on how high-touch you design your loan program to be, below are some key considerations for staff, leadership, and board around their responsibilities and capacity.
In a recent survey of CBA members, one member emphasized that caring about the mission and having experience working with the target client population are among the most important attributes to look for in lending staff. The other technical aspects of lending are teachable. However, ensuring they have the proper training is critical (see suggestions in Recommendations for Staff Training section below).
The box below provides an example of how Rachel Stein, the loan program manager at Innovative Changes, a CDFI based in Portland, Oregon that offers SDLs, spends her time.
A DAY IN THE LIFE OF A LOAN OFFICER
CBA sat down with Rachel, a full-time Loan Manager at Innovative Changes, a CDFI with a relatively “high-touch” approach, to learn about how she spends her time. Last year, Rachel processed about 140 loan applications, 90% of which were approved. She is responsible for servicing a total of 327 active loans, and, as one might expect, often feels stretched for time! Keep in mind that every loan program will be different, depending on a number of factors, but, as a reference point, the below pie chart shows how Rachel estimated her use of time. It is important to note that some of the activities involve other staff in addition to Rachel. For example, there are other staff at IC$ that provide financial education and assist with servicing loans.
As you design your program and hire and/or train staff to deliver loans, here are some considerations to keep in mind:
CBA Training Institute has a variety of trainings and tutorials on credit building, Metro2 credit reporting and the Fair Credit Reporting Act (FCRA). In addition, it offers resources and training to practitioners on the ins-and-outs of the credit reporting industry and supports clients in credit building activities (see Appendix E: CBA Training Institute Opportunities). Resources include:
In addition to CBA there are a variety of organizations that specialize in lending, financial capability, and in culturally-specific training.
Lending training: Many of the resources below are not specific to consumer lending, but many of the microlending concepts are applicable and/or transferrable.
Financial education and coaching training: Even if your program is not offering financial education or coaching, it may be helpful for staff to have knowledge of the approach.
Depending on the expertise of leadership, the size of the organization, and types of programs and services, the leaders of CBA member organizations reported playing different roles in their lending programs. Some leaders were involved at multiple points of each loan: approving applications; reviewing closing agreements; and overseeing collection efforts. Others focused more on big picture operations: obtaining and maintaining program funding; meeting reporting requirements; managing overall portfolio risk; building partnerships; and the legal aspects of the program.
As you design your loan program, here are some considerations to keep in mind that will have implications for your leaders’ time:
Board members can also provide guidance on the big picture aspects of lending. Many nonprofits seek to fill gaps in expertise through their board members. CBA members have found it useful to have board members who are bankers, lawyers, community partners, and advocates for and members of the populations they are lending to. Having board members with both the community perspective and the business perspective is key to balancing the organization’s mission and the sustainability of the loan program. CBA members reported that board members were commonly involved in:
Loan oversight committees or loan review committees can be a sub-committee of the board, or a committee independent of the board. Loan committees can help develop and review policies and procedures, strategically manage risk in the loan portfolio, take the burden off of individual loan officers for determining risk, and provide objectivity in making loan determinations. In addition, loan oversight committees can help make decisions around loans in delinquency status or serve as a body for denial of appeals. On the other hand, a loan oversight/review committee can add another administrative layer to your program, which may slow down the lending process. Some CBA members turn to a loan committee to make determinations for their larger-sized loans, but make decisions around smaller loans through internal staff review.
The Chehalis Loan Fund, a tribal loan fund that offers small business, consumer, and home improvement loans, has a loan review committee that is made up of four (4) board members. The loan review committee only reviews loans applications for amounts over $5,000, and they meet as a committee as needed.
Considerations for setting up a loan oversight committee:
41 Credit Builders Alliance. (2012). Small Dollar Consumer Loans: Nonprofit Lenders Making a Difference. Retrieved from https://www.creditbuildersalliance.org
42 Adapted from: The Aspen Institute. (2017). Microloan Portfolio Management. [PowerPoint slides]. Retrieved from
43 American Institutes for Research. “Trauma-Informed Care.” Retrieved from http://www.air.org/topic/families-communities-and-social-systems/trauma-informed-care
44 ACES Connection. “Trauma-Informed Care Toolkits.” Retrieved from http://www.acesconnection.com/blog/trauma-informed-care-toolkits-1
45 Center for Evidence-Based Practices. “Motivational Interviewing.” Retrieved from https://www.centerforebp.case.edu/practices/mi
Other Technology Many financial service providers are seeking new ways to leverage technology for the financial inclusion of low-income households. Technology-based platforms can be a great way to engage younger borrowers, or borrowers with hearing or sight impairments. For borrowers less comfortable with technology, paper-based options may be the best way to go. Incorporating technology into your program can be as easy and low-cost as adding links to web-based tools on your website, or it can involve more planning and resources. Here are some moderately low-cost ways of using technology to enhance educational opportunities and access to your loans:
Technology can also be used to automate application, for underwriting, and for loan servicing processes. Automating parts of your loan program may increase efficiency. However, sometimes efficiency can come at the cost of building strong relationships with borrowers. It is important to find the right balance for your program.
TABLE 1: TOP 7 LOAN SOFTWARE PROVIDERS USED BY CBA MEMBERS
Once you have a sense of your organizational needs you can start collecting information on different software companies or developers, their capabilities, add-on options, and pricing. Often, software companies will provide demos so that you can get a feel for the platform. CBA does not recommend one software over another; each organization needs to find the right fit for their needs. However, Table X has a list of the top 7 software providers used by CBA members. Additionally, Appendix B (“Top Ten Metro 2 Software Considerations”) has considerations for choosing loan software that is compatible with credit reporting as well as including the contact information for those loan software providers.
Purchasing loan software is a large upfront investment. The more you plan to scale and automate your program, the more it will cost initially. However, choosing or developing your own software that meets your organization’s needs for now AND in the future, can save you time and money in the long-run. Each loan software program has its own special features, strengths, and points of frustration. Before launching into a comprehensive scan of loan software and/or developing your own, conduct an inventory of your organizational needs. Think about: