What We’ve Learned about Online Lending
One of the things I’ve learned working in microfinance (actually, working period) is that effective, well thought out technology is crucial to every aspect of an organization, but especially in the ability to achieve scale. This fact is particularly glaring in regards to ACCION USA’s “OLA” – our online loan application – that serves as our primary lending tool everywhere outside of our core service areas and gives borrowers in existing markets an easy way to apply.
ACCION USA pioneered online microfinance lending in 2005 with the original launch of the OLA—it was a bright, shiny new piece of technology, and was instrumental in helping us increase microloan access in the U.S. (It even earned the Innovation in Technology Award from the Association for Enterprise Opportunity). But five years is a lifetime on the Web, and today, the application is riddled with challenges that we’re hoping to work through in an up coming re-launch.
Website usability experts and the microfinance community in general might be interested in what we’re learning along the way:
- Simple design is good design. Our core concern was designing a tool that would effectively serve individuals with varying levels of Internet literacy. What we discovered was that users across the internet-knowledge spectrum all appreciate the same thing: good, intuitive design. Think Google, whose bare bones, yet eerily intuitive platforms are virtually universal.
- Keep it simple, stupid (KISS). We’re applying KISS, the age-old marketing adage, to every word we write. The microfinance industry is so full of jargon that most practitioners no longer realize that phrases like “debt-to-income ratio” and “overextended credit” don’t mean much to typical borrowers (or maybe just this blogger). We’re being careful to use the words our borrowers use, making the application far less intimidating.
- Technology can be personal. Internet and remote lending is often criticized due to its lack of personal touch, a concept widely regarded as critical to maintaining high repayment rates. With that in mind, we’re making the online application process as personal as possible—my favorite new OLA feature is the financial education “prescription” that will be generated for each new loan applicant whether they are approved or denied.
We’re due to re-launch this summer so stay tuned!
P.S.… Our amazing consultants on the OLA relaunch project, the team at Addventures, taught us everything we know.
Microfinance Week in Review- Week Ending February 26, 2010
Some of the week’s news in the microfinance, green business initiatives and the small business sector
- How has Microfinance Changed Since 2005? – Triple Pundit
- Selling the Business with Social Mission Attached- BusinessWeek
- Regulators ease up on small business loans- CNN
- The End of the Big Idea for the Jobs Bill?- NewsWeek
- Lending Falls at Epic Pace- Wall Street Journal
Micro-boosting Weatherization Programs
We are the weatherization nation – and so much the better for it. Last year, the Obama Administration injected $8 billion of stimulus funding into the weatherization industry, with a lofty tripartite objective: create green un-exportable jobs, save energy consumers cash, and make the environment happy.
But what happens when government money is injected into a system that doesn’t exist? Community, government, and for-profit groups scramble to create the infrastructure. After much “building”, what has been made clear is that “there are currently not enough skilled workers and green entrepreneurs to expand weatherization and efficiency retrofit programs on a national scale,” as Vice President Biden concluded in a recent task force report on the subject.
- Contractors need loans for items like blower doors, which are used to check a building’s insulation.
ACCION USA is currently talking with groups in Massachusetts and New York about leveraging microlending to help contractors jump into weatherization and/or aid those already in the game to expand to meet growing the demand. While many states have used government funding to provide incentives for weatherization, many of these incentives are rebates. And without the money to front the cost, many contractors are opting out.
By incorporating a microlending component into weatherization programs, contractors will be able to move quickly – reacting to the market. Once they’ve taken hold of the weatherization opportunity, these businesses will continue to flourish, in large part due to the education and credit training received with their microloans. So even after the nation has been duly weatherized, contractors will continue to employ and grow.
Do you think microlending has a part to play in weatherization?
Tell Us Why Microfinance Matters to You
Luz with her father, Carlos I. Gomez (1936-2006)
The StoryCorps Historias trailer came to town in late January and I had the opportunity to talk about why I’ve worked with small businesses for over a decade. My husband interviewed me about my dad, Carlos Gomez Arriola, who passed away in 2006. If you haven’t heard about StoryCorps, it’s an amazing oral history project that travels throughout the U.S.
Dad was a proud immigrant from Medellin, Colombia who owned his own home-based company in Los Angeles—COEXPO—for 30 years. When I started working with ACCION in New York, he came to visit several times and I would drag him along to site visits of clients all over the five boroughs. He even sat in on credit committee meetings! And when I moved to Miami to start ACCION’s Miami operations, he was there too, helping set up office furniture or providing advice for working with export clients. He totally got the concept of this work since he himself didn’t qualify for financing when he was first starting out in the early 1970’s. Even though I didn’t take over the reigns of his business, you could see that the importance of supporting small business was not lost on me.
So if you’re working in microfinance today—tell us your story about why you got involved.
The Incredible, Shrinking Tax Refund!
ACCION USA provides taxpayers with the financial education and resources they need to make smart, informed decisions about RALs.
And so it begins. Tax season. The time of year when tax prep software commercials sandwich prime time TV shows and your friends in the tax prep industry sleep on office couches. For many like myself, it’s another opportunity to procrastinate for four months and then spend my entire refund on priority mail.
Unfortunately, this time of year is also notorious for coercion and scheming, and the latest trend is in refund anticipation loans (RALs). A tax preparer may advertise these loans as “instant loans” or “instant refunds” – in reality, the only instant thing about them is the speed with which your real refund will shrink.
Here’s how it works: your tax preparer offers you a RAL; you accept the offer and sign a document, which is essentially a loan agreement authorizing the preparer to use your refund as a guarantee, with interest rates as high as 50-500% a year; the loan is (instantly!) approved; you walk away with fast cash but actually receive a significantly smaller refund; and the tax preparer makes one hefty profit.
Certainly, the tax prep industry provides a highly-demanded service for many, many people. But according to the Woodstock Institute, 8.67 million taxpayers received RALs in 2007. A RAL may very well have been an appropriate solution for some of these individuals, but I will venture to guess that they comprise only a small portion of that 8.67 million. What about the millions who are essentially handing over their hard-earned money? I believe the answer lies in education and empowerment.
ACCION USA’s financial education team is on top of this. We have already distributed an article addressing RALs, and we are featuring RALs in our online tip of the month. In addition to educating clients on the implications of refund anticipation loans, we also provide them with valuable resources, including smart alternatives to RALs, lists of free tax preparation locations (including our Miami, FL office), and helpful websites. These resources not only have the power to produce more informed taxpayers; but they also have the potential to mold a new generation of educated, responsible, and empowered consumers.
This type of generational change may not be instant – but in terms of the return, the investment is surely worth the wait.
Tags: accion, accion usa, anticipation, education, eitc, financial, Financial Education, literacy, loan, microfinance, prep, preparation, RAL, refund, tax, tax season
Microfinance Week in Review- Week Ending February 19, 2010
Some of the week’s news in the microfinance, green business initiatives and the small business sector
- The lending crunch: ‘It is very hard to survive’- CNN
- 4 Lending Innovations That May Help Small Business- Entrepreneur.com
- At Shared Offices, How Green Is My Work Space- New York Times
- Initiative lends stability to aspiring city entrepreneurs- Daily Targum
ACCION USA Takes the Energy Star Challenge
ACCION USA kicked the year off right by pledging to reduce our carbon footprint in 2010! We created an internal committee of passionate staffers and signed onto the Energy Star Challenge to hold our feet to the fire. We figured that greening our own operations would be an important step in promoting green business practices to microentrepreneurs.
To start, ACCION USA staffers in each office volunteered to be a green champion— each responsible for surveying our current green (or not-so-green) status. The survey considers the following:
- Facilities and Energy Use: Utilities, Lighting, Electronics, and HVAC
- Water Conservation
- Waste: Reduction, Recycling, and Printing
- Green Product Purchasing
- Transportation
The survey will help the green committee determine ACCION USA’s baseline. Once the baseline is established, we’ll be able to create a plan and track our progress (which, of course, we’ll report back to all of you!).
To rally our entire organization around the green theme, the committee will be throwing a St. Paddy’s Day pot luck and, you guessed it, staff will be asked to bring their favorite green (or green-colored) food. And, of course, we’ll post pictures.
Read more about the Energy Star Challenge and sign up to take it yourself!
Microfinance Week in Review: Week Ending February 12, 2010
Some of the week’s news in the microfinance, green business initiatives and the small business sector:
- Credit unions seek larger share of business loans- Washington Post
- Microlender Accion USA Avoids ‘Antipoverty’ Pitch- American Banker
- Report Pits Perception Against Reality on Issue of Green Business Practices- New York Times
- More on Microfinance in the United States- The Epicurean
- TARP Panel: Small Banks Are Facing Loan Woes- Wall Street Journal
Why America’s Small Businesses Aren’t Going Green (and How ACCION USA is Changing That)
“Going green seems like a no-brainer—businesses can save both money and the planet, what’s not to love?” When we set out to launch our green loan product, that’s what we thought. And then we dug deeper, into the psyche and daily experience of the small businesses we serve. In addition to traditional market research, in April 2009 we executed two focus groups and what we found may surprise you. While small businesses report to “strongly believe in green”, they also:
- Are confused on the definition of a green businesses
- Feel there is a lack of transparency in the small business green market;
- Feel most businesses are not serious about helping the environment, but are looking for a “pat on the back” or a marketing gimmick; and
- Think going green is not economically viable, and should be heavily subsidized.
We can’t ignore the data. Going green can bring green ($) if you have green ($). Microfinance organizations are perfectly poised to pull small businesses out of the same old “I can’t, it’s too expensive” mentality. With the right loan product and support services, small business will see a return on their investment and, at the same time, make the planet a more hospitable place to live. To address the concerns we discovered in our initial research, ACCION USA will launch a green loan program that is:
- Clear on its definition of “green”,
- Focused on energy efficiency and provide clear-cut guidelines to defining green,
- Affordable if not low-cost,
- Industry-specific in terms of support services and marketing, and
- Supported by trusted organizations.
Stay tuned, this month we’re finishing up our second round of focus groups and will release preliminary results right here on Main Street Microfinance. In the meantime, check out our client and green-preneur Brian Duda.
Tags: green business loans
Maybe Microfinance is More about Jobs than Poverty?
There have been few articles highlighting the U.S. microfinance industry that I have enjoyed as much as the one published today by Maria Aspan in American Banker (ACCION USA Avoids Anti-Poverty Pitch – February 10, 2010). While industry critics frequently link success (or lack thereof) to the ability for microfinance institutions to alleviate poverty, Ms. Aspan, through her thoughtful interview with ACCION USA president and CEO Gina Harman, recognizes that in the U.S., microfinance isn’t the silver bullet. Ms. Aspan wrote:
“It is true that microfinance is a means of lifting people out of poverty, but it, in and of itself, will not get the job done,” Harman, the president and chief executive of the nonprofit microlender Accion USA, said in an interview last month…”I think if we cast ourselves in the language of, ‘We solve poverty,’ we become part of the big universe of antipoverty fighters, without a big, systematic, programmatic way of describing how we do so,” she said. “If microfinance is the answer to every question, we’re going to answer no questions — and that’s why I want to stay focused on small business.”
In addition, Ms. Aspan painted an accurate portrait of the spectrum of microfinance providers in the U.S., complementing Ms. Harman’s remarks with insightful comments from other industry leaders, including Stephen Vogel of Grameen America:
Stephen Vogel, Grameen America’s CEO, said by e-mail that it “focuses on providing small loans to people living at or below the poverty line. … Accion is an excellent next source of capital for our borrowers and their businesses”…
And Premal Shah of Kiva:
Premal Shah, Kiva’s president, acknowledged “a good, healthy tension” between the language of poverty and that of small business, especially as Kiva facilitates lending domestically and abroad.
“Unlike Ghana or Bangladesh … where it’s clear that the people on our Web site are coping with some form of poverty,” marketing is trickier in this country “because of the wealth, because there are small businesses that still can’t get loans from banks,” Shah said. “We have to be more thoughtful in the United States, because the U.S. microfinance sector serves a broader range of clients.”
So, then, what is microfinance about if not directly alleviating poverty? Frankly, in today’s unemployment-plagued economy microlenders like ACCION USA are focused on one impact indicator: job creation. Each loan we provide helps to create or save nearly 2.5 jobs—that’s 2.5 people that could have gone from lower-income to no-income in a heartbeat. Moreover, these jobs are relatively higher paying (compared to the national minimum wage) and sustainable (as over 98% of our borrowers’ businesses survive).
I’d be interested in hearing from someone who could argue that that’s not success.