THE JUBILEE INITIATIVE FOR FINANCIAL INCLUSION Spring 2012

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THE JUBILEE INITIATIVE FOR FINANCIAL INCLUSION Spring 2012 Evaluation Meeting

THE JUBILEE INITIATIVE FOR FINANCIAL INCLUSION Spring 2012 Evaluation Meeting

Agenda Presentation � Poverty & Payday Loans � Microfinance & Alternatives � The Ji.

Agenda Presentation � Poverty & Payday Loans � Microfinance & Alternatives � The Ji. FFi Solution? � Further Questions & Challenges � Immediate Plans Critique & Discussion

Methodology Existing Literature � Center for Responsible Lending � Filene Research Institute � Reports

Methodology Existing Literature � Center for Responsible Lending � Filene Research Institute � Reports and Papers Conversations � Professors � Community leaders � Community members

Poverty & Payday Loans (PDLs) Consideration of Poverty & PDLs • What is a

Poverty & Payday Loans (PDLs) Consideration of Poverty & PDLs • What is a PDL? Who uses PDLs? • How are PDLs beneficial? • Why might PDLs be problematic? •

Cycle of Poverty Unhealthy Lifestyle Lack of Education Povert y Polarized Thoughts Job Inconsiste

Cycle of Poverty Unhealthy Lifestyle Lack of Education Povert y Polarized Thoughts Job Inconsiste ncy

Is It Our Problem? What does poverty mean for the community? � Stints in

Is It Our Problem? What does poverty mean for the community? � Stints in human potential � Wastes resources � Hurts the economy A sustainable community must work to break the cycle of poverty

Poverty Payday Loans Poverty is not just an economic class, but a job in

Poverty Payday Loans Poverty is not just an economic class, but a job in itself � People have learned to manage poverty The cycle of poverty cannot be broken if it is being managed! � Using Buy payday lenders to extra appliances Loan money to friends and family Pay off a bill

Payday Loans (PDL) Cash advance against paycheck • $100 -500 + fees due next

Payday Loans (PDL) Cash advance against paycheck • $100 -500 + fees due next payday • Features rollovers to extend loan term Marketed for emergency use • Speedy application and underwriting process • Short term focus • A safety net?

User Demographics Average Age: 38 Median Income: $25, 000 - $30, 000 42% homeowners

User Demographics Average Age: 38 Median Income: $25, 000 - $30, 000 42% homeowners 84% high school graduates Minorities and the lower working-class � African-American neighborhoods have three times as many payday lending stores per capita… � 5. 5 per 10, 000 households working-class neighborhoods vs. 3. 4 per 10, 000 in poor neighborhoods Center for American Progress, Who Borrows from Payday Lenders?

Brick and Mortar Payday Stores

Brick and Mortar Payday Stores

Bank Payday Loans

Bank Payday Loans

Stores in South Bend Check Into Cash B. Cashland C. Advance America D. Cash

Stores in South Bend Check Into Cash B. Cashland C. Advance America D. Cash Plus E. Checksmart F. Personal Finance Co. G. Check ‘n Go A.

Benefits Responsive to emergency situations � Accessible location and time � Speedy underwriting process

Benefits Responsive to emergency situations � Accessible location and time � Speedy underwriting process Tolerates tarnished credit � No credit check � Does not show up on credit reports

Problems The Hook � “Convenience” � Emergencies Lack of alternatives The Juggle � Expensive

Problems The Hook � “Convenience” � Emergencies Lack of alternatives The Juggle � Expensive balloon payment 391% APR � 44% ultimately default � 12 million Americans trapped Center for Responsible Lending; Interviews

Problems Inability to repay bank payday loan and meet basic obligations Before tax income

Problems Inability to repay bank payday loan and meet basic obligations Before tax income for two-week pay period minus taxes After tax income Payday loan balance and fee due Money left over Basic expenses per two-week period (housing, transportation, food healthcare) Surplus/(Deficit) $25, 000 Salary $35, 000 Salary $ 962 $ 1, 346 (66) (105) 896 1, 241 (550) 346 691 $ (798) (452) $ (895) (204) Loan leads to dependence on more loans Average borrower has 9 repeat loans/yr Center for Responsible Lending

Power Dynamics How can we � Recapture value in the exchange? � Be approachable

Power Dynamics How can we � Recapture value in the exchange? � Be approachable but professional? � Locate ourselves to allow privacy? Borrow er Lender Capital Need No Alternatives Knowledge Time Interview

Impact Summary Setup Burde n Result • Difficult macroeconomic environment • Paycheck to paycheck

Impact Summary Setup Burde n Result • Difficult macroeconomic environment • Paycheck to paycheck lifestyle of poverty • Emergency and/or unexpected spending • Fees - $4. 2 bill. in annual profits in a $50 bill. industry • 2. 5% of possible family expenditures • Strenuous loan terms - prominent debt trap • Wealth stripping – from low or fixed income families • Effectively weakens purchasing power of working poor • Breaks the economic backbone in the long run Center for Responsible Lending, Bureau of Labor Statistics, US Census Bureau

Microfinance What is microfinance? • How and why does it work internationally? • Does

Microfinance What is microfinance? • How and why does it work internationally? • Does it work domestically? • Is Ji. FFi a microfinance organization? •

Microfinance Umbrella term that incorporates many services The provision of financial services to: �

Microfinance Umbrella term that incorporates many services The provision of financial services to: � Underprivileged � Micro-entrepreneurs � Small businesses Lack access to traditional financial services � Due to high transaction costs associated with serving these client categories

International Example: Kiva Non-profit organization Connects people through lending worldwide via the internet Goal

International Example: Kiva Non-profit organization Connects people through lending worldwide via the internet Goal of alleviating poverty

International Example: Grameen Bank Helps the world's poorest improve their lives and escape poverty

International Example: Grameen Bank Helps the world's poorest improve their lives and escape poverty � Especially women Provides the poor access to � small loans � essential information � viable business opportunities

International Example: ACCION Provides management services, investment, and governance support to help build institutions

International Example: ACCION Provides management services, investment, and governance support to help build institutions worldwide that are sustainable � Currently 62 in 31 countries � Franchise model

Domestic Success & Failure Success • Working Capital • Based in Boston • Now

Domestic Success & Failure Success • Working Capital • Based in Boston • Now part of the ACCION International network • Stand-alone peer lending organization • Operated within existing social groups • Worked with entrepreneurs • Also offered a credit building product Failure • Good Faith Fund • Based in Pine Bluff, Arkansas • Imported the Grameen Bank model • Formed new social groups • Rather than working with existing groups • Did not use groups as an accountability measure • No assumption of lending responsibility

Demographics Rural Arkansas is vastly different than Boston � South Bend is home to

Demographics Rural Arkansas is vastly different than Boston � South Bend is home to diverse population � 24. 8% Bend is somewhere in the middle Black; 11. 0% Hispanic, 2. 3% Mixed Can we harness the community to build a successful model like that of international organizations? � SJC Bridges out of Poverty participants’ cohesion a great example City-data. com

Is Ji. FFi a Microfinance Organization? “Having the opportunity to earn a little more

Is Ji. FFi a Microfinance Organization? “Having the opportunity to earn a little more cash by starting some kind of business is perceived by many of the poor as not worth the risk or effort. ” - Richard Taub Not quite, but focus on: � Trust-based relationships rather than transactional ones � Financial education � Building credit � Investments for the future Not just consumption Future plans for microventuring arm

Existing Alternatives to PDL South Side Community Federal Credit Union • Good. Money •

Existing Alternatives to PDL South Side Community Federal Credit Union • Good. Money • Zest. Cash • Others •

outh Side Community Federal Credit Union Payday Alternative Loans (+) � $200 - $1000;

outh Side Community Federal Credit Union Payday Alternative Loans (+) � $200 - $1000; 15% � Terms from 1 to 6 months � Free credit building & financial education classes Challenges � Requires membership � Low volume Interview

Good. Money Collaboration between Prospera Credit Union & Goodwill stores Short-term loans � half

Good. Money Collaboration between Prospera Credit Union & Goodwill stores Short-term loans � half the rates payday lenders Other banking services Referrals to the Financial Information and Service Center (FISC)*

Zest. Cash Founded by former CIO of Google Features user tailored loans For-profit, very

Zest. Cash Founded by former CIO of Google Features user tailored loans For-profit, very expensive � High fees � Compound interest

Other Banks & Credit Unions � Option Personal Finance Companies � Similar usually exhausted

Other Banks & Credit Unions � Option Personal Finance Companies � Similar usually exhausted steep fees Family & Friends � Potential negative social implications � Only 5% consider this alternative Caskey, Economics of Payday Lending

The Ji. FFi Solution? What are the lessons? • What are the goals to

The Ji. FFi Solution? What are the lessons? • What are the goals to achieve? • What should a Ji. FFi loan look like? •

The Necessity of Education Poverty Individual Stability Financial Success Mentored Decisions Education “You can’t

The Necessity of Education Poverty Individual Stability Financial Success Mentored Decisions Education “You can’t tell them to be clean if they don’t know what clean is!”

Class Perspectives Necessary to understand Each social class has its own habits Habits determine

Class Perspectives Necessary to understand Each social class has its own habits Habits determine what drives actions: what is the motivation? The final goal?

Hidden Rules Poverty Middle Class Wealth Food Did I have enough? Quantity Did I

Hidden Rules Poverty Middle Class Wealth Food Did I have enough? Quantity Did I like it? Quality Did I like how it looked? Presentation Time What do I need now? Present What do I need in the long-term? Future What have I done in the past? Traditions & History Possessions People Things Legacies Money To be used! To be managed! To be invested! From Bridges Out of Poverty, Terie Dreussi Smith, 2012

To break the cycle… Understand the perspective of each individual Value the dignity of

To break the cycle… Understand the perspective of each individual Value the dignity of everyone that comes in and maintain the relationship � Treat every individual as an individual Work towards getting out of a cycle instead of trying to temporarily manage it

Ingredients for Success Emergencies happen Nudge factor � Vision of possibilities � Trading “rules”

Ingredients for Success Emergencies happen Nudge factor � Vision of possibilities � Trading “rules” Clients’ long term success � Client sets financial Education & Guidance Appropriate Financial Tools Long Term Relations goals � Provide accountability Ji. FFi

Comprehensive Service -Custom tailored installment loans -Credit building repayments -Demonstrative education -Financial crash course

Comprehensive Service -Custom tailored installment loans -Credit building repayments -Demonstrative education -Financial crash course series -Goal oriented, restricted savings & accountability services

Product Snapshot Ji. FFi Personal Loan • Statement of purpose required; amount co-determined with

Product Snapshot Ji. FFi Personal Loan • Statement of purpose required; amount co-determined with Ji. FFi • 12% simple interest, custom tailored repayment plan • Redeemable “In Your Own Interest” amount (33% of interest) Savings Program Restricted • Goal-oriented savings and matching program • Inaccessible unless pre-determined conditions are met Consultation (Future) • Platform for ND students and community entrepreneurs to meet

Dignity Establish Relationship Ji. FFi Guide Financial Decisions urag e Com muni catio n

Dignity Establish Relationship Ji. FFi Guide Financial Decisions urag e Com muni catio n Social Value Solve Emer genc y Business Achieve Multiple Goals

Further Questions & Challenges What are some social challenges? • What are some business

Further Questions & Challenges What are some social challenges? • What are some business problems? • We need your help! •

Social Challenges “Invisible” target market Root of the problem runs deep and wide Complexity

Social Challenges “Invisible” target market Root of the problem runs deep and wide Complexity of poverty Bridging the gap between ND students and rest of the community

Business Challenges Complex business with heated competition � Payday lenders advertise ferociously � High

Business Challenges Complex business with heated competition � Payday lenders advertise ferociously � High risk Difficulties in delivery � Requires costly overhead & hours Student pool talented but busy � How to frame incentives?

South Bend Household Budget Est. Indiana Business Review

South Bend Household Budget Est. Indiana Business Review

Business Problem ($)

Business Problem ($)

Business Problem

Business Problem

Business Problem Simplistic & optimistic estimate Overall loss of $(8, 332) in the first

Business Problem Simplistic & optimistic estimate Overall loss of $(8, 332) in the first year 2014 full capacity overall income of $2, 800

We Need Your Help! Academic assistance � Data collection & impact evaluation � Legal

We Need Your Help! Academic assistance � Data collection & impact evaluation � Legal support � Business plan generation Student & faculty involvement � Human capital intensive – student groups � Board of advisors – faculty and other leaders Local cooperation � Complex problems; help from local organizations � Input and support from local government

Immediate Plans What are we going to do in the Summer and Fall?

Immediate Plans What are we going to do in the Summer and Fall?

Plans Summer � Personal research and development Summer � Acquaint programs & internships with

Plans Summer � Personal research and development Summer � Acquaint programs & internships with community Fall � Re-evaluate purpose, model, team � Mc. Closkey Business Plan Competition � Test products

Video

Video

Summary Presentation � Payday Loans � Microfinance & Alternatives � The Ji. FFi Solution?

Summary Presentation � Payday Loans � Microfinance & Alternatives � The Ji. FFi Solution? � Further Questions & Challenges � Immediate Plans � Video Critique & Discussion