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Becoming a Micro Lender

Becoming a Micro Lender. Welcome!. Adding Lending: Why?. Lack of micro loan access for your clients Clients need $ to grow businesses to sustainability level Ready to expand services beyond classes and one-on-one counseling What else?. What it Takes. Plan and Program Design

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Becoming a Micro Lender

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  1. Becoming a Micro Lender Welcome!

  2. Adding Lending: Why? • Lack of micro loan access for your clients • Clients need $ to grow businesses to sustainability level • Ready to expand services beyond classes and one-on-one counseling • What else?

  3. What it Takes • Plan and Program Design • Lending Capital • Funds for Operation Expenses • Microlending Management System (MMS) • Staff Capacity • Organizational Change

  4. Plan and Program Design • Mission, Goals, Leadership, Funding • Loan Product, Underwriting, Outreach • Servicing, Delinquencies, Portfolio See “Steps for Becoming a Microlender” for more detail

  5. Lending Capital • Grants (equity). Ideal for higher-risk, labor-intensive micro loans. • Debt. Funds you borrow at a low rate and with a long term. You lend out at a higher rate and shorter term, allowing you to keep the “spread.” Use for lower-risk deals. • Sources: SBA, CDFI Fund, EQ2 loans from banks, RMAP, IRP, RBEG, HUD, foundations, corporate donations

  6. Funds for Operations • Loan officer • Back office staffing • MMS and loan servicing fees • Time from ED, board or loan committee, accounting staff and TA staff • Good mobile technology and web interface

  7. MMS Overview Supports lending here Risk Assessment Outreach Underwriting Closing Application Document Collection Credit Memo Servicing & Collections

  8. Solution: MMS Online • Automated screening Spend minutes instead of hours finding eligible deals • Sort deals quickly MMS gives a risk rating to each application • Fast and reliable underwriting Rely on successful underwriting team for quality deals and portfolio strength

  9. How Does It Work? Three step process: 1. Online application 2. Auto Review: five-minute risk assessment to establish eligibility 3. Underwriting: Two-day turn around on underwriting

  10. Auto Review Using 13,000+ loan portfolio, Accion Texas has built a risk assessment tool. It measures: • Capacity: Is there enough global cash flow to make loan payments? • Credit: Is historical use of credit in the ball park? • Risk: Does borrower’s profile match that of successful borrowers in AT portfolio?

  11. Auto Review Results: Five Minutes Your Agency: • Directs potential borrowers to online application • Pulls credit report and marries it to the application • In five minutes, Auto Review gives risk assessment Green: Borrower meets all three measures Yellow: Borrower lacking one measure Red: Borrower fails two measures

  12. Give Client Same-Day Results You contact client same day with application results. Proceed with approved deals: • Gather documents to verify application information and underwrite loan. Green: MMS Generates Required Document List Yellow: After consultation with MMS Underwriting, RDL generated • Upload docs to MMS

  13. Underwriting: 48 hours MMS Underwriting department reviews documents Provides final decision and terms Provides credit report Is available for questions, discussion, consultation

  14. Closing and Servicing Proceed with your own closing documents, collateralization and funding processes.

  15. Your Participation CAMEO requests participating members: • Run all deals through Auto Review • Accept MMS underwriting grid • Participate in monthly calls for individual and peer learning

  16. Staff Capacities • Basic business training background • Sales approach to deal development • Underwriting basics • Servicing & deal restructuring capacity • Portfolio, accounting capacity Probably not all skills in one person

  17. Organizational Change • Traditional TA and a long “get to know you” process. Staff and clients get close. • Understand difference between a good TA client and good loan client • MMS underwrites on current cash capacity and credit • Less on projections or long-established relationships – “character”

  18. TA Clients vs Loan Clients • To use MMS to its fullest, integrate system into staffing expectations and client interface – working faster and more based on the numbers • MMS creates scale but does cut some clients out of the process • Each organization must find a way to help these clients

  19. Commitment Directors must: • Desire growth and increased efficiency • Provide hands-on leadership for change In addition, staff needs to be open to changing roles and procedures.

  20. ML Industry Transforming Microlending being transformed: • Common now to build or buy behavioral models with big data • Coupled with online applications • Coupled with a fully online automated process • Leads to fast risk assessment, decision making, loan closing • For-profit lenders moving into this field

  21. ML Industry Transforming Add to that: • Crowdfunding • Profit-making possibilities • Lots of new lenders cropping up everyday • Borrowers realize they have other options Need to change to stay in the game

  22. Questions?

  23. Thanks!!

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