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NET IMPACT. Saturday afternoon. questions
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Questions.
Why have so many attempts at micro loans fail and you succeed.
We succeeded because we had dedicated students who knew the area and worked with a single ethnic group. Others models have failed because they tried to replicated processes from other countries here and they did not work well.
Erika answered that ACCION has succeeded because they have focused on trying to do one thing well, deliver credit that is appropriate for the market. We targeted specific markets and developed systems for that market. We have worked on our underwriting system to insure the clients are the right fit so we can move the process quickly. We try to make character-based loans based on references as well as credit reports. But it is a challenge in the US to make micro loans; we are only covering 40% of our costs. We have to reach scale to make a profit.
What is the worst loan you ever made?
Clint. That’s easy – it is one where you misjudge character. In our loan making we do a lot of due diligence. We spend time and money on due diligence the banks won’t pay for. Our target is businesses that are below the bank’s cutoff limit, so we have to. But the most important step is character. When we misjudge that, we lose.
Can mfi’s partner with commercial banks.?
Clint. 80% of my partners are banks. Many of the loans I made last year were referred to me by bankers who could not make those loans but knew they would be good loans.
Erika. We work with banks at the branch level now in Latin America. It is good for their PR and good business for them.
How do you deal with illegal aliens who need loans?
We don’t ask.
How does your service impact the payday loans places?
Not much. They are very tough competitors. We work on financial literacy – that will be the cornerstone of pushing back the payday loans. We are trying to train people to stay away from them.
What is the difference between micro finance and micro loans.
Erika. Not much. ACCION does not have an income requirement and the two are pretty much the same in our eyes. We want to be sustainable and eliminate all funder dollars by lowering our loan costs to a minimum.
What role does gender play?
Clint. Most of our loans are created to target minority women-owned businesses; 35% of businesses in Tennessee are owned by women.
ACCION. In the US less than half of our clients are women.
Warner. Our program is about half and half. I know there is a re-examination of all-female loan programs and in about a decade I think all loans will be half and half.
What are your interest rates?
Clint, we use a character-based lending model; the lower risk the lower interest. our rates run from prime + 2 to prime + 5. We can override the model when we think the character is good.
Do any of you see peer-to-peer systems as threats or opportunities?
Erika – I see it as all good. There is plenty of room for all forms of loans.
What are your repayment rates and repayment periods like?
ACCION repayment rate is 95%; loans are short term, the longest is 5 years.
Clint, we have a loss rate of 2%, trending down; our repayment rates are about 3 years, some are longer.
Woodward. Payback rates are very high well over 90% on 6 month loans of $500 to $800
Why have so many attempts at micro loans fail and you succeed.
We succeeded because we had dedicated students who knew the area and worked with a single ethnic group. Others models have failed because they tried to replicated processes from other countries here and they did not work well.
Erika answered that ACCION has succeeded because they have focused on trying to do one thing well, deliver credit that is appropriate for the market. We targeted specific markets and developed systems for that market. We have worked on our underwriting system to insure the clients are the right fit so we can move the process quickly. We try to make character-based loans based on references as well as credit reports. But it is a challenge in the US to make micro loans; we are only covering 40% of our costs. We have to reach scale to make a profit.
What is the worst loan you ever made?
Clint. That’s easy – it is one where you misjudge character. In our loan making we do a lot of due diligence. We spend time and money on due diligence the banks won’t pay for. Our target is businesses that are below the bank’s cutoff limit, so we have to. But the most important step is character. When we misjudge that, we lose.
Can mfi’s partner with commercial banks.?
Clint. 80% of my partners are banks. Many of the loans I made last year were referred to me by bankers who could not make those loans but knew they would be good loans.
Erika. We work with banks at the branch level now in Latin America. It is good for their PR and good business for them.
How do you deal with illegal aliens who need loans?
We don’t ask.
How does your service impact the payday loans places?
Not much. They are very tough competitors. We work on financial literacy – that will be the cornerstone of pushing back the payday loans. We are trying to train people to stay away from them.
What is the difference between micro finance and micro loans.
Erika. Not much. ACCION does not have an income requirement and the two are pretty much the same in our eyes. We want to be sustainable and eliminate all funder dollars by lowering our loan costs to a minimum.
What role does gender play?
Clint. Most of our loans are created to target minority women-owned businesses; 35% of businesses in Tennessee are owned by women.
ACCION. In the US less than half of our clients are women.
Warner. Our program is about half and half. I know there is a re-examination of all-female loan programs and in about a decade I think all loans will be half and half.
What are your interest rates?
Clint, we use a character-based lending model; the lower risk the lower interest. our rates run from prime + 2 to prime + 5. We can override the model when we think the character is good.
Do any of you see peer-to-peer systems as threats or opportunities?
Erika – I see it as all good. There is plenty of room for all forms of loans.
What are your repayment rates and repayment periods like?
ACCION repayment rate is 95%; loans are short term, the longest is 5 years.
Clint, we have a loss rate of 2%, trending down; our repayment rates are about 3 years, some are longer.
Woodward. Payback rates are very high well over 90% on 6 month loans of $500 to $800
