FInancial Empowerment for America's Working Poor
The top 1% of Americans now own more wealth than the bottom 90%. The recent financial crisis showed that when the wealthy fail, they get bailouts, but when the poor fail, they get foreclosures. At the same time, America's poor are left out of the environmental movement and are generally disempowered politically. For us, everything starts with financial empowerment. We believe that if we can help someone financially, through financial coaching and targeted loans, then we can begin a relationship that can lead to other, equally important changes, be they related to environment, politics, etc. The fundamental change we want to bring to the world is to enable the poor to escape poverty and, in the process, to begin to reshape the economy in a more just, inclusive and sustainable manner.
About You
About You
First Name
Andrew
Last Name
Posner
http://twitter.com/#!/cgfund
Facebook Profile
About Your Organization
Organization Name
The Capital Good Fund
Organization Website
Organization Phone
866-584-3651
Organization Address
127 Dorrance St. #513
Organization Country
United States, RI, Providence County
Country where this project is creating social impact
United States, RI, Providence County
Is your organization a
Non‐profit/NGO/citizen sector organization
How long has your organization been operating?
1‐5 years
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Innovation
Entry Form title
FInancial Empowerment for America's Working Poor
What change do you want to bring to the world?
The top 1% of Americans now own more wealth than the bottom 90%. The recent financial crisis showed that when the wealthy fail, they get bailouts, but when the poor fail, they get foreclosures. At the same time, America's poor are left out of the environmental movement and are generally disempowered politically. For us, everything starts with financial empowerment. We believe that if we can help someone financially, through financial coaching and targeted loans, then we can begin a relationship that can lead to other, equally important changes, be they related to environment, politics, etc. The fundamental change we want to bring to the world is to enable the poor to escape poverty and, in the process, to begin to reshape the economy in a more just, inclusive and sustainable manner.
What are the primary activities of your project?
Our core activities are one-on-one financial & business coaching and small loans for business and consumer purposes.
One-on-One Financial & Business Coaching
One-on-One coaching is the hub of our services. Through financial coaching, we give clients the tools they need to budget, save for retirement, home ownership, education and the education of their children, build credit, escape debt, etc. What's more, the open-source curriculum we wrote also touches on the topics of environment--indoor air quality, saving energy and lowering bills, etc.--as well as digital literacy and healthy. This holistic approach ensures that we are covering all of the topics, over the course of a year, that, taken together, can truly get at the root causes of poverty. Also, by charging $150 for the coaching--paid back in 12 monthly installments of $12.5--we are able to earn valuable income and, because we treat the payments like a loan, the client gets to build her credit as well.
In business coaching, we go in-depth with an aspiring or current entrepreneur to help them refine their business idea, do profit and loss projections, understand their cost-per-unit of sale, research legal/permitting/licensing requirement for going into business, etc.
Unsecured Loans
Upon completing the coaching clients can apply for business loans of $500-$5,000 or consumer loans of $500-$2,000. The consumer loans can be used for buying a computer, energy-efficiency, applying for citizenship, fixing a vehicle, etc. All loans have a one year term and a fixed interest rate of 15%.
What is innovative about your initiative? How is it a new contribution to the field?
Our approach differs in several key ways from other microlenders. First, unlike 95% of US lenders, we offer financial coaching and consumer loans as well as business training & loans. Second, we take an unprecedented approach to underwriting. Instead of using a scoring algorithm or group loans, our model predicts likelihood of repayment on demonstrated behavioral changes realized after an intervention (financial coaching) rather than past behavior (credit report). Clients qualify for loans by meeting financial milestones during financial coaching. This is an essential innovation because, by definition, the people that come to us either have no or poor credit, and there is no other cost-effective way to determine whether a low-income applicant is ready for a loan. Lastly, in order to lower transaction costs and maximize impact, we embed our services within existing social service agencies. In other words, we leverage the tens of thousands of social service agencies that already serve our target population by layering our products and services on top of theirs—which creates a ladder for building assets and financial stability, and significantly lowers our overhead. In the near future, clients will even be able to do financial coaching through video chat terminals at other agencies. Thus we would be able to cost-effectively deliver a life-changing product and service to an at-risk person—be she an ex-offender, victim of domestic violence or recent immigrant—anywhere in the state We believe our model can allow us to be the first US microlender to achieve self-sufficiency.
What stage is your project in?
Operating for 1‐5 years
Tell us about the community that you engage? eg. economic conditions, political structures, norms and values, demographic trends, history, and experience with engagement efforts.
68% of our clients are Hispanic; 25% are Black or African American; and 7% are White. The age of our clients ranges from 19 to 65, with roughly 50% falling between 26 and 54 years old. Our client’s income ranges from less than $500/month to $3,800/month, with the majority earning between $700 and $1,500/month. 100% of our clients meet the HUD criteria for being low-income. Over the last two years have become deeply embedded in the community by developing over 20 partnerships with churches, community organizations and community leaders. Word-of-mouth has also become a significant source of referrals to us. Because people hear about us from trusted sources, they trust that we offer equitable loans--something essential when dealing with a community that is accustomed to being cheated by lenders.
The Greater Providence area is very interesting. We have one of the highest childhood poverty rates in the country and one of the lowest levels of educational attainment. As manufacturing jobs began to leave the area, people who were previously able to earn a living despite a lack of education suddenly found themselves jobless and desperate. In recent years there has been a large influx of immigrants from Haiti, the Dominican Republic, parts of Africa and parts of Southeast Asia. As a result, Greater Providence boasts a tremendous diversity, but it also has a lot of individuals and families struggling to make ends meet and to adapt to the American financial system. Hence the need for our services: getting people connected to the financial mainstream, teaching budgeting and saving and credit, and providing loans to help people start business, to get vocational training, or other essential purposes.
Share the story of the founder and what inspired the founder to start this project
I started Capital Good Fund (CGF) after reading “Banker to the Poor” when I was a Masters student in Environmental Studies at Brown University. At the time, I was deeply troubled by the fact that the same people disproportionately affected by environmental issues such as climate change and air pollution are also the same people being hurt by the recession. In response, wrote a masters thesis on the concept of Green Microfinance, and then started CGF to implement those ideas. From day one, I have been troubled the utter lack of scale, and the relative lack of innovation, in domestic microfinance. I was particularly troubled by the exclusive focus on business loans, since the fringe/predatory loan industry mostly does consumer loans and makes $70 billion/year in profit, in part because non-profits have ceded the consumer loan space to them. What's more, I felt like people had simply given up on operational self-sufficiency as a goal because "overhead costs are too high" in the US. Lastly, I knew that a small loan is not enough to get someone out of poverty, so I endeavored to create a more holistic model that also lowered costs and increased earned income. After two years, I struck on the idea of using financial coaching to increase income and impact and to underwrite; to have highly trained university student do the coaching; to provide a wide array of consumer loan products; and to layer our products & services on top of churches, libraries, social service agencies and government agencies. By staying true to my initial goal of innovation, we are on the right path.
Social Impact
This Entry is about (Issues)
Please describe how your project has been successful and how that success is measured
In many ways microfinance makes social impact measurement simply, because we collect a lot of data at the time of taking a loan application and can follow changes in income, credit, etc. We measure outcomes and social impact throughout the life of the loan. First, we collect information at intake (credit score, income, banking information and attitudinal questions about managing money, running a business, etc); next, we do two follow-up surveys, one at the 6-month point and one when the loan is paid off. The key metrics we track are increases in income, credit score, savings, understanding of business and finance and use of mainstream financial services, as well as decreases in debt and utilization of fringe and predatory financial services. One of the best measures of our success has been our repayment rate, which after 2.5 years of lending stands at 95.7%, putting us in the top 10% of microlenders nationwide. What's more, over 95% of our business borrowers are still in business one year after taking a loan from us, a remarkable feat considering the high rates of failure among startups. In 2010, we saved or created 39 full and part-time jobs and increased the credit score of 50 people. We have just completed our first round of in-depth follow up surveys and are in the process of analyzing data to be able to report back on income and credit increases, attitudinal changes, etc.
How many people have been impacted by your project?
101-1,000
How many people could be impacted by your project in the next three years?
1,001-10,000
How will your project evolve over the next three years?
Over the next three years, as we demonstrate the scalability of our model in Rhode Island, we plan to begin expanding to other states, most likely Boston, MA and New Brunswick, NJ. We also plan to make our financial coaching curriculum web-based, so that we can remotely provide financial coaching to clients throughout a state via web-cam while still offering a high-quality service. We also intend to expand our partnership model so that we can train other agencies in other states to provide our financial coaching, using our platform, and then we can issue loans using our loan funds to their clients. We will also look to expand our consumer loan product offering to payday loan alternatives and other specific needs identified by our clients and their communities.
Sustainability
What barriers might hinder the success of your project and how do you plan to overcome them?
Achieving scale, impact and financial sustainability will require overcoming high transaction costs, becoming excellent at underwriting for risk, training and mobilizing teams of student fellows and developing new revenue streams. The model I’ve developed seeks to predict future behavior (loan repayment) not on past behavior (credit report) but rather on demonstrated changes after an intervention (financial coaching). Before getting a loan, clients must complete 4 sessions of coaching and adhere to a budget, open and use a bank account, accrue savings, etc. Thus we overcome the issue of risk analysis of low-income applicants. By charging for the financial coaching, and using highly-trained student fellows to do the coaching (these fellows will be selected through a highly competitive process and will commit to 15 hours/week of coaching for 1 year; one of the goals is to train a corps of young leaders in the financial field that are sensitized to the needs of America’s poor), we can generate new revenue and greatly reduce costs. Another obstacle will be determining how to seamlessly and efficiently integrate our programs within social service agencies, so that we are seen as a value-add and not a drain on their time. We will develop a training program that will get partner agencies quickly up to speed on our program, including how to collect data, train staff and select clients; by partnering with these agencies, we can further reduce costs and increase impact.
Tell us about your partnerships
We have a very unique partnership model because we view financial services to be a hub around which a number of other social services can revolve. For this reason, we partner with churches/mosques/temples, job training program, ESL classes, vocational programs, homeless shelters and orgs that deal with domestic violence, environmental organizations and even free health clinics. We refer clients to these partners and they refer clients to us, but more importantly we work together to make sure that our services are complimentary. For example, there are business workshops offered throughout the state, and we ensure that upon graduation clients can come to us to actually take out a loan. Or, ex-offenders getting job training might come to us for a loan to pay off fines they accrued in prison so that they can reinstate their drivers license and make it to work. In short, we are extremely proud of the way in which we leverage existing resources to maximize social impact and lower costs.
Current annual budget of project, in US dollars
$250,001‐500,000
Explain your selections
Friends and family are always a key source of funding, especially when an organization is young. IN addition, we have done fairly well raising funds from individuals through fundraising events, matching campaigns and t-shirt sales. Foundations have been a large source of support for us, especially banks, local corporations and RI-based universities. We have received a small amount of funding from non-bank corporations, mostly from local businesses that like what we do and relate to it. Lastly, we have received funding from Americorps VISTA and the Community Development Block Grant program.
How do you plan to strengthen your project in the next three years?
We have three key needs: overhaul our back-end systems and processes; improve our underwriting; and increase earned income. Our present back-end infrastructure, ranging from loan origination to workflow management to data analysis, is a hodgepodge of systems that weren't designed for the way in which we have been using them. To solve this problem, we received a $10,000 grant to hire a consultant to examine our needs and then lay out what our systems should look like and what programs can do the job. Once that work is done we will need to hire a full-time web programmer to spend at least a year building, refining and testing all of the various systems. On the underwriting side, we have already built a very unique algorithm, and it is now a question of inputing every new loan applicant into the model and then tracking how those loans perform. Once we have enough data, we can do linear regressions to better understand what factors are likely to lead to defaults. On the earned income side, it is truly a measure of doing more loans and financial coaching, as those are our key sources of income. Doing more loans and coaching is really dependent on the first two needs, both of which we are working on at present!
Challenges
Which barriers to employment does your innovation address?
Please select up to three in order of relevancy to your project.
PRIMARY
Lack of skills/training
SECONDARY
Lack of visibility and investment
TERTIARY
Lack of access to information and networks
Please describe how your innovation specifically tackles the barriers listed above.
Low-income Americans with little education have a hard time competing for jobs in the knowledge economy. One of the ways we combat this is to provide them with business coaching to help them start their own businesses, be they cleaning, landscaping or food service ventures. What's more, we help them market their businesses and provide capital--which is essential, because our clients have no or poor credit and an inability to offer collateral (our loans are unsecured). In addition, many of our clients don't understand the financial system in the US and are shut out of it; thus our financial coaching teaches them how to take advantage of free and low cost financial services, to understand their rights, and to set and achieve their financial and other goals.
Are you trying to scale your organization or initiative?
If yes, please check up to three potential pathways in order of relevancy to you.
PRIMARY
Leveraged technology
SECONDARY
Enhanced existing impact through addition of complementary services
TERTIARY
Grown geographic reach: Within host country
Please describe which of your growth activities are current or planned for the immediate future.
Technology is vital to our ability to cost-effectively serve a large number of clients. We are in the process of implementing some innovative technology solutions that will enable us to: remotely process loan application, underwrite in a paperless and simple manner; quickly and easily query our data; and manage workflow effectively. We also plan to expand our range of product offering to include payday loan alternatives and other financial services that are currently only being met by fringe and predatory check cashers/payday lenders, and so on. Lastly, we plan to expand our geographical reach once we have perfected our model in Rhode Island by opening branches in other states, developing partnerships in those states, and then providing our products & services.
Do you collaborate with any of the following: (Check all that apply)
Government, NGOs/Nonprofits, Academia/universities.
If yes, how have these collaborations helped your innovation to succeed?
As mentioned previously, the beauty of our model is how it leverages existing resources, ideas and projects to minimize duplication and maximize impact. We work with government to help inform policy and to get all of the stakeholders together. We work with other non-profits because they work directly with our target market, can tell us about the needs of our clients, can refer clients, and can work with us to evaluate the impact of our services. Lastly, Andy Posner started the organization while he was a student at Brown University, and the relationship with universities continues to be essential. Students do financial coaching, research, curriculum refinement, etc. Universities provide funding to us, spread the word about us to students and also allow us to tap into work study programs
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