MADISON, Wis. (2/11/16)--A new report details how an incubator created by the Filene Research Institute, with funding from Ford Foundation, generated $100 million in loans and nearly $1 million in savings for previously underbanked families.
Filene received a grant from the Ford Foundation to launch the Accessible Financial Services Incubator.
“Mainstream financial institutions have often failed to help these vulnerable people gain access to affordable credit and other essential financial products,” said George Hofheimer, chief research officer for Filene. “We sought to find alternative financial products that better meet member needs but are also financially sustainable for credit unions.”
One in five households in America--more than 24 million families--is underbanked and lacks access to affordable financial services.
Over the course of two years, Filene collaborated with 42 credit unions to test five products in the incubator. The portfolio included both lending and savings products and ultimately housed nearly 12,000 accounts with more than $100 million in loan volume and just under $1 million in savings balances.
Two of the products--“Borrow and Save” and “Non-Prime Auto Loans”--were selected to move to an advanced testing phase based on each product’s consumer impact, ease of use/implementation, marketplace demand, and positive return on investment.
More than $2.9 million was loaned through Borrow and Save during the pilot, with participating members saving roughly $900,000. Established by the National Federation of Community Development Credit Unions, Borrow and Save increases consumers’ economic security by providing an affordable small-dollar loan with an affordable payment term. A built-in savings component also enables consumers to self-fund emergency expenses instead of borrowing money. Ninety-four percent of participants surveyed agreed that Borrow and Save helped in an emergency.
Having reliable transportation allows for increased access to employment, housing and education. But many credit-challenged consumers lack reliable transportation. The National Credit Union Foundation’s Non-Prime Auto Loans program helps lenders offer and manage fairly priced non-prime auto loans. During the pilot, $101 million was loaned across 10 credit unions with an average interest rate of 11.47%. Considering the average borrower credit score of 581, the rates are lower than what most consumers would have received elsewhere.
“Both Borrow and Save and Non-Prime Auto Loans are ready for broad in-market use,” said Andrew Downin, managing director of innovation for Filene. “Each program is poised to have tremendous consumer impact, but we first need mainstream financial institutions to implement them.”
Credit unions and other financial institutions that are interested in receiving the Feasibility Guides and implementation information for Borrow and Save or Non-Prime Auto Loans may fill out the request form available on filene.org or contact Andrew Downin at (608) 661-3740 for more information.