A Conversation on For-profit Microlenders in the U.S. June 21, 2011

Transcription

1 A Conversation on For-profit Microlenders in the U.S. June 21, /22/2011

2 Agenda Overview of white paper Virtual conversation around implications for nonprofits

3 Special thanks to the Bank of America Foundation for sponsoring the Leading Edge Series

4 What does it all mean?

5 Widening Gap in Delivery Applications Originations lagging

6 New Players Progreso Financiero: smalldollar consumer lender. Avg. loan: $900 Up to $2,500

7 Confianza and OUR Microlending: for-profit commercial microlenders.

8 Case Studies of For-profit Microlenders Financiera Confianza OUR Microlending MT Young Urban Programs Median values Large-Scale Microlenders (>100 loans disbursed) Median values Age 4 years N=9 Total Operating Budget # of Full Time Employees (FTE) ~$900,000 ~$850,000 $233,358 N= FTE/9 Independent Contractors 2 N=5 Loan Ranges $2,500-$35,000 $1,500-$20,000 $500-$25,000 N=7 # of Loans Disbursed N=6 Dollars Disbursed $2.7mm $1.66mm $204,750 N=6 Urban; started before 1998 $974, $214-$35, $1,571,979 Average Loan Size Outstanding Portfolio ($) Operational Cost Rate Portfolio at Risk (>30 days) Cfza: $4,250 OF: $12,500 $6,262 $12,722 N=6 $1.73mm $2.112mm $259,945 N= N=5 5% Not available 0.0% N=6 Loan Loss Rate ~10% 0% 2.6% N=6 $6,819 $1,750, N=7 11.5% 9.8% N=5

9 P2P Lenders: broader client bases but growing microsegment. Loans up to $25,000 Credit scores

10 Sam s Club: large retailer w/ SBA 7a loans. $5,000-$25,000 loans available to start-ups and existing small businesses No collateral required One-page application that prequalifies you in seconds Receive funding in a matter of days 20% discount on loan fees (a $100 value) Low affordable interest rates Easy terms Electronic funding and payments No prepayment penalties or balloon Payments

11 On Deck Capital: alternative commercial lender. Disb. $110MM

12 Overlapping Markets

13 If you are a microenterprise practitioner do the majority of your borrowers have revenues: $250,000 to $2 Million 0% $50,000 to $249,000 31% Under $50,000 69% Total Responses: 29 of 73 (40%)

14 Are you seeing any shifts in your traditional target market? More clients with larger revenues 8% More clients with financial issues 44% We're seeing both these trends 28% Our target market hasn't changed 20% Total Responses: 25 of 73 (34%)

15 How have you responded to that shift in client demand? Evaluate internally to expand reach 23% Staying on target, refer customers 27% Adapting UW standards/capacity 36% Serving all who come to our door 14% Total Responses: 22 of 73 (30%)

16 What we heard from you? Factoring co s: selling of receivables at a discount. Merchant Cash Advances: cash advances based off of future credit card sales. For-profit microlenders Small-dollar consumer lenders Online P2P lenders

17 Several Differences Pricing Positioning/Value Proposition Staffing with key sales and collections capacity Significant upfront investment in lending infrastructure

18 Factors Influencing For-profit Pricing

19 Factors Influencing Nonprofit Pricing

20 Pricing (APR) Progreso: 36% Sam s Club: % On Deck: 18-30% Consumer Commercial Prosper.com: 20-21% OUR Microlending: 18% Confianza: 18% (partner loans)/50-80%

21 Questions for Participants Do prices currently charged by nonprofits inhibit expansion? What s the right price to charge? Is there a number or range of numbers that you think represent the right price? What do you think are the factors that are most important in setting the right price?

22 Questions for Participants Is there a price that is too high? Where would you put that? Or, is any price right so long as the entrepreneur understands the price and its consequences?

23 Positioning in a Tight Credit Market Hassle-free application process Quick turnaround Personalized service V. Access to credit to underserved Longer-term relationships Affordable pricing

24 How does your organization position itself? How do you react to the contrast on the previous slide? Do you think that this is an accurate way to contrast your positioning with that of for-profits? What words do you think best express your positioning? How do your customers see you? Have you changed your positioning over the last couple of years (since the financial crisis), and if so how? Or are you thinking about changing it, and if so, in what ways?

25 A Note on Technology Platforms

26 Collaboration?

27 To access the FIELD publications and Webinars: FIELD at The Aspen Institute One Dupont Circle, NW, Suite 700 Washington, D.C (202) FIELD - The Aspen Institute