Three relatively new technology innovations show promise to help microlenders and community development financial institutions (CDFIs) compete with speedy online lenders, according to a November 2015 column on the Federal Reserve Bank of Minnesota website.
CDFIs specialise in loans, investments and services for underserved populations in the United States. The U.S. Treasury Department administers the CDFI fund.
The basic issue of competitiveness offers opportunity primed for innovation. It is just one of the areas providing examples and ideas for software that help financial institutions reach and serve low-income populations.
Here are three challenges, as outlined by the Federal Reserve Bank of Minnesota:
inability to quickly assess a potential borrower’s risk.
lack of a low-cost distribution infrastructure.
- disconnect with possible customers.
Three CDFIs demonstrate different approaches
LiftFund — a San Antonio, Texas-based CDFI once known as Accion Texas — hoped to reduce the time to spent determining the risk level of a potential client. It was taking days. It found a possible solution by hosting the web-based Microloan Management Services (MMS) platform. The software cut the process down to minutes.
The Association for Enterprise Opportunity (AEO), a national trade association for microfinance and micro business, sought to improve the technology base for mission-focused lending. It launched the Tilt Forward initiative as a way to coordinate and leverage the resources of mission-focused lenders like CDFIs.
Part of Tilt Forward is the DreamFund, a low-cost nonprofit intermediary that AEO launched in June 2015. The DreamFund gateway offers third-party licensed loan products at below market rates to business owners in underserved communities. DreamFund plans to fund additional product platforms. AEO projects that DreamFund will evolve into an independent utility for the industry.
The Opportunity Fund, a San Francisco-based CDFI, faced the third challenge. It launched its partnership with the online loan provider Lending Club in January 2016. The Opportunity Fund set aside $10 million to provide loans for small businesses rejected by the Lending Club. Rather than get a rejection notice, the applicants receive notices that they qualify for a loan from the Opportunity Fund.