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Presentation on theme: "THE JUBILEE INITIATIVE FOR FINANCIAL INCLUSION Spring 2012 Evaluation Meeting."— Presentation transcript:


2 Agenda  Presentation  Poverty & Payday Loans  Microfinance & Alternatives  The JiFFi Solution?  Further Questions & Challenges  Immediate Plans  Critique & Discussion

3 Methodology  Existing Literature  Center for Responsible Lending  Filene Research Institute  Reports and Papers  Conversations  Professors  Community leaders  Community members

4 Consideration of Poverty & PDLs What is a PDL? Who uses PDLs? How are PDLs beneficial? Why might PDLs be problematic? Poverty & Payday Loans (PDLs)

5 Cycle of Poverty Poverty Unhealthy Lifestyle Job Inconsistency Polarized Thoughts Lack of Education

6 Is It Our Problem?  What does poverty mean for the community?  Stints in human potential  Wastes resources  Hurts the economy  A sustainable community must work to break the cycle of poverty

7 Poverty  Payday Loans  Poverty is not just an economic class, but a job in itself  People have learned to manage poverty  The cycle of poverty cannot be broken if it is being managed!  Using payday lenders to Buy extra appliances Loan money to friends and family Pay off a bill

8 Payday Loans (PDL) Cash advance against paycheck $100-500 + fees due next payday Features rollovers to extend loan term Marketed for emergency use Speedy application and underwriting process Short term focus A safety net?

9 User Demographics  Average Age: 38  Median Income: $25,000 - $30,000  42% homeowners  84% high school graduates  Minorities and the lower working-class  African-American neighborhoods have three times as many payday lending stores per capita…  5.5 per 10,000 households working-class neighborhoods vs. 3.4 per 10,000 in poor neighborhoods Center for American Progress, Who Borrows from Payday Lenders?

10 Brick and Mortar Payday Stores

11 Bank Payday Loans

12 Stores in South Bend A. Check Into Cash B. Cashland C. Advance America D. Cash Plus E. Checksmart F. Personal Finance Co. G. Check ‘n Go

13 Benefits  Responsive to emergency situations  Accessible location and time  Speedy underwriting process  Tolerates tarnished credit  No credit check  Does not show up on credit reports

14 Problems  The Hook  “Convenience”  Emergencies Lack of alternatives  The Juggle  Expensive balloon payment 391% APR  44% ultimately default  12 million Americans trapped Center for Responsible Lending; Interviews

15 Problems Inability to repay bank payday loan and meet basic obligations $25,000 Salary$35,000 Salary Before tax income for two-week pay period $ 962 $ 1,346 minus taxes (66) (105) After tax income 896 1,241 Payday loan balance and fee due (550) Money left over 346 691 Basic expenses per two-week period (housing, transportation, food healthcare) (798) (895) Surplus/(Deficit) $ (452) $ (204)  Loan leads to dependence on more loans  Average borrower has 9 repeat loans/yr Center for Responsible Lending

16 Power Dynamics  How can we  Recapture value in the exchange?  Be approachable but professional?  Locate ourselves to allow privacy? BorrowerLender TimeKnowledgeCapital No Alternatives Need Interview

17 Impact Summary Set-up Difficult macroeconomic environment Paycheck to paycheck lifestyle of poverty Emergency and/or unexpected spending Burden Fees - $4.2 bill. in annual profits in a $50 bill. industry 2.5% of possible family expenditures Strenuous loan terms - prominent debt trap Result Wealth stripping – from low or fixed income families Effectively weakens purchasing power of working poor Breaks the economic backbone in the long run Center for Responsible Lending, Bureau of Labor Statistics, US Census Bureau

18 What is microfinance? How and why does it work internationally? Does it work domestically? Is JiFFi a microfinance organization? Microfinance

19  Umbrella term that incorporates many services  The provision of financial services to:  Underprivileged  Micro-entrepreneurs  Small businesses  Lack access to traditional financial services  Due to high transaction costs associated with serving these client categories

20 International Example: Kiva  Non-profit organization  Connects people through lending worldwide via the internet  Goal of alleviating poverty

21 International Example: Grameen Bank  Helps the world's poorest improve their lives and escape poverty  Especially women  Provides the poor access to  small loans  essential information  viable business opportunities

22 International Example: ACCION  Provides management services, investment, and governance support to help build institutions worldwide that are sustainable  Currently 62 in 31 countries  Franchise model

23 Domestic Success & Failure Success Working Capital Based in Boston Now part of the ACCION International network Stand-alone peer lending organization Operated within existing social groups Worked with entrepreneurs Also offered a credit building product Failure Good Faith Fund Based in Pine Bluff, Arkansas Imported the Grameen Bank model Formed new social groups Rather than working with existing groups Did not use groups as an accountability measure No assumption of lending responsibility by group

24 Demographics  Rural Arkansas is vastly different than Boston  South Bend is somewhere in the middle  South Bend is home to diverse population  24.8% Black; 11.0% Hispanic, 2.3% Mixed  Can we harness the community to build a successful model like that of international organizations?  SJC Bridges out of Poverty participants’ cohesion a great example

25 Is JiFFi a Microfinance Organization? “Having the opportunity to earn a little more cash by starting some kind of business is perceived by many of the poor as not worth the risk or effort.” - Richard Taub  Not quite, but focus on:  Trust-based relationships rather than transactional ones  Financial education  Building credit  Investments for the future Not just consumption  Future plans for micro- venturing arm

26 South Side Community Federal Credit Union GoodMoney ZestCash Others Existing Alternatives to PDL

27 South Side Community Federal Credit Union  Payday Alternative Loans (+)  $200 - $1000; 15%  Terms from 1 to 6 months  Free credit building & financial education classes  Challenges  Requires membership  Low volume Interview

28 GoodMoney  Collaboration between Prospera Credit Union & Goodwill stores  Short-term loans  half the rates payday lenders  Other banking services  Referrals to the Financial Information and Service Center (FISC)*

29 ZestCash  Founded by former CIO of Google  Features user tailored loans  For-profit, very expensive  High fees  Compound interest

30 Other  Banks & Credit Unions  Option usually exhausted  Personal Finance Companies  Similar steep fees  Family & Friends  Potential negative social implications  Only 5% consider this alternative Caskey, Economics of Payday Lending

31 What are the lessons? What are the goals to achieve? What should a JiFFi loan look like? The JiFFi Solution?

32 The Necessity of Education Individual Financial Success Mentored Decisions Education Poverty Stability “You can’t tell them to be clean if they don’t know what clean is!”

33 Class Perspectives  Necessary to understand  Each social class has its own habits  Habits determine what drives actions: what is the motivation? The final goal?

34 Hidden Rules PovertyMiddle ClassWealth Food Did I have enough? Quantity Did I like it? Quality Did I like how it looked? Presentation Time What do I need now? Present What do I need in the long-term? Future What have I done in the past? Traditions & History Possessions PeopleThingsLegacies Money To be used!To be managed!To be invested! From Bridges Out of Poverty, Terie Dreussi Smith, 2012

35 To break the cycle…  Understand the perspective of each individual  Value the dignity of everyone that comes in and maintain the relationship  Treat every individual as an individual  Work towards getting out of a cycle instead of trying to temporarily manage it

36 Ingredients for Success JiFFi Appropriate Financial Tools Long Term Relations Education & Guidance  Emergencies happen  Nudge factor  Vision of possibilities  Trading “rules”  Clients’ long term success  Client sets financial goals  Provide accountability

37 Comprehensive Service -Custom tailored installment loans -Credit building repayments -Demonstrative education -Financial crash course series -Goal oriented, restricted savings & accountability services

38 Product Snapshot Statement of purpose required; amount co-determined with JiFFi 12% simple interest, custom tailored repayment plan Redeemable “In Your Own Interest” amount (33% of interest) JiFFi Personal Loan Goal-oriented savings and matching program Inaccessible unless pre-determined conditions are met Restricted Savings Program Platform for ND students and community entrepreneurs to meet Consultation (Future)

39 Achieve Multiple Goals Solve Emergency Establish Relationship Guide Financial Decisions Encourage Communication JiFFi ValueDignity Business Social

40 What are some social challenges? What are some business problems? We need your help! Further Questions & Challenges

41 Social Challenges  “Invisible” target market  Root of the problem runs deep and wide  Complexity of poverty  Bridging the gap between ND students and rest of the community

42 Business Challenges  Complex business with heated competition  Payday lenders advertise ferociously  High risk  Difficulties in delivery  Requires costly overhead & hours  Student pool talented but busy  How to frame incentives?

43 South Bend Household Budget Est. Indiana Business Review

44 Business Problem ($)

45 Business Problem

46  Simplistic & optimistic estimate  Overall loss of $(8,332) in the first year  2014 full capacity overall income of $2,800

47 We Need Your Help!  Academic assistance  Data collection & impact evaluation  Legal support  Business plan generation  Student & faculty involvement  Human capital intensive – student groups  Board of advisors – faculty and other leaders  Local cooperation  Complex problems; help from local organizations  Input and support from local government

48 What are we going to do in the Summer and Fall? Immediate Plans

49 Plans  Summer  Personal research and development Summer programs & internships  Acquaint with community  Fall  Re-evaluate purpose, model, team  McCloskey Business Plan Competition  Test products

50 Video

51 Summary  Presentation  Payday Loans  Microfinance & Alternatives  The JiFFi Solution?  Further Questions & Challenges  Immediate Plans  Video  Critique & Discussion

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