MADISON, Wis.–More than $100 million in loans has been made over the past two years as part of a pilot program to extend financial services into underserved markets, according to the Filene Research Institute, which led the effort.
Over the course of two years, Filene said it 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, Filene reported.
More than $2.9 million was loaned through Borrow and Save during the pilot, with participating members saving approximately $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 a payment term that makes sense for them. A built-in savings component also enables consumers to self-fund emergency expenses instead of borrowing money, Filene said. Ninety-four percent of participants surveyed agreed that Borrow and Save helped in an emergency.
A second program addressed the need to have reliable transportation for increased access to employment, housing, and education. Noting that many credit-challenged consumers lack reliable transportation, Filene noted 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, Filene reported.
“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.”
The new loan programs were made possible in part by a grant from the Ford Foundation to create the Accessible Financial Services Incubator to seek solutions to this growing problem and test the ease of use, consumer impact, financial viability, and consumer demand for specific products. A new Filene report details the methodology and results.
“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.”
For more info on the program: filene.org or contact Andrew Downin at 608-661-3740 for more information.
The full Accessible Financial Services Incubator report and slide deck are available for download on filene.org [https://filene.org/research/report-unlocked/accessible-financial-services-incubator].