Becoming a Micro Lender

1
Becoming a Micro Lender

• Welcome!

2
Adding Lending Why?

• Lack of micro loan access for your clients
• Clients need to grow businesses to
  sustainability level
• Ready to expand services beyond classes and
  one-on-one counseling
• What else?

3
What it Takes

• Plan and Program Design
• Lending Capital
• Funds for Operation Expenses
• Microlending Management System (MMS)
• Staff Capacity
• Organizational Change

4
Plan and Program Design

• Mission, Goals, Leadership, Funding
• Loan Product, Underwriting, Outreach
• Servicing, Delinquencies, Portfolio
• See Steps for Becoming a Microlender
• for more detail

5
Lending Capital

• Grants (equity). Ideal for higher-risk,
  labor-intensive micro loans.
• Debt. Funds you borrow at a low rate and with a
  long term. You lend out at a higher rate and
  shorter term, allowing you to keep the spread.
  Use for lower-risk deals.
• Sources SBA, CDFI Fund, EQ2 loans from banks,
  RMAP, IRP, RBEG, HUD, foundations, corporate
  donations

6
Funds for Operations

• Loan officer
• Back office staffing
• MMS and loan servicing fees
• Time from ED, board or loan committee, accounting
  staff and TA staff
• Good mobile technology and web interface

7
MMS Overview
Supports lending here
Risk Assessment
Outreach
Underwriting
Closing
Application
Document Collection
Credit Memo
Servicing Collections
8
Solution MMS Online

• Automated screening
• Spend minutes instead of hours
• finding eligible deals
• Sort deals quickly
• MMS gives a risk rating to each application
• Fast and reliable underwriting
• Rely on successful underwriting team for quality
  deals and portfolio strength

9
How Does It Work?

• Three step process
• 1. Online application
• 2. Auto Review five-minute
• risk assessment to establish eligibility
• 3. Underwriting Two-day turn
• around on underwriting

10
Auto Review

• Using 13,000 loan portfolio, Accion Texas has
  built a risk assessment tool. It measures
• Capacity Is there enough global cash flow to
• make loan payments?
• Credit Is historical use of credit in the
• ball park?
• Risk Does borrowers profile match that
• of successful borrowers in AT portfolio?

11
Auto Review Results Five Minutes

• Your Agency
• Directs potential borrowers to online application
• Pulls credit report and marries it to the
  application
• In five minutes, Auto Review gives risk
  assessment
• Green Borrower meets all three measures
• Yellow Borrower lacking one measure
• Red Borrower fails two measures

12
Give Client Same-Day Results

• You contact client same day with application
  results. Proceed with approved deals
• Gather documents to verify application
  information and underwrite loan.
• Green MMS Generates Required Document List
• Yellow After consultation with MMS Underwriting,
  RDL generated
• Upload docs to MMS

13
Underwriting 48 hours

• MMS Underwriting department reviews documents
• Provides final decision and terms
• Provides credit report
• Is available for questions, discussion,
  consultation

14
Closing and Servicing
Proceed with your own closing documents,
collateralization and funding processes.
15
Your Participation

• CAMEO requests participating members
• Run all deals through Auto Review
• Accept MMS underwriting grid
• Participate in monthly calls for
• individual and peer learning

16
Staff Capacities

• Basic business training background
• Sales approach to deal development
• Underwriting basics
• Servicing deal restructuring capacity
• Portfolio, accounting capacity
• Probably not all skills in one person

17
Organizational Change

• Traditional TA and a long get to know you
  process. Staff and clients get close.
• Understand difference between a good TA client
  and good loan client
• MMS underwrites on current cash capacity and
  credit
• Less on projections or long-established
  relationships character

18
TA Clients vs Loan Clients

• To use MMS to its fullest, integrate system into
  staffing expectations and client interface
  working faster and more based on the numbers
• MMS creates scale but does cut some clients out
  of the process
• Each organization must find a way to help these
  clients

19
Commitment

• Directors must
• Desire growth and increased efficiency
• Provide hands-on leadership for change
• In addition, staff needs to be open to changing
  roles and procedures.

20
ML Industry Transforming

• Microlending being transformed
• Common now to build or buy behavioral
• models with big data
• Coupled with online applications
• Coupled with a fully online automated process
• Leads to fast risk assessment, decision making,
  loan closing
• For-profit lenders moving into this field

21
ML Industry Transforming

• Add to that
• Crowdfunding
• Profit-making possibilities
• Lots of new lenders cropping up everyday
• Borrowers realize they have other options
• Need to change to stay in the game

22
Questions?
23
Thanks!!