About Us
Future Plans
—Reporting payments to Credit Bureaus
Through focus groups and extensive conversations with community partners, CGF has learned that there is strong interest in the Olneville and greater Providence communities for building credit. Given that 50 million Americans have no credit score and millions more suffer from poor credit, reporting loan repayments to credit agencies would serve a critical need . After the completion of the pilot phase, the Fund will partner with the Credit Builders Alliance, which helps MFIs bundle and send loan repayment data to credit bureaus, in order to enable borrowers to build their credit score as they make repayments.
—Credit Builder Loans
Once the Fund has begun reporting payments to credit bureaus, it will be possible to offer an innovative type of loan product designed specifically to quickly and affordably build a borrower’s credit score. Known as Credit Builder Loans, these loans can be as small as $100, and they serve the dual purpose of replacing payday loans with “asset building credit” while helping to establish a relationship with a lender . In short, these loans will enable the Fund to draw new clients into the program while building their credit and creating a relationship between them and the Fund.
—Affordable Remittances
CGF expects many of its borrowers to come from the immigrant community, especially individuals from Latin American and the Caribbean. A significant issue facing this community is the high cost of remittances. According to the Inter-American Development Bank, Latin Americans in the United States sent roughly $45 billion to their home countries in 2006 . These monies are sent via expensive wire transfer services such as Western Union.
CGF is aware of several initiatives looking to leverage the internet in order to significantly lower the cost of remittances. As these initiatives take shape and establish themselves, CGF will look to combine these services with its lending programs.
—Enterprise Loans
CGF expects some borrowers will grow their business to the point that they need larger loans. In order to serve the needs of these high-growth businesses, the Fund will offer Enterprise Loans of between $7,000 and $15,000. These loans will charge the same interest—15% simple interest on a declining balance—as standard loans, but will have stricter requirements. For example, borrowers will be required to submit a business plan, demonstrate positive cash flow in their business, and to offer collateral (such as equity in the business). CGF projects these loans will account for 5%-10% of the total loan portfolio by year three.
2) Implementing New Lending Models
Grameen America (GA), based in Jackson Heights, New York, is showing that a direct replication of the Grameen model can work in the United States. In fact, GA has loaned out over $1 million and reached over 400 clients in the first 10 months of operation. Recognizing that the Grameen model has been proven and refined over the last 30 years, CGF intends to learn about the model in order to implement those aspects that will help the Fund grow and meet the needs of the community. In order to facilitate this learning, a member of the CGF team will go to Bangladesh during the summer of 2009 in order to receive an intensive, two-week training in the Grameen Model. Upon returning, the team member will share findings with community partners, the Board of Directors and the Advisory Board, and the entire CGF team, and collectively a decision will be made on how—and if—the current lending model should be refined.
This decision will be based on the results of the pilot phase and inputs from all stakeholders. CGF will continue to monitor GA’s success. Finally, CGF will look at Acción Texas’ model, which is an individualized lending approach. CGF expects the final model to be a blend of Grameen’s group and Acción’s individualized models.
3) Incorporating Environmental Sustainability
CGF strongly believes that its target population can and should benefit from a movement towards environmental sustainability. The idea of ‘Green Collar Jobs’—living wage, upwardly mobile jobs in environmental fields—has spread like wildfire. Meanwhile, the need to address climate change gets stronger with each passing year, and a windfall in investments, jobs and entrepreneurial opportunities in the new green economy seems increasingly inevitable. CGF sees three ways in which we can help clients benefit from this movement: first, by providing loans so borrowers can either start a green micro or small business or incorporate green practices into their existing businesses. Second, by providing micro loans to existing clients so that they can invest in energy (and money) saving measures in the home, such as programmable thermostats and efficient windows. And third, by connecting clients to existing free and affordable services in Providence—e.g., free energy audits from National Grid—that can help them save money and create a healthier and more comfortable home and work environment.
CGF will consult with borrowers on how to save money and gain a competitive advantage through green practices. In addition, CGF will quantify the aggregate environmental benefits of these green practices so that it can make a strong case to potential funders that the Fund has environmental, as well as social, benefits. CGF will partner with existing green job training programs in Providence so that graduates who want to start a green business are able to do so.
4) Expanding Geographically
Though the pilot phase will focus on low and moderate income neighborhoods within the city of Providence, the Fund will need to reach other neighborhoods and, potentially, cities, in order to expand. It is likely that demand for loans will be strong throughout Providence, as the city has one of the highest unemployment rates in the nation at 9.3%. What’s more, the city has an overall poverty rate of 25%, concentrated among women, children and minorities, and the state of Rhode Island has lost 40,000 manufacturing jobs since 1990 . That, combined with the credit crisis and the economic downturn, has forced a significant percentage of Providence residents to seek out additional sources of revenue, including informal business ventures (e.g., dressmaking or catering).
The first geographical expansion will be to the Providence neighborhoods of Smith Hill and Lower South Providence, both of which have significant minority populations and high poverty rates. For example, 39.5% of families in Lower South Providence are below the poverty line, and the median household income is $16,857 . The cities of Cranston, Central Falls and Pawtucket are logical places for expansion beyond Providence due to their geographical proximity and demographics.
5) Becoming a Community Development Financial Institution
Community Development Financial Institutions (CDFI) are regulated financial institutions that focus on economic development in communities that are underserved by mainstream financial institutions. CDFIs can take several forms, including community development banks, credit unions, and micro enterprise loan funds. The most notable example of a CDFI is Shorebank, headquartered in Chicago, which has $2.4 billion in assets in the largest and second oldest CDFI in the country .
CGF will apply for CDFI status with the U.S. Treasury in year three, and hopes to receive a banking license by year 6. The process is time-consuming and costly, and would require that the Fund successfully reach enough borrowers to convince funders to cover the costs. Thus whether or not CDFI status is pursued will be contingent on which five year plan is adopted and the availability of funds.
However, the benefits of becoming a CDFI are numerous. For example, it would enable the Fund to achieve financial stability, as funds deposited in the bank would then be loaned out to other borrowers, and it would also enhance the clout CGF has in influencing policy and public opinion. Finally, there are currently only two CDFIs in the state of Rhode Island that do lending—the Minority Investment Development Corporation, and the Urban Revitalization Fund of Rhode Island—neither of which offer loan products that compete with those of CGF .
