Fair Financing – Enterprize Model Research of Payday Lending Alternatives

You’re here

Ask for Proposals (RFP)

Overview: Momentum seeks a consultant that is skilled research, design and recommend sustainable, scalable alternate payday lending products that work for individuals residing on low incomes in Calgary. The main focus associated with the research is on working together with main-stream institutions that are financial. a favored consultant will have an understanding of and expertise in social finance.

Organization Background:

Momentum (www.momentum.org) is A community that is charitable economic company in Calgary that lovers with individuals residing on low incomes to obtain success by providing development in monetary literacy, abilities training, micro-lending and company development help. Our eyesight is: “Every individual might have a livelihood that is sustainable contribute to their community.”

Problem Background:

Numerous Albertans residing on lower-incomes are not able to gain access to safe and affordable short-term credit and find yourself making use of payday loans. Pay day loans are a type of short-term credit that frequently leads to a period of financial obligation. Pay day loans are:

costly – interest levels as much as 600per cent whenever annualized

Geared to people residing on reduced incomes – Many customers earn significantly less than $30K and make use of loans for regular costs

In charge of producing financial obligation traps – the customer that is average 8 loans each year

Growing being used – over $576 M ended up being loaned away by payday lenders in Alberta in the year that is previous. Nationwide $2M individuals access a pay loan annually day

Concentrated in lower-income neighbourhoods – Example: over 25 fringe monetary outlets are found in the Calgary neighbourhood of Greater Forest Lawn

Mainstream banking institutions try not to offer contending short-term credit at reduced rates of interest. a main reason there are no options is the fact that finance institutions aren’t able to create a satisfactory economic return supplying tiny loans at affordable prices to raised danger customers. Relating to interviews with senior retail bankers, monetary help to lessen the chance element is regarded as essential to engage finance institutions in supplying alternate financing to payday advances.

Project Background:

Within the last couple of years, Momentum did to cut back the harmful results that payday advances have actually on Calgarians residing on low incomes, utilizing three main methods:

Policy Advocacy: After Momentum’s general public policy group published an insurance policy brief regarding the problem, significant news attention had been accomplished. This contributed to attention that is increased policy manufacturers. In specific, a Notice of movement ended up being presented to Calgary City Council in 2014 that resulted into the populous town agreeing to leverage its business certification and land usage capabilities to suppress the expansion of payday financing areas. Furthermore, provider Alberta is undertaking overview of the payday lending legislation in the Fair Trading Act. Momentum additionally supports a grassroots group called “Rise of this money Store” in Greater Forest Lawn. Momentum plus the increase associated with the money Store have actually worked aided by the Haskayne School of company to aid research and innovation on this issue. Especially, a learning pupil instance competition happens to be underway.

Payday Lending Alternative Product Piloting: together with First Calgary Financial and an exclusive philanthropist, Momentum is piloting money Crunch, a loan alternative product that is payday. Cash Crunch provides that loan within 48 hours all the way to $1500 at 12per cent APR. Though interest in the mortgage has surpassed expectations, payment is leaner than anticipated at approximately 70% (no write-offs up to now). The 2nd period regarding the pilot is prepared for Q4 2015. This present model is tough to measure because 100% of loans are guaranteed by an exclusive donor, yet its yielding information that will inform future product design and lower the danger for any other lovers.

Lender Partnership analysis: during the summer 2015, Momentum started initially to investigate other opportunities to offer options to pay day loans. The investigation confirmed that no payday financing options are now available within main-stream finance institutions. a vital choosing had been that the big, nationwide financial institutions are very not likely to offer alternative, short-term onsumers for 2 key reasons: 1. Minimal observed profitability as a result of the high-risk degree of the sort of loan portfolio 2 cash advance loans. High degrees of financing automation and centralization which may ensure it is extremely tough to introduce a pilot on a local scale. Because of the investigation, further research on alternate financing will give attention to locally-based banking institutions.

As well as the above task, Momentum has convened a tiny set of philanthropist leaders thinking about the topic of fair funding. They usually have co-created a concept brief that details their reasoning to date that could be made offered to project proponents.

Venture Goal:

The task objective is: to produce an inexpensive and scalable alternative pay day loan product.So that: individuals residing on lower-incomes can possibly prevent or leave a damaging financial obligation period and start to construct assets that lead them toward a livelihood that is sustainable.

All work in this particular task must look into two alternative that is possible, with 80% of activity dedicated to the very first choice described below:

Mainstream Financial Institution Partnership: A partnership between Momentum, Financial Institution(s) and a philanthropic/government that is possible to give you loan loss money, and

Social Business: A model that leverages ‘non-traditional’ banking institutions to deliver consumer that is short-term. Momentum anticipates a less role that is active solutions in this particular flow, though we might have the ability to behave as a broker between social accountable investors and alternate financing business operators.

Momentum doesn’t assume it will probably necessarily have a task to relax and play in most solutions that are potential.

Design Question: just What system or item models are well in a position to achieve the target above? Venture Scope: A consultant is needed to help Momentum in responding to the concern above, by achieving two main goals.

Ecological Scan and Market Feasibility (about 20% of task): the goal of this objective is always to investigate the presence and success of other alternate lending models, plus the feasibility for the two choices described above. Momentum’s current presumption that the most useful course ahead includes a partnership by having a standard bank, nevertheless it would like to make sure hardly any other viable alternative is ignored. The consultant is responsible to within this objective

Confirm current Calgary market size and earnings information (if available) for main-stream lending that is payday.

Conduct a higher level scan of payday financing options currently offered in united states cities (eg BankOn, Van City Fair & Fast Loan, brand brand New begin Canada)

Offer a summary of short-term, low buck value products and services already are into the Calgary market with a certain focus on task that could be considered ‘in between’ traditional fringe financing and conventional bank offerings. Use in scope lending that is online any kind of financing occurring away from banking institutions.