Fair Financing – Business Structure Investigation of Payday Lending Alternatives

Fair Financing – Business Structure Investigation of Payday Lending Alternatives

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Request Proposals (RFP)

Overview: Momentum seeks an experienced consultant to research, design and suggest sustainable, scalable alternate payday financing products that work for individuals residing on low incomes in Calgary. The main focus regarding the research is on working together with main-stream banking institutions. a favored consultant will have an understanding of and expertise in social finance.

Organization Background:

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

Problem Background:

Numerous Albertans living on lower-incomes are not able to gain access to safe and affordable credit that is short-term wind up making use of pay day loans. Payday advances are a type of short-term credit that usually leads to a period of financial obligation. Pay day loans are:

costly – interest rates as much as 600per cent when annualized

Aiimed at individuals living on reduced incomes – Many clients earn significantly less than $30K and make use of loans for regular costs

Accountable for producing debt traps – the average consumer gets 8 loans each year

Growing being used – over $576 M had been loaned away by payday loan providers in Alberta into the year that is previous. Nationwide $2M people access a pay loan annually day

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

Mainstream banking institutions usually do not offer contending short-term credit at reduced rates of interest. a main explanation there are no alternatives is finance institutions are not able to build a satisfactory economic return supplying little loans at affordable prices to raised danger customers. In accordance with interviews with senior retail bankers, monetary help to cut back the danger factor is regarded as essential to engage finance institutions in supplying alternate financing to payday advances.

Project Background:

Within the last 2 yrs, Momentum spent some time working to cut back the harmful impacts that payday advances have actually on Calgarians residing on low incomes, utilizing three strategies that are primary


Policy Advocacy: After Momentum’s policy that is public published an insurance policy brief regarding the problem, significant news attention had been accomplished. This contributed to attention that is increased policy makers. 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 company certification and land usage capabilities to control the expansion of payday financing areas. Additionally, provider Alberta is undertaking overview of the lending that is payday in the Fair Trading Act. Momentum additionally supports a grassroots group called “Rise of this money Store” in Greater Forest Lawn. Momentum additionally the increase associated with the money Store have actually worked using the Haskayne School of company to aid research and innovation on this issue. Especially, a learning pupil situation competition happens to be underway.

Payday Lending Alternative Product Piloting: together with First Calgary Financial and a personal philanthropist, Momentum is piloting money Crunch, a loan alternative product that is payday. Money Crunch offers that loan within 48 hours as much as $1500 at 12per cent APR. Though need for the mortgage has surpassed expectations, repayment is gloomier than expected at around 70% (no write-offs up to now). The phase that is second of pilot is prepared for Q4 2015. This current model is tough to measure because 100% of loans are secured by an exclusive donor, yet it really is yielding important info that will inform future product design and reduce the danger for any other partners.

Standard bank Partnership analysis: during the summer 2015, Momentum started initially to investigate other opportunities to produce options to payday advances. The investigation confirmed that no lending that is payday are now available within main-stream banking institutions. an integral choosing ended up being that the big, nationwide banking institutions are extremely not likely to offer alternative, short-term onsumers for 2 key reasons: 1. Minimal observed profitability because of the risky degree of the sort of loan portfolio 2. High amounts of financing automation and centralization which may allow it to be very hard to launch a pilot for a scale that is regional. As a consequence of the study, further research on alternate lending will concentrate on locally-based finance institutions.

Aside from the activity that is above Momentum has convened a little group of philanthropist leaders enthusiastic about the main topic of fair financing. They usually have co-created a thought brief that details their thinking to date that could be made offered to project proponents.

Venture Goal:

The task objective is: to build up an inexpensive and scalable alternative cash advance product.So that: individuals residing on lower-incomes can avoid or leave a harmful debt period and commence to create assets that lead them toward a sustainable livelihood.

All work inside this task must look into two possible alternative choices, with 80% of activity centered on the very first choice described below:

Mainstream lender Partnership: A partnership between Momentum, Financial Institution(s) and a feasible philanthropic/government partner to supply loan loss money, and

Personal Business: A model that leverages ‘non-traditional’ finance institutions to deliver short-term consumer loans. Momentum anticipates a less role that is active solutions in this flow, though we might manage to work as an agent between social accountable investors and alternative financing company operators.

Momentum will not assume it will probably always have a task to relax and play in every solutions that are potential.

Design Question: exactly just What product or program models are well capable achieve the target above? Venture Scope: A consultant is needed to help Momentum in responding to the concern above, by attaining two main goals.

Environmental Scan and Market Feasibility (more or less 20% of project): the goal of this objective is always to investigate the presence and popularity of other alternate lending models, therefore the feasibility for the two choices described above. Momentum’s present assumption that the path that is best ahead includes a partnership with a standard bank, nonetheless it would like to guarantee no other viable alternative is over looked. Inside this goal, the consultant is accountable to:

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 provided in united states cities (eg BankOn, Van City Fair & Fast Loan, brand New begin Canada)

Offer a synopsis of short-term, low buck value services and products already are into the Calgary market with a specific increased exposure of task that might be considered ‘in between’ main-stream fringe financing and conventional bank offerings. Use in scope online lending and every other financing occurring away from finance institutions.

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