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					           Financial Literacy
      and Credit-Building Services
          in Microenterprise

                March 8, 2011

Microenterprise Funders Group

• Increase awareness regarding US microenterprise
• Educate members on trends in practice
• Create opportunities for members to share ideas
  regarding their funding strategies
• Foster collaboration among donors and investors
A few definitions…
Financial literacy training/financial education: classes or workshops that provide
information on budgeting, savings, personal financial management, financial products, etc.
    Financial coaching/advising: one-on-one assistance on budgeting, savings,
    personal financial management, financial products, etc.
 Credit counseling: one-on-one assistance focused on dealing with a crisis and/or an
 individual’s debt situation, typically provided by licensed credit counselors.
     Credit education/credit coaching: one-on-one counseling or technical
     assistance focused on building basic credit knowledge and helping individuals
     build positive skills and behaviors.
Credit-building loans/financial products: financial products, including checking and
savings accounts, prepaid accounts, term loans or credit cards, offered by the organization
or with a financial institution, that seek to help an individual to manage cash, debt and/or
improve their credit profile.
MDO’s are offering these services

Changing demand for these services

               H o w ha s d e ma nd fo r y o ur fina nc ia l e d uc a tio n a nd c re d it b uild ing
                             s e rv ic e s c ha ng e d o v e r the la s t two y e a rs ?

       20.0%               10.4%
       10.0%                                                2.1%
                Number of clients needing Number of clients needing Number of clients needing
                these services has stayed services has decreased     services has increased
                        the same

Emerging Trend

            Financial Education
                   • Knowledge gains

             To Financial Capability
                    • Longer-term behavior change
Manny Hidalgo
Executive Director
History of LEDC

    Our mission is to drive the economic and social
       advancement of low- to moderate-income (LMI)
       Latinos and other underserved residents in the
       Washington metropolitan area by providing the
       educational and financial resources they need to
       achieve financial independence and become
       community leaders.
History of LEDC

    Core programs:
     Small Business Development (including micro-lending)
     Homeownership Counseling (including foreclosure
     Affordable Housing Preservation (through tenant-
       based organizing and community-wide advocacy)

    Opened a second office in Montgomery County, MD in
       2006 where a majority of DC area Latinos now live
       and own small businesses.
LEDC Micro-Lending Program
LEDC Micro-Lending Program
   •Close to $3.5 million loans made
   •Average Loan $11,734
   •Loan Loss Rate 6.1%
   •Began in 1997 and experienced great growth
   since 2006
         Growth in Loan Portfolio

$1,000                                                                                                        70

 $900                                                                                                    64
 $800                                                                                            56
 $700                                                                                                         50



                                                                                         30                   30

                                                                                              $669 $654
 $300                                                                                                         20
 $200                                  11                       10       10           $397
                                 9                                                                            10
 $100     5        5      5                            4
         $51      $65    $84   $130 $176      $92     $63
                                                               $160 $150
   $-                                                                                                         -
         FY97    FY98   FY99   FY00    FY01   FY02    FY03     FY04     FY05   FY06   FY07    FY08    FY09

                LEDC Dollars of Microloans Disbursed ($000s)          LEDC Number of Microloans Disbursed
    Financial Literacy and Loans

  Initial Vetting

Credit Counseling       Add’l Session:       Microloan
  Session ($20)      budgeting/bookkeeping    Ready?

 Credi Start Loan?
Credit Counseling

  The session is based in part on the “Five Steps to Build
Credit” framework developed by Credit Builders Alliance.

  Taught from a “Credit as an Asset” viewpoint.

  Assessed for appropriate financial product.
  Building Credit through Credi-Start

    Credi-Start is a 6 month term loan for individuals with
little or no credit history. The purpose of the loan is to build
a positive repayment history that will allow the client to
access more capital in the future.

$500 loan
6 month term
Monthly payment of $90
14% annual interest rate
$40 processing fee
    Building Credit through Credi-Start

  This product is available to employed (self or otherwise) individuals who
have proof of income, identification, and a bank account.

  Fills the market need for recent immigrants with no credit history in the US,
but solid credentials otherwise.

  Benefits include helping clients grow with their business and being able to
provide more financing (eventually getting clients to banks when appropriate).

  The costs are largely off set by fees charged for credit reports and servicing.

  Tradeoffs include being outcome based in the lending team as opposed to
only output based.
Small Business Development Program

Training and Technical Assistance
                               Self-       Dreamers


                                                 • Conducted weekly in MD and DC
                                                 • Covers entity formation, licensing,
                          Seminar: Start a Businessfinance, business plan basics

                                             • Offered 4 times a year
                               Emprendedores • In Spanish only
                                 en Accion   • 30 hour business basics class

                                             • Education paired with deliverables
Current Business Owners                      • Has covered: Sales, Marketing,
                                 Coaching and Record-keeping and Financial
     Loan Clients

 •   Adapting both using experiential learning
     tools from ‘Training for Change’

 •   Want to emphasize ‘change of attitudes,
     beliefs and behaviors’ aspect of learning
     instead of simply ‘knowledge acquired.’
New Directions…
Link financial education and credit-
  building services to key business
Offer products that enable clients to
 develop and practice strong
 financial behaviors.
Financial education and credit-building
  services can support scale in lending
  and BDS services.
Measure both short-term and longer
term outcomes

              6. H o w d o e s y o ur o rg a niza tio n me a s ure the o utc o me s o r e ffe c tiv e ne s s (s uc c e s s ) o f its fina nc ia l e d uc a tio n
                                                    a nd c re d it b uild ing s e rv ic e s (c he c k a ll tha t a p p ly )?

70.0%         63.8%
                                      57.4%                                                                      55.3%
                                                               48.9%                                                                     46.8%
50.0%                                                                                   44.7%


          Graduation into       Completion of an      Changes in      Increases in the                    Changes in credit Increases in assets               Other (please
        business training or     IDA program     financial knowledge numbers of clients                   scores over time       over time                       specify)
            microloan                                post-course      receiving these
                                                                     services over time

 What donors can do:

• Support development of products
  and services that build financial
• Support integration of credit building
  into microenterprise and
  microfinance programs
• Invest in outcome monitoring
 What donors can do:

• Support policy that expands,
  protects and enhances credit
  records for disadvantaged
  entrepreneurs and their businesses..
• Support identification and sharing of
  best practices
                       Resource Page:
Financial Literacy and Credit-Building among Microenterprise
                   Organizations (July 2010)
  Building Financial Skills for Business Success (August 2010)
                        Funder Guide:
         Microenterprise Programs as Credit Builders
To access the FIELD publications and Webinars:

                 The Aspen Institute
          One Dupont Circle, NW, Suite 700
              Washington, D.C. 20036
                    (202) 736-1071

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