Simple Lending Opportunities

Throughout the USA, there is a segment of society that is unbanked or underbanked, and because they are, they have trouble borrowing money from traditional lenders. According to the Federal Deposit Insurance Corporation, or FDIC, about 25 percent of the population is unbanked or underbanked. Two associations have established a partnership, and together, they’re aiming to resolve this issue while giving those who join them the opportunity to move into a lending niche that could be quite lucrative.

A Lending Venture for Unbanked and Underbanked Borrowers

The National Diversity Coalition, or NDC, and the National Asian American Coalition, or NAAC, have come together to develop a lending option for those who are unbanked and underbanked. The two associations are working with private investors and banking professionals to establish a lending platform, one that’s designed to aid homeowners and small businesses.

This group of founding investors and private investors have agreed to contribute $20 million in equity to the new lending platform, and its focus will be to lend money to people who are unable to borrow through traditional channels. Unbanked and underbanked people are usually those with low incomes as well as individuals who belong to various minority groups.

According to the NDC and the NAAC, borrowers who are unable to obtain funding through traditional lending sources currently account for more than $100 billion in yearly lending opportunities. Faith Bautista, the president of the NDC and the NAAC, said, “It has been my dream to help enable these underserved and minority homeowners get the credit they deserve at rates they can afford. This will be the gold standard of community development.”

The venture intends to acquire federal certification by listing itself as a Community Development Financial Institution and by obtaining membership through the Federal Home Loan Bank of San Francisco.

The Nation’s Unbanked and Underbanked

A few years ago, the FDIC completed a study on the nation’s unbanked and underbanked. It found that the number of people who were in this sector had grown. The study also determined that many of those who were unbanked or underbanked were in this financial situation because they had the perception that they didn’t have enough money to open an account.

The report noted that these individuals typically turn to nonbank financial companies like check-cashers when they need financial assistance. They use these providers because they consider this type of credit easier to obtain than traditional bank credit. The report said, “The most common reason households use transaction alternative financial services is convenience while the main reason households use alternative financial services credit products is because they are easier or faster to obtain than bank credit.”

The study’s results show that traditional financial institutions have an opportunity to increase their customer base by giving the unbanked and the underbanked a way to enter mainstream banking.

Working Toward a Global Solution

On a global level, a major financial institution is working toward giving one billion adults who are currently unable to get a loan through traditional sources get one. World Bank intends to realize this goal by the year 2020. The bank published a brief. In it, the institution wrote, “Financial access facilitates day-to-day living and helps families and businesses plan for everything from long-term goals to unexpected emergencies.”

When people have bank accounts, they may use other financial products like credit and insurance to start and grow businesses, invest in schooling, handle tough financial moments and manage risk. Being able to withstand these challenging life moments improves the quality of people’s lives.

To attain universal financial access, a multi-pronged approach is required, one that necessitates lending to people who have limited credit histories or who have been denied the opportunity to open a traditional bank account.