Allstate Micro-Loan Program
Loan Amount: $150 – 500
Interest Rate: 0%
Term: 6 months to 1 year
Market: Survivors of domestic violence
Prerequisite: Must have participated in KDVA's IDA program for at least 6 months
The Kentucky Domestic Violence Association (KDVA) offers no-interest
microloans to Individual Development
Account (IDA) participants and secures the loan with the borrower's
IDA savings. The microloan program was launched in January 2009 with
grant support from the Allstate Foundation. It specifically aims to
assist survivors of domestic violence build positive credit and
eventually graduate them to financial products such as as a car loan,
credit card or home mortgage. IDA participants can borrow up to $500 if
they have saved that much in their IDA account. During the time of the
loan, the IDA participant cannot withdraw their IDA savings that are
securing the loan.
The microloan program builds on KDVA's existing IDA program, taking the concept of asset accumulation one
step further by helping their clients build credit. Women who
experience domestic violence often face financial burdens that make
them vulnerable to having poor or no credit. They may have been barred
from having their own accounts or may have left a spouse or partner who
had poor credit. Many also have developed poor financial behaviors
after years of no access to their own money. Most participants in
KDVA's IDA program have credit scores between 450 and 600 – scores that
do not usually translate to access to conventional loans from financial
institutions.
KDVA places no restrictions on how the microloan funds can be spent.
Some participants use the loan to cover personal expenses, to create an
emergency fund, or to pay off collection debt. However, many of the 25
women have immediately deposited the funds into an interest-bearing
checking account and used the account to write a check each month to
pay back the loan.
To apply for the Allstate Micro-Loan Program, the applicant must have
an Individual Development Account (IDA) for at least six months,
although KDVA prefers to lend to savers who are in their second or
third year of the IDA program. IDA Coordinators screen the applicants
to assess if they are a good candidate for the microloan program and
can make monthly payments on a loan in addition to continued monthly
savings deposits into their IDA. All clients receive one-on-one
financial counseling through the IDA program. KDVA educates borrowers
that their payments are reported monthly to the major credit bureaus.
Staff makes clear to borrowers that regular on-time payments will help
their score, but late or missed payments will also be reported and
would hurt their credit score. To date, only one participant has missed
consecutive payments. In her case, the loan was paid off with funds
from her IDA after she was 120 days late, and KDVA reported to the
credit bureaus that the account was paid in full. This process ensures
no delinquent accounts go to collections.
KDVA's commitment to reporting the microloans to build credit is
already showing an impact. After a recent divorce, Denise was offered a
microloan through OASIS, a KDVA site in Owensboro, Kentucky. She used
the loan to pay off old debts – credit cards and a loan with high
interest rate. After six months, her credit score had improved by 74
points. Denise now pays all bills, including a car loan, on time every
month. Her goal is to raise her score high enough to get a market-rate
mortgage.
Kentucky Domestic Violence Association
ensures that the right to live
free of any form of domestic abuse is valued, protected, and defended
in Kentucky. A KDVA project, the Kentucky Asset Success Initiative
(KASI), provides free tax-preparation services and financial education
to low and moderate income families.
|
