Innovative Change$ Opportunity Loan

Loan Amount:    $100-$1,000

Interest Rate:    18%

Term:                   6-12 months

Collateral:           Partial collateral through “Borrower’s Holdback”:

                              15% of the loan in a savings account

Additional Fees: 5% origination fee

Requirements:   Financial education

Target:

• Low and moderate income Oregonians, primarily those who live in poverty and have in the past been dependent on payday lending.
• People who are underserved by traditional financial institutions. Some have no other access to small-dollar credit.

When’s the last time you heard of a landlord spinning off a CDFI to make consumer loans?

Innovative Housing, Inc. got frustrated that their tenants were using payday loans – and being charged up to 500% annual interest -- to make rent or utility payments. As an affordable housing developer in Oregon, Innovative Housing offers resident services, including financial education. “People are not necessarily making bad decisions when they take out payday loans but in the past, they’ve just had bad options. Our goal for IC$ is to help low income households develop basic money management skills, build strong credit scores and have access to responsible short-term small dollar credit,” Program Director Sarah Chenven.

When Oregon laws in 2007 restricted payday lending, instead of relief Innovative Housing discovered their tenants suddenly had even fewer financial options. Thus Innovative Change$ (IC$) was born.

IC$ disbursed its first loans in February 2010, and since then it has offered 100 loans totaling nearly $47,000. Opportunity Loans make up most of the portfolio (83 loans totaling $44,000). IC$ also offers Emergency and Credit Builder Loans.

IC$ designed this portfolio of loans to help borrowers weather financial emergencies, pay down high-cost debt, and/or build credit. Prospective borrowers are all referred by community partners to ensure that they are making an informed decision by taking out the loan and that they have the additional support  to help them reach their financial goals.  IC$ provides a loan orientation that incorporates cash flow planning and budgeting that helps the client to create a plan for the use of the loan, post-loan savings, as well as a long-term sustainability to minimize future financial emergencies. IC$ also developed a system of "In-Touch" education to leverage each payment transaction as a financial learning opportunity. All loan communications – including invoicing, payment receipt, etc. – are used as moments to touch back and reinforce the sustainability plan.

While not a depository institution, IC$ has a general borrower’s holdback account into which it transfers a portion of the principal on each Opportunity Loan and Credit Builder Loan until the loan is repaid in full.  The holdback is released to the borrower after the end of a successful loan term. Borrowers are encouraged to deposit the funds into a savings account or to use them according to the plan developed at loan origination – i.e. as short term savings for holiday expenses, toward long-term homeownership goals, etc.

Next steps for IC$? They are developing relationships with local banks and credit unions to facilitate borrowers opening up savings accounts and low-cost revolving credit products to continue to build their credit. They are also expanding their community referral partner network statewide.

Innovative Change$ is an emerging CDFI (Community Development Financial Institution) founded by Innovative Housing to help struggling individuals and families, and those who otherwise lack access to capital and/or financial  services, manage short-term financial needs in order to achieve and maintain household stability.