DOCSLIB.ORG

Putting Microfinance to the Test 18-Month Impacts of the Grameen America Program

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Putting Microfinance to the Test 18-Month Impacts of the Grameen America Program Putting Microfinance to the Test 18-Month Impacts of the Grameen America Program September 2020 M. Victoria Quiroz Becerra Kelsey Schaberg Daron Holman Richard Hendra Dissemination of MDRC publications is supported by the following organizations and individuals that help finance MDRC’s public policy outreach and expanding efforts to communicate the results and implications of our work to policymakers, practitioners, and others: The Annie E. Casey Foundation, Arnold Ventures, Charles and Lynn Schusterman Family Foundation, The Edna McConnell Clark Foundation, Ford Foundation, The George Gund Foundation, Daniel and Corinne Goldman, The Harry and Jeanette Weinberg Foundation, Inc., The JPB Foundation, The Joyce Foundation, The Kresge Foundation, and Sandler Foundation. In addition, earnings from the MDRC Endowment help sustain our dissemination efforts. Contributors to the MDRC Endowment include Alcoa Foundation, The Ambrose Monell Foundation, Anheuser- Busch Foundation, Bristol-Myers Squibb Foundation, Charles Stewart Mott Foundation, Ford Foundation, The George Gund Foundation, The Grable Foundation, The Lizabeth and Frank Newman Charitable Foundation, The New York Times Company Foundation, Jan Nicholson, Paul H. O’Neill Charitable Foundation, John S. Reed, Sandler Foundation, and The Stupski Family Fund, as well as other individual contributors. The findings and conclusions in this report do not necessarily represent the official positions or policies of the funders. For information about MDRC and copies of our publications, see our website: www.mdrc.org. Copyright © 2020 by MDRC®. All rights reserved. Putting Microfinance to the Test 18-Month Impacts of the Grameen America Program M. Victoria Quiroz Becerra Kelsey Schaberg Daron Holman Richard Hendra September 2020 OVERVIEW his report summarizes 18-month findings from the evaluation of the Grameen America pro- gram, a microfinance institution that provides loans to low-income women in the United States who are seeking to start or expand a small business. The program is based on the Grameen Bank model developed in Bangladesh during the late 1970s. Its objective is to reduce poverty through the provision of Tloans, financial training, and peer support. The Grameen America evaluation is using a randomized controlled trial design to explore the mechanisms of program operations and whether the model leads to improved outcomes for borrowers. The evaluation includes an implementation analysis, which examines how the program operates and the experiences of borrowers and program staff; and an impact analysis, which assesses the program’s effects on participants’ outcomes, including the study’s two primary outcomes: individual net income and types of material hardship experienced. Other outcomes include wage- and self-employment, earnings and other income, assets, and financial well-being. The implementation analysis includes outcomes from program-tracking data as well as findings from interviews with borrowers, focus groups, observations of the program, and interviews with Grameen America staff. The impact findings in this report are based on sample members’ responses to an 18-month survey and credit report data from a major credit reporting agency. The Grameen America evaluation is funded by the Robin Hood Founda- tion. Key Findings ✦ The Grameen America program resulted in increased business ownership and monthly business earnings (monthly business revenue minus expenses). At the same time, the program reduced wage-based employment and monthly earnings from wage-based employment. Due to these offsetting effects, the program did not result in an increase in overall net income (gross earnings minus business expenses) in the prior month, the first of two primary outcomes. However, the program did result in a decrease in the types of material hardship experienced, the second pri- mary outcome. ✦ The pattern of impacts on the study’s two primary outcomes is puzzling. The report proposes that part of the explanation for how the program decreased material hardship while not having an effect on income lies in the ways a small loan can provide liquidity to meet financial obliga- tions. That is, borrowers may set aside some funds from the loan for a rainy day or to invest in more inventory that can later be used to maintain a steady flow of cash; they may also use funds from increased business revenue for everyday expenses. Is it possible that other aspects of the program are also contributing to ease material hardship? The study found increases in savings, access to credit, and social support, which could all contribute to reduced material hardship. These findings are not the final word on the Grameen America evaluation. An upcoming report will assess the impacts of the program after 36 months. In addition to reporting on the same measures as those in this report, the next phase of the study will look at the impact of the program on assets such as the purchase of appliances to help support businesses. The longer-term follow-up period will provide a clearer picture of the effects of the Grameen America program. Overview | iii CONTENTS Overview iii List of Exhibits vi Acknowledgments ix Executive Summary ES-1 1 Introduction 1 Cecilia 1 The Grameen America Model 2 The Evaluation of Grameen America 3 Financial Access as a Strategy to Improve Economic Well-Being 6 Key Findings 7 2 The Grameen America Model and Its Practice 9 Soledad 9 Grameen America’s Theory of Change 9 Grameen America Model in Practice in Union City 11 Loan Receipt, Characteristics, and Repayment History 19 3 Accessing Loans to Create or Expand a Business 23 Agustina 23 Access to Financial Services 24 Impacts of Grameen America on the Characteristics of Small Businesses 31 Sonia 32 4 Making Ends Meet 37 Laura 37 Impact of the Grameen America Program on Net Income 38 Experiences of Material Hardship 44 Income and Material Hardship Impacts, by Subgroups 47 iv | Putting Microfinance to the Test 5 Building Assets, Savings, and a Credit History 49 Soledad and Alejandra 49 Building a Credit History 50 Savings 53 Debt 55 6 A Sense of Well-Being and Social Support 57 Amalia, Cecilia, and Agustina 57 Building and Strengthening Social Relationships 58 7 Conclusion 67 Rosa, Delia, and Sara 68 Moving Forward 69 Appendix A Supplementary Tables: Impacts on Employment Status, Income, and Material Hardship 71 B Supplementary Tables: Impacts on Credit History, Savings, and Debt 77 C Supplementary Tables: Impacts on Group Relationships, Social Support, and Well-Being 81 D Collection and Analysis Approaches for Grameen America Evaluation Quantitative Data 85 E Additional Information and Tables on Grameen America Evaluation Program-Tracking Data 103 F Impacts on Primary and Mediating Outcomes by Subgroups 111 References 119 Earlier MDRC Publications on Grameen America 123 iv | Putting Microfinance to the Test Contents | v EXHIBITS Tables 2.1 Loan and Repayment History Within 18 Months of Random Assignment Among Grameen America Group Members 20 3.1 Impacts on Loan Receipt and Help Received from an Organization or Program at 18 Months 25 3.2 Impacts on Self-Employment at 18-Months 30 A.1 Impacts on Wage-Based Employment and Earnings at 18 Months 73 A.2 Impacts on Income, Employment Status, and Benefits at 18 Months 74 A.3 Impacts on Material Hardship at 18 Months 76 B.1 Impacts on Credit Score and Attributes at 16-21 Months After Random Assignment 79 B.2 Impacts on Savings and Debt at 18-Months 80 C.1 Impacts on Relationships with Other Loan Group Members at 18 Months 83 C.2 Impacts on Social Support, Well-Being, and Empowerment at 18 Months 84 D.1 18-Month Survey Response Rates 87 D.2 Selected Baseline Characteristics of Research Sample Members by Response to the 18-Month Survey 88 D.3 Estimated Regression Coefficients for the Probability of Responding to the 18-Month Survey, by Random Assignment Cohort 90 D.4 Selected Baseline Characteristics of All Sample Members and 18-Month Survey Respondents, by Research Group 91 D.5 Estimated Regression Coefficients for the Probability of Being a Grameen America Group Respondent to the 18-Month Survey, by Random Assignment Cohort 92 vi | Putting Microfinance to the Test D.6 Impacts on Primary and Mediating Outcomes, Weighted by Likelihood of Survey Response 93 D.7 Comparison of Impacts on Income, Savings, Debt, and Earnings by Level of Exclusion of Outlier Values 97 D.8 Percentage Missing on Key Outcomes 99 D.9 Comparison of Adjusted versus Unadjusted Impacts, Primary and Mediating Outcomes 100 D.10 Standard Errors and Effect Sizes for Key Outcomes 101 E.1 Wage-Earning Employment Within 18 Months of Random Assignment, Among Grameen America Group Members 107 E.2 Self-Employment Within 18 Months of Random Assignment, Among Grameen America Group Members 108 E.3 Wage-Earning and Self-Employment Within 18 Months of Random Assignment, Among Grameen America Group Members 110 F.1 Impacts on Subgroups Defined by Direct-Selling /Multilevel Marketing Business Status 113 F.2 Impacts on Subgroups Defined by Self-Employment Status 114 F.3 Impacts on Subgroups Defined by Household Income Level 115 F.4 Impacts on Subgroups Defined by Level of Familiarity Among Members of Loan Group 116 F.5 Impacts on Subgroups Defined by Number of Business Types Loan Group Members Operated or Intended to Operate 117 vi | Putting Microfinance to the Test Exhibits | vii Figure ES.1 Grameen America 18-Month Impact Snapshot ES-5 1.1 Grameen America Model 4 1.2 Grameen America Evaluation Study Timeline 5 2.1 Grameen America Theory of Change
Load more

Recommended publications
  • 2019 Program Report Report Lifting Prepared for New York the Brown Foundation
    Q2 2019 QUARTERLY 2019 PROGRAM REPORT REPORT LIFTING PREPARED FOR NEW YORK THE BROWN FOUNDATION BLANCA CLOTHING STORE OWNER - grameenamerica.org Lifting Houston HOUSTON We are happy to share an update on Grameen Building on a successful decade of empowering America and our program in Houston in 2019. women nationwide, Grameen America has launched Our members have gained access to affordable a bold new campaign, Lifting America: The Campaign capital, credit-building, free savings accounts, for Her Future, to raise $300 million, including $100 and financial education to enable them to boost million in philanthropy and $200 million in debt their business income, create jobs in their capital. Our goal for the next decade is to double our communities and enter the mainstream footprint from 21 to 40 branches, to be the catalyst to financial system. launch Grameen America into the national landscape to have a material impact on poverty alleviation. We will focus on Expansion to Deepen Our Impact and Reach New Communities; Continued Innovation and IMPACT Digital Inclusion; and Providing Enhanced Wraparound Services. Since opening in 2008, we have expanded to 23 branches in 15 cities – Austin, Boston, Charlotte, Through the Campaign, we will reach four times Fresno, Houston, Indianapolis, Los Angeles (3), the number of women, impacting 400,000 women Miami, New York (7), Newark, Oakland, Omaha, entrepreneurs by 2028. These women will spearhead San Jose, San Juan and Union City. The fastest economic revitalization in their communities, proving growing non-profit microfinance organization in that microfinance can have a measurable impact on the U.S., Grameen has assisted over 127,000 income inequality in developed countries throughout low-income women entrepreneurs, investing the world.
    [Show full text]
  • Q3 2019 Quarterly Report 1 Geography Highlight Expanding Our Reach in California
    Q2 2019 QUARTERLY Q3 2019 REPORT QUARTERLY LIFTING REPORT NEW YORK LIFTING NEW YORK BLANCA CLOTHING STORE OWNER - grameenamerica.org Lifting New York Grameen America is the fastest growing nonprofit microfinance organization in the United States with a proven national solution to advance financial inclusion for women. We provide small loans, training and support to low-income women to help them build businesses, achieve higher family incomes and revitalize their communities. OUR MISSION Grameen America is dedicated to helping entrepreneurial women who live in poverty build businesses to enable financial mobility. NATIONAL IMPACT OUR SERVICES Grameen America provides microloans (ranging from 99% Repayment Rate $2,000 to $15,000), financial training and support to members. As part of our program, members open free savings accounts with commercial banks and make 15 U.S. Cities weekly deposits. We also report microloan repayments to Experian and Equifax, enabling our members to build their financial identity. 503,000 Total Loans WHO WE SERVE 131,000 Jobs Created or Maintained Our target population is women who live below 124,000 Women Served the federal poverty line for whom the mainstream financial system is currently out of reach. Our members are women who previously had few options $1.32 Billion Loans Disbursed for accessing capital and most lacked bank accounts and credit scores. OUR MODEL Groups attend weekly meetings with Members are eligible for larger loans to grow Group of five Members open a Grameen America field officers to make
    [Show full text]
  • Xii World Summit of Nobel Peace Laureates
    CHICAGO 23-25 April 2012 XII WORLD SUMMIT OF NOBEL PEACE LAUREATES «Speak up, speak out about your rights and freedoms» The World Summit of Nobel Peace Laureates: “A meeting of hope in the World” We invite all students and PhD students having fluent English and interested in international relations, globalization, geopolitics and international law to take part in XII World Summit of Nobel Peace Laureates. XII WORLD SUMMIT OF NOBEL PEACE LAUREATES is being organized by Permanent Secretariat of the World Summit of Nobel Peace laureates in cooperation with the City of Chicago (USA) and the magazine Time. The Summit will be held at the suggestion of the Gorbachev Foundation, Chicago City Hall, R. Kennedy Foundation and University of Illinois. Chaired by Mikhail Gorbachev and Walter Veltroni, the World Summit of Nobel Peace Laureates is among the most prestigious international appointments in the fields of peace, non-violence, social urgencies, ethnic, religious and cultural conflicts. The World Summit of Nobel Peace Laureates takes place every year since 1999. The last editions of the Summit were attended by 25 Nobel Peace Prize Laureates, 272 international media (including BBC, CNN, NBC, Al Jazeera), 700 delegates, 150 organisations and associations. Among the participants: Mikhail Gorbachev - H.H. The Dalai Lama - Muhammad Yunus - Oscar Arias Sanchez - Lech Walesa – Shimon Peres - Jose Ramos-Horta - David Trimble - John Hume - Kim Dae Yung – Joseph Rotblat, Jody Williams - Betty Williams - Mairead Corrigan Maguire - Philipe Ximenes Belo - Adolfo Perez Esquivel - Rigoberta Menchù Tum - Frederik Willem De Klerk - Unicef - Pugwash Conferences - I.P.P.N.W. - I.P.B.
    [Show full text]
  • Bateman Ids Wp
    See discussions, stats, and author profiles for this publication at: https://www.researchgate.net/publication/272241825 The Rise and Fall of Muhammad Yunus and the Microcredit Model Article in SSRN Electronic Journal · January 2014 DOI: 10.2139/ssrn.2385190 CITATIONS READS 16 2,924 1 author: Milford Bateman Juraj Dobrila University of Pula 93 PUBLICATIONS 641 CITATIONS SEE PROFILE Some of the authors of this publication are also working on these related projects: 'Seduced and betrayed: exposing the contemporary microfinance phenomenon' View project The rise and fall of global microcredit: development, debt and disillusion View project All content following this page was uploaded by Milford Bateman on 27 March 2018. The user has requested enhancement of the downloaded file. #001 JANUARY 2014 THE RISE AND FALL OF MUHAMMAD YUNUS AND THE MICROCREDIT MODEL Milford Bateman Freelance consultant on local economic development and Visiting Professor of Economics at Juraj Dobrila at Pula University, Croatia. Bateman - IDS Working Paper #001 - January 2014 “Microfinance is an idea whose time has come.” Kofi Annan - Former United Nations Secretary-General “The key to ending extreme poverty is to enable the poorest of the poor to get their foot on the ladder of development . the poorest of the poor are stuck beneath it. They lack the minimum amount of capital necessary to get a foothold, and therefore need a boost up to the first rung.” Jeffrey Sachs - American economist and director of the Earth Institute at Columbia University “Give a man a fish, [and] he’ll eat for a day. Give a woman microcredit, [and] she, her husband, her children, and her extended family will eat for a lifetime.” Bono - Lead singer for the Irish band U2 and humanitarian advocate “This is not charity.
    [Show full text]
  • Seventh Nelson Mandela Annual Lecture
    7th Nelson Mandela Annual lecture Johannesburg, 11 July 2009 By Muhammad Yunus I stand in awe, standing in front of the most wonderful person on Earth today. I feel so honoured and privileged to say happy birthday personally to him today. You have inspired us; you don’t know who we, where we grew up, but you have touched our lives. As young people, we looked up to you: you stood tall and made us stand tall; you rejected prejudices and you inspired us to reject prejudices; you rejected hatred and you inspired us to reject hatred. You inspired us to love people, embrace peace; you inspired us to be brave, bold. You inspired us to be defiant. You inspired the whole world. Today, in your 91 st birthday year, it is such an experience to be in your presence on this stage. I feel privileged to be living on this planet while you are with us. Today, this is more than anybody can expect. You lifted people from their insignificance. You gave people honour and dignity, irrespective of their race, colour or religion. You became the symbol of the human spirit. You became the symbol of how best a human being can be. You will remain an inspiration for all time. You had your own struggles; the world watched, we watched on from a distance. We had our own struggles – little ones – but you inspired us, nonetheless. Bangladesh was devastated by massive poverty when it became an independent country. It was devastated by war and bloodshed. On top of it there was massive poverty – and then came the famine in 1974.
    [Show full text]
  • Maximizing Results
    ST/ESA/326 Department of Economic and Social Affairs DEVELOPMENT COOPERATION FOR THE MDGs: MAXIMIZING RESULTS INTERNATIONAL DEVELOPMENT COOPERATION REPORT asdf United Nations New York, 2010 Department of Economic and Social Affairs The Department of Economic and Social Affairs of the United Nations Secretariat is a vital interface between global policies in the economic, social and environmental spheres and national action. The Department works in three main interlinked areas: (i) it compiles, gener- ates and analyses a wide range of economic, social and environmental data and information on which States Members of the United Nations draw to review common problems and take stock of policy options; (ii) it facilitates the negotiations of Member States in many intergovernmental bodies on joint courses of action to address ongoing or emerging global challenges; and (iii) it advises interested Governments on the ways and means of translating policy frameworks developed in United Nations conferences and summits into programmes at the country level and, through technical assistance, helps build national capacities. Note The present report is an independent publication commissioned by UN DESA drawing from the work of the Development Cooperation Forum and additional research and positions of independent authors. Opinions expressed in this report do not necessarily reflect the views of the United Nations. The designations employed and the presentation of the material in this publication do not imply the expression of any opinion whatsoever on the part of the Secretariat of the United Nations concerning the legal status of any country, territory, city or area or of its authorities, or concern- ing the delimitation of its frontiers or boundaries.
    [Show full text]
  • Grameen Bank and Its Sister Organizations
    Global Journal of Management and Business Research: B Economics and Commerce Volume 14 Issue 2 Version 1.0 Year 2014 Type: Double Blind Peer Reviewed International Research Journal Publisher: Global Journals Inc. (USA) Online ISSN: 2249-4588 & Print ISSN: 0975-5853 Grameen Bank and its Sister Organizations- Grameen Chek and Grameen Krishi (Agricultural) Foundation Not Only Providing Credit: They Guide the Landless Families in Bangladesh for their Development By Dr. Kazi Abdur Rouf Noble International University, Canada Abstract- This paper talks about Grameen Bank (GB) micro financing program features, strategies, policies and its two other sister organizations Grameen Chek (GC), involves in manufacturing handloom garments and Grameen Krishi (Agricultural) Foundation (GKF), engages in agricultural activities and irrigation management in Bangladesh. All are social business organizations in Bangladesh. GKF runs its farms ‘no loss basis’. Grameen Bank and Grameen Chek run their programs without receiving external funding; rather these two organizations have operated their programs from their own generated funds. Moreover, Grammen Bank and Grameen Chek are free from external consultants` pressure rather they are developing their programs, policies and implementation strategies by using their in-house staff skills and experience. Keywords: external consultants; external funding; grameen bank; grameen chek; grameeen krishi foundation; internal funding; empowerment; implementation strategies, poverty eradication. GJMBR-B Classification: JEL
    [Show full text]
  • 2016 and 2015
    Grameen America, Inc. Consolidated Financial Statements December 31, 2016 and 2015 Grameen America, Inc. Index December 31, 2016 and 2015 Page(s) Report of Independent Auditors ............................................................................................................... 1 Consolidated Financial Statements Statements of Financial Position .................................................................................................................. 2 Statements of Activities and Changes in Net Assets ................................................................................... 3 Statements of Cash Flows ........................................................................................................................... 4 Notes to Financial Statements ............................................................................................................... 5–11 Report of Independent Auditors To the Board of Directors of Grameen America, Inc. We have audited the accompanying consolidated financial statements of Grameen America, Inc. and its subsidiaries which comprise the consolidated statements of financial position as of December 31, 2016 and 2015, and the related consolidated statements of activities and changes in net assets and of cash flows for the years then ended. Management’s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted
    [Show full text]
  • Consumer Guide to Auto Title Lending
    CONSIDER YOUR OPTIONS In addition, consumer credit counseling services can provide valuable financial Auto Title Loans are designed for consumers education and budgeting advice. If you would who need to borrow money only for a short like to contact a consumer credit counselor, length of time. Due to the short-term nature consult your local Yellow Pages for services of these loans and the higher fees involved, available in your area. CONSUMER GUIDE these services are not intended to be used by TO consumers who need to borrow money for a CONTACT THE DEPARTMENT longer period of time. OF FINANCIAL INSTITUTIONS AUTO TITLE LENDING If you need to borrow money you should If you have questions about Auto Title explore several different lending options. Lending, please contact the Illinois Division of Contact various lending institutions and Financial Institutions at: Presented By compare fees to find the most economical loan that best suits your financial needs. If you are Illinois Department of Financial Institutions Illinois Department of Financial not absolutely certain you can repay the loan Consumer Credit Section and at the end of the term, you should seriously 100 West Randolph consider not taking out a short term loan 9th Floor Professional Regulation, like an auto title loan Chicago, Illinois 60601 Division of Financial Institutions Consumers who are experiencing financial Or difficulty or serious financial setback may wish to obtain assistance from a consumer credit 1-888-298-8089 counselor or a debt management company prior to taking out a loan. Debt management companies can provide assistance to consumers who need help reorganizing their debts.
    [Show full text]
  • RESULTS Applauds Members of Congress and International Leaders Standing in Support of Grameen Bank and Its More Than Eight Million Women Borrowers
    For more information, contact: Blair Hinderliter RESULTS Educational Fund +1 202 783 4800 x126 [email protected] For Immediate Release Wednesday, August 14, 2013 RESULTS Applauds Members of Congress and International Leaders Standing in Support of Grameen Bank and its More than Eight Million Women Borrowers Washington, D.C. — Today, in open letters to Bangladesh Prime Minister Sheikh Hasina, members of Congress and a diverse set of global leaders called on the government of Bangladesh to preserve the independence of Grameen Bank. Grameen Bank provides credit and other critical services to nearly 8.4 million of the poorest women in Bangladesh, creating an opportunity for these women and their families to transform their lives and move out of poverty. The open letters come in advance of the final report of the government-appointed Grameen Bank Commission. The commission’s working paper released in June 2012 included three proposals that would wrest control of the bank from its women borrowers, who currently control 97 percent of Grameen Bank’s shares and hold nine of 13 seats on the bank’s board of directors. The proposals include restructuring the bank so the government would hold 51 percent of shares in the bank and a majority of seats on the bank’s board; breaking up the bank into 19 or more totally separate bank entities with no legal relationship among them; and transforming the bank into a private company. If implemented, these recommendations would undermine the bank's independence and jeopardize the success of the bank and its millions of borrowers and their families.
    [Show full text]
  • Suntrust Foundation Awards Grant to Grameen America
    News Release For Immediate Release: Dec. 2, 2019 Media Contacts Grameen America [email protected] Audria Belton SunTrust Foundation [email protected] 404.813.3664 SunTrust Foundation Awards $214,000 Grant to Grameen America to Empower Charlotte’s Women Entrepreneurs ATLANTA, Dec. 2, 2019 – The SunTrust Foundation today announced it has awarded a $214,000 grant to Grameen America, a national, nonprofit, microfinance organization that helps low-income women entrepreneurs access capital to build small businesses. The grant will go toward Grameen America’s branch in Charlotte, North Carolina, and will support its microloan program, financial training and peer support to low-income women entrepreneurs in Concord and Monroe, North Carolina. For over two years, the SunTrust Foundation has partnered with Grameen America and has contributed $250,000 toward 30,000 hours of financial education for low-income women in the region. With the SunTrust Foundation’s continued support, Grameen America anticipates it will be able to reach a total of 9,900 women in greater Charlotte by 2020. “The SunTrust Foundation is committed to partnering with organizations that empower communities through small business development and entrepreneurship,” said Stan Little, president of the SunTrust Foundation. “We’re proud to support Grameen America and help women across Charlotte attain success and reach their goals through financial education.” Grameen America provides affordable capital, credit building, financial education and peer support to empower its program members to open small businesses, which boost their income and help them enter the mainstream financial system. Grameen America has provided more than $1.3 billion in loan capital and served over 124,000 low-income women entrepreneurs across the country since 2008.
    [Show full text]
  • Easy Money, Impossible Debt How Predatory Lending Traps Alabama’S Poor
    EASY MONEY, IMPOSSIBLE DEBT How Predatory Lending traPs aLabama’s Poor EASY MONEY, IMPOSSIBLE DEBT How Predatory Lending traPs aLabama’s Poor © southern poverty law center | february 2013 www.splcenter.org CONTENTS executive summary 5 tricks of tHe trade 7 victimized 17 buyer beware 27 safeguards needed 31 wHat next? 35 4 Easy Money, Impossible Debt EXecUTIVE SUmmARY Alabama has four times as many payday lenders as McDonald’s restaurants. and it has more title loan lenders, per capita, than any other state.1 this should come as no surprise. with the nation’s third highest poverty rate and a shamefully lax regulatory environment, alabama is a paradise for predatory lenders. by advertising “easy money” and no credit checks, they prey on low-income individuals and families during their time of greatest financial need – intentionally trapping them in a cycle of high-interest, unaf- fordable debt and draining resources from impoverished communities. although these small-dollar loans are explained to lawmakers as short- term, emergency credit extended to borrowers until their next payday, this is only part of the story. the fact is, the profit model of this industry is based on lending to down- on-their-luck consumers who are unable to pay off loans within a two-week (for payday loans) or one-month (for title loans) period before the lender offers to “roll over” the principal into a new loan. as far as these lenders are concerned, the ideal customer is one who cannot afford to pay down the prin- cipal but rather makes interest payments month after month – often paying far more in interest than the original loan amount.
    [Show full text]