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RepoRt

Microloan Feasibility Study: Can Small Business Lending Become Big Business for Credit Unions?Dave Grace, Managing Partner, Dave Grace & Associates

Foreword by Ellen Seidman, Filene Research Fellow

Acknowledgments

The author benefited from the guidance and consultation of many in preparing this report: first and foremost, Jeanne Kucey and her staff at JetStream Federal Credit Union, Edwina Suzuki of The Queen’s Federal Credit Union, and Guy Usui and Doug Mashino of Aloha Federal Credit Union. Long-time experts in the field Joyce Klein, with the FIELD Program of the Aspen Institute; Jody Raskind, chief, Microenterprise Development Branch of the Small Business Administration; Bill Myers and Lisa Terrell of NCUA; the staff of ACCION USA in Miami; and Joe Burns, of the Small Business Development Center in Honolulu, provided invaluable support and guidance. Finally, thank you to the Filene Research Institute and to Tiffany Litscher and Ben Rog-ers for their helpful comments and guidance.

Table of Contents

5 FoRewoRd

7 executive SummaRy

10 chapteR 1

Introduction

13 chapteR 2

Market Environment

18 chapteR 3

Competition

22 chapteR 4

Business Development Services

23 chapteR 5

Operational Considerations

25 chapteR 6

Marketing

26 chapteR 7

Regulatory Considerations

28 chapteR 8

Data Tracing Recommendations

28 chapteR 9

Financial Considerations

30 chapteR 10

Recommendations and Findings

32 chapteR 11

Resources

35 endnote

36 ReFeRenceS

39 LiSt oF FiguReS

40 about the authoR

41 about FiLene

page 4 tabLe oF contentS FiLene ReSeaRch inStitute

by Ellen Seidman

Filene Research Fellow

Credit unions today face the convergence of positive and negative trends that require fresh thinking about business opportunities. For example, while credit unions, as consumer- friendly insured depositories, have garnered an outsize share of deposits recently, they have been unable to deploy those deposits into loans at the same rate, meaning they are awash in liquidity, on which they are facing no or negative spreads. Indeed, as this report points out, credit unions today are on average lending only 58% of assets, the lowest level in 18 years.

Demographics also present challenges and opportunities. Credit union customers are getting older at the same time the nation’s demographic is trending younger. It is unclear whether credit unions have effectively kept up with the country’s changing racial and ethnic landscape—a landscape that is likely to change even more dramatically for financial services pro-viders if immigration reform is enacted. And how many credit unions are effectively planning, as a strategic manner, to work with a member base whose incomes and employment are far more likely to be variable and interrupted than has traditionally been the case?

This report suggests one potential strategy for getting ahead of all these trends. The reduced stability of traditional jobs, combined with a younger and more diverse population, has led to a significant increase in self- employment and small business formation. At least some of these businesses are run by credit union members; more are the work of poten-tial members. And while many of these businesses will get initial financing in the traditional way—friends and family and credit cards—these sources are less available than in the past, especially to help successful businesses begin to grow.

The question this report raises is whether credit unions, particularly those located in areas of significant immigrant populations, can simultaneously serve existing members, build the membership base, and put idle deposits to productive work by making microenterprise loans—business loans of less than $50,000. Using three case study credit unions (in Hawaii, Florida, and Puerto Rico), the report suggests that the answer may be yes, but that

Foreword

FoRewoRd FiLene ReSeaRch inStitute

entering this line of business, as with any new venture, requires careful study and dedication of financial, human, and technological capital.

Collaborations and partnerships can mitigate some of the risks. For example, several credit unions could come together, either informally (for example, by sharing an experienced loan officer) or through a credit union service organization (CUSO), to develop and/or hire a talented, experi-enced team to underwrite and manage microfinance for several credit unions, while keeping the customer relationship with the individual credit union. The report also points to the importance of business development services—another function that may best be shared or contracted out to an entity already experienced in providing such assistance, such as small business development centers. Finally, there is the possibility of an ongo-ing partnership with an experienced microfinance organization such as ACCION.

The opportunity presented by microfinance is both current and future. Currently, loans under $50,000 are exempt from the regulatory cap on business loans and may be made at interest rates up to 18%. If under-written both effectively and efficiently, and well managed to limit losses, microfinance can be a profitable line of business. For the future, a thriving microfinance business should attract new members and, as the businesses grow, become a source of larger business loans and other business services for loyal customers.

Microfinance is not a panacea, and it isn’t even a practical line of busi-ness for all credit unions. But as the report points out, there is enormous demand for this service, and for some credit unions, microfinance may make an important contribution to the credit union, its members, and its community. It’s worth reading the report to find out whether microfinance should be in your organization’s future.

Dave GraceManaging Partner, Dave Grace & Associates

meet the authoR

overview

Loans are credit unions’ biggest income sources, and with historically low loan-to-share ratios and interest rates, credit unions must generate new loans. This report by Dave Grace explores microlending and suggests practices that will help credit unions leverage this member service and income source.

by Judy Dahl

Project Manager, Research + Innovation

Sometimes a loan of a few thousand dollars can mean the difference between solvency and bankruptcy for a small business. When Carlos, a young baker in Miami’s booming suburbs, saw big-box supermarkets coming into the area, he knew he’d have to compete with them or bring them on as customers. Despite the supermarkets’ satisfaction with his fresh-baked goods, Carlos soon learned the harsh realities many small businesses experience when working with big ones—the big retailers man-age cash flow tightly and push out repayment terms far beyond what small businesses can afford. Carlos had a good product and happy customers, but repayment cash-flow challenges had him on the verge of closing. He had previously received a vehicle loan from JetStream Federal Credit Union in Miami Lakes, and he asked them for a $15,000 loan to help him manage cash flow between payments. On multiple occasions he’s received these cash-flow loans of $15,000–$20,000. With JetStream by his side, he’s now hiring more employees for a night-shift operation.

While not all microlending examples are this life changing, a small loan at the right time can provide the impetus for growth, tide small business owners over during economic crises, keep them from payday lenders, and more. Small business owners often struggle to obtain credit from large banks, and there are fewer and fewer community banks around to fill these borrowing needs. This research illuminates market conditions, borrower demand, and lending characteristics that suggest microloans and credit unions might be well suited to one another.

what is the Research about?

In the report, international microfinance expert Dave Grace—a small busi-ness owner himself and former senior vice president of WOCCU—examines the opportunity for US credit unions to form lasting partnerships with growing businesses through microlending.

Small businesses need loans. Survey after survey indicates that their demand outpaces the availability of credit. The smaller the business, the more pronounced the problems of accessing credit. As a result, many firms grow slowly through self-financing or can’t make it through rough patches.

Executive Summary

executive SummaRy FiLene ReSeaRch inStitute

At the same time, credit unions need to bolster their loan portfolios: In June 2012, US credit unions hit their lowest loan-to-asset ratio (58%) in 18 years. With interest rates on liquid investments near zero, the problem is compounded as credit unions’ surplus funds are earning next to noth-ing. Given that loans are the primary source of income for US credit unions, it’s imperative that they find ways to generate new loans or replace this substantial amount of income.

While many credit unions nationally have an interest in entering or expanding business lending, many are overlooking the untapped and potentially profitable area of microloans. A microloan to a fledgling busi-ness can be a gateway to a long-term financial partnership that’s profitable for credit unions and helpful to members. This is a new business opportu-nity for credit unions.

what are the credit union implications?

Grace’s report provides specific research and points of reference for three credit unions: The Queen’s Federal Credit Union of Honolulu, Hawaii; Aloha Federal Credit Union of Honolulu, Hawaii; and JetStream Federal Credit Union of Miami Lakes, Florida. The national trends discussed and the insights into these three institutions provide useful information for the broader credit union system.

Neither JetStream FCU, Aloha FCU, nor The Queen’s FCU formally offers microenterprise loans today. However, combined they have approximately $100 million (M) in loans outstanding, and some of these credit card, per-sonal, and auto or home equity loans are likely used for business purposes. Credit unions in many areas likely also offer business microloans unknow-ingly and could benefit from doing so more strategically.

For instance, given the high concentration of small businesses, the weak to moderate presence of community banks, and the small number of microloan funds in Honolulu, Miami Lakes, and San Juan, Puerto Rico (all locations of credit unions profiled in this study), credit unions in these markets are particularly well positioned to make microloans. And while it’s not a requirement, those that have experience with business lending, personal loans, and alternative credit assessments will be at an advantage.

executive SummaRy FiLene ReSeaRch inStitute

Microloans are exempt from credit unions’ regulatory cap on business loans, and credit unions can develop win–win relationships with micro-borrowers. As Grace notes, “Microlending can be profitable, but like most new business lines it will take adjustments and understanding of the market to succeed.”

To effectively prepare for microlending, credit unions would do well to partner with small business development centers, other microlenders, the Small Business Administration (SBA), or business chambers to drive loan demand. They’ll also want to consider:

→ Building loan loss reserve funds.

→ Forging partnerships with providers of business development and technical services to better ensure borrowers’ success.

→ Developing special underwriting criteria and training lenders.

→ Implementing proactive loan referral efforts.

→ Offering other business services—checking and credit card accounts, tax preparation, etc.—to generate new revenue streams.

Credit unions can expect higher losses on microloans than on many of their traditional products. But lessons in credit risk mitigation from inter-national microlending—deployed domestically by a large organization discussed in this report—can prove useful:

→ Price high enough to compensate for risk.

→ Start borrowers on short loan cycles.

→ Begin with smaller loan amounts.

→ Collect on loans as soon as they go bad.

→ Have payment schedules that reflect cash-flow cycles.

All in all, concludes Grace: “The need for more lending, market demand, regulatory cap exemption, and the potential for credit unions to build a renewable stream of small business loans by starting with a deep pipeline of microbusiness loans all lead to this time and product being ripe for credit unions.”

intRoduction FiLene ReSeaRch inStitute

chapteR 1

IntroductionAs the saying goes, “Small business is big business.” But do really small businesses equal really big business, and what are the opportunities for US credit unions in this area?

That is a key question for credit unions throughout the United States, and most of these really small businesses are hoping the answer is yes. Data from the 2008 US Census show that businesses with 0–4 employees make up 88% of all businesses in the United States. They employ 28.6 million people, or roughly 25% of all employees in the United States (US Census Bureau 2008). In nearly every survey or tally of small business needs, access to capital is mentioned as a critical barrier to growth.

Microloan Feasibility Study: Can Small Business Lending Become Big Business for Credit Unions?


Throughout this report, microloans and microenterprise lending are defined as loans to businesses of less than $50,000. The Credit Union National Association (CUNA 2012a) indi-cates that as of 2011 year-end, 9.7% of all credit unions offered microbusiness loans, and about three times as many credit unions offered larger member business loans (27%). The number of credit unions offering microbusiness loans has grown a moderate 4.4% since September 2009 to 681 credit unions offering such service in 2012. However, only one-third of all credit unions that offer member business loans also offer microbusiness loans. This may be a missed opportunity for credit unions to cement early and loyal relationships with very small businesses while they are growing.

While these numbers may seem relatively small for the credit union sector, the Aspen Institute/FIELD’s (2012) 20-year longitudinal study on microenterprise lending is aware of only 762 programs (which includes about a dozen of the aforementioned credit unions) offering microloans to small businesses.

These data are largely reflective of international experience with microfinance where financial cooperatives in many regions (e.g., Rwanda, Cameroon, the Caribbean, India, and Kenya) are the largest providers of small loans. However, domestically, as abroad, their actions are often overlooked, as financial cooperatives fall somewhere between banks with big marketing budgets and nonprofit loan funds that do a lot of fund- raising and, therefore, are very good at telling their stories.

Anecdotal evidence from the three credit unions that are part of this report and conver-sations with other credit unions indicate that most of the funds that are used to help a plumber buy a new truck, a day care provider to buy new equipment for the yard, or a graphic designer to upgrade computer equipment come from either credit cards or personal loans. So in effect it is nearly certain that more than 681 credit unions are offering micro-enterprise loans; this is just the number that likely think of them as a business line and as such report them on the 5300 report of the National Credit Union Administration (NCUA).

This feasibility study seeks to be a comprehensive report for three credit unions that serve three distinct markets in various parts of the United States.

This feasibility study seeks to be a comprehensive report for three credit unions that serve three distinct markets in various parts of the United States. The common threads among them are that they all are, or have applied to become, community development financial institutions (CDFIs), they are all small to midsize federal credit unions that have transi-tioned from single- sponsor to community credit unions, and they all serve large groups of low- income native or foreign- born populations in tropical communities. However, the


national trends discussed here and the insights into these three institutions provide useful information for the broader credit union system.

credit union profilesJetStream Federal Credit Union is headquartered in Miami Lakes, Florida, with five branches located in Miami-Dade County and one in San Juan, Puerto Rico. It serves 17,450 members, has $134 million (M) in total assets, and employs 64 staff. As of June 2012 it was lending only 51% of its assets.1 Its single branch on the outskirts of San Juan serves 4,000 members, or 23% of its membership, and is currently bringing in half of all new members to the credit union each month. The top-four poorest metropolitan statistical areas in the United States as measured by the percentage of families living below the pov-erty line are all located in Puerto Rico. Today 75% of all members of JetStream FCU reside in low- income zip codes.

The Queen’s Federal Credit Union is located in Honolulu, Hawaii, and has traditionally served health care workers of The Queen’s Medical Center. Today it has 5,300 members, assets of $50M, and 14 staff. Only about one-third of members are still employed at the hospital, and the credit union can serve anyone who works or volunteers in the health care industry in Hawaii, including their family members (Suzuki 2013). As of September 2012 it had a strong capital ratio of 9.6% and a return on assets (ROA) of 0.50% but was struggling with profitability, as it was lending on 35% of its assets, well below the percentage of its peer small credit unions and the national average of 58% (NCUA 2012).

Aloha Federal Credit Union is the smallest credit union in this study, with 3,600 members, $28M in assets, and just five staff. It too is located in Honolulu and has a strong capital base of 9.28% (NCUA 2012). Like JetStream FCU in Florida, Aloha FCU has a historical airline field of membership. The credit union originally comprised employees of Aloha Airlines. The same year that Aloha Airlines closed in 2008 the credit union began experiencing losses with members having problems repaying loans. In addition, the loan demand of members is soft, with only 39% of all credit union assets in loans. As some of the members look to start small businesses as alternative forms of employment, microloans could be an area of growth for the credit union. Today Aloha FCU serves anyone who works in the air transportation industry (Usui and Mashino 2013).

maRket enviRonment FiLene ReSeaRch inStitute

chapteR 2

Market EnvironmentThis chapter addresses the target markets and describes the need and market demand for microloans nationally and in the target markets of Honolulu, Miami, and San Juan.

target marketAs the percentage of households living in poverty increased in Hawaii and Florida between 2000 and 2009, more households, not surprisingly, became unbanked and under-banked. According to the Federal Deposit Insurance Corporation (FDIC 2012b), 22.3% of all households in Miami are underbanked, and 20.2% of all households in Honolulu are underbanked. These levels are above the national average, but more troubling is that these figures are 67% higher in Miami and 61% higher in Honolulu than in 2009.

Many times over, Puerto Rico has the highest level of unbanked of any state or territory of the United States. According to the Center for a New Economy (2003), 36%, or roughly 430,000, of households in Puerto Rico are unbanked.

In the Honolulu metropolitan statistical area, there are 56,500 self- employed persons with $2.6 billion (B) in sales. There are an additional 19,400 microbusinesses (with fewer than 10 employees) with an additional 57,000 employees and $1.9B in annual payroll. The biggest concentration of self- employed is in the Honolulu metro area working in the profes-sional, scientific, and technical services areas (US Census Bureau 2008).

In the Miami-Dade/Ft. Lauderdale/Pompano Beach metro area, there are 710,600 self- employed with $28.1B in sales. In Florida there are 342,000 microbusinesses with an additional 846,000 employees and $28.7B in annual payroll. The largest number of self- employed in the Miami-Dade/Ft. Lauderdale/Pompano Beach metro area work in administrative, cleaning, health care, professional/scientific/technical, and real estate areas (US Census Bureau 2008).

description of needHistorically, small businesses have relied on small banks to meet their needs for capital. A June 2012 study from the Federal Reserve Bank of Atlanta (2012) reveals that these patterns still hold, showing that small businesses are “significantly more successful when apply-ing [for loans] at regional or community banks than at large national banks.” However, over the past 25 years the number of community banks operating in the United States has


decreased by 59% from 17,900 to 7,300, and their share of banking assets has decreased from 37% in 1985 to 14% in 2011 (FDIC 2012a; and author’s calculations). During this same time, community banks have reallocated staff from small business lending to building com-mercial real estate lending expertise.

Community banks’ share of branch offices in Hawaii is at the national average; however, Florida is one of the five worst markets in the country for community banks based on its percentage of the presence of branch offices.

Community banks have reallocated staff from small business lending to building commercial real estate lending expertise.

The Federal Reserve Board’s January 2013 survey of senior loan officers among the 90 larg-est banks indicates that banks are seeing an almost 20% increase in loan demand from small businesses, yet 90% of the largest banks have not eased credit conditions and none of them have reduced their collateral requirements despite the improving economy. A key finding of the survey is that, nationwide, credit conditions for small firms continue to remain tight from large and smaller banks.

The net effect is that it has gotten harder and harder for businesses to borrow, and the younger a firm is, the more pronounced the problem is. An article in the Federal Reserve’s The Regional Economist tried to understand why US companies are holding so much cash

Q1: Smallest total assets quintile Q2 Q3 Q4 Q5

.30

.25

.20

.15

.10

.05

1980 1990 2000 2010

Cash

/ass

ets

Year

FiguRe 1

AvERAGE CASh RAtio by totAl ASSEt SizE oF FiRMS

Sources: Sánchez and Yurdagul (2013); Federal Reserve Board (2013).


(Sánchez and Yurdagul 2013). The authors’ analysis splits firms into five equally populated groups according to size of assets. The data indicate that while all firms have been increasing cash holding for many years, there was a strong uptick after the recession took hold. In addition, the smallest firms in terms of assets generally hold the highest amount of cash because of their restricted abilities to access credit. For the largest firms, other issues regarding repatriation of income come into play.

market demandIn 2012 the Federal Reserve Bank of New York conducted its annual Small Busi-ness Borrowers Poll of firms with fewer than 10 employees. Although the firms were located in the Northeast, the poll’s sample size (N = 500), annual occur-rence, and methodology shed important light for small businesses nationwide.

A key finding of the poll suggests that the drop in microloans (defined as under $100,000 in the poll) is not wholly due to lack of demand (Federal Reserve Bank of New York 2012). In fact, applicants expressed strong demand for microloans—but firms also reported higher denial rates for these loans than for larger amounts. In total, one-third of firms did not even apply for credit because of fear of rejection, one-third that did apply got rejected, and one-third that applied got only part of the amount they were seeking. The biggest growth barrier for these firms is access to capital.

The FIELD program at the Aspen Insti-tute is the longest- running study of microlenders in the United States. Its findings with microlenders support what

36% Access to capital

17% Talent

14% Government regulations

13% Strategic planning

13% Technology

8% Financial management

FiguRe 2

GRowth bARRiERS

Source: Federal Reserve Bank of New York (2013).

81% of applicants needed short-term operating capital

Purposes for seeking financing (N = 195)

81% Working capital (cash flow, day-to-dayoperations, inventory, payroll)

38% Expand existing business

32% Refinance debt/relieve existing debt

30% Purchase machinery and equipment

18% Develop new product/service

15% Marketing

11% Purchase real estate

6% Start business

5% Other

Amount of financing sought (N = 215)

<$10K $10K–$25K

$25K–$50K

$50K–$100K

$100K–$250K

$250K–$500K

$500K–$1M

>$1M

11%

15% 15%17% 17%

13%

5%7%

58% of applicants sought $100,000 or less

FiguRe 3

DEMAnD FoR CREDit AMonG SMAll FiRMS

Source: Federal Reserve Bank of New York (2012).


the New York Fed heard from microborrowers. The Aspen Institute/FIELD (2012) estimates that the entire microlending industry of 762 entities likely served 347,440 individuals in 2010, an increase of 27% over 2008. The 17,623 microloans made in 2010 were a 92% increase over 2008 loan production. Although nationwide 2012 data are not available, the author’s interview with the largest microloan provider in Miami (ACCION), which is part of the largest national network of dedicated microloan providers, indicates its 2012 loan production was triple its 2010 loan production (Maia 2013).

In working with the Hawaii Small Business Development Center in Honolulu, the author was able to assemble and analyze the types of requests that small businesses have in Hawaii and how these needs have been evolving since 2008. While technically public data, heretofore the information in Figure 4 has never been published.

Over the past five years, financing remained the third most requested need of small busi-nesses in Hawaii (Burns 2013). Since 2010, requests for assistance with financing have grown proportionately each year and represent 13.2% of all requests.

While less systematic than the information from the Hawaii Small Business Development Center, the author’s interview with the staff from the small business development center of Broward County (which currently services Miami-Dade) indicates that approximately every third call they receive from a small business is about funding (Hardy 2013). This should not be surprising since Florida has the highest percentage of microenterprises to total firms in the nation at 91% (Association for Enterprise Opportunity 2013).

profile of potential microloan applicantsThe Aspen Institute/FIELD’s (2012) 2011 U.S. Microenterprise Census indicates that many borrowers of microloans are affiliated with segments of society that are underrepresented and disadvantaged in accumulating wealth (i.e., women, people of color, and foreign- born populations). While the actual applicants will vary due to local market conditions and a credit union’s existing and potential memberships, it’s instructive to understand the poten-tial borrower and impact that the service could have on low-wealth communities.

gender, Race/ethnicity, and income of microenterprise borrowers

→ 59% are women.

→ 53% are people of color or members of traditionally disadvantaged racial or ethnic groups.

→ 56% have household incomes at or below 80% of the HUD median for their location.


FiguRe 4

Evolution oF SMAll buSinESS REquEStS in hAwAii

Counseling area requests 2008 2009 2010 2011 2012Jan. 2013 total

Start-up assistance 348 194 373 367 343 50 1,675

business plan 438 451 423 343 295 32 1,982

Financing/capital 180 149 148 157 177 26 837

Managing a business 87 87 109 144 174 27 628

Marketing/sales 101 106 98 102 107 7 521

Cash flow management 29 29 35 41 56 9 199

buy/sell business 37 31 39 30 51 7 195

legal issues 37 14 23 22 36 4 136

human resources/managing employees

13 8 15 19 18 — 73

business accounting/budget 25 18 11 25 17 3 99

Government contracting 25 18 28 13 17 3 104

tax planning 12 5 14 10 11 2 54

technology/computers 4 4 4 6 11 3 32

Customer relations 3 5 4 4 7 — 23

international trade 7 1 5 1 6 3 23

eCommerce 6 2 6 6 3 — 23

Engineering R&D 10 2 2 2 2 — 18

Franchising 4 5 5 5 1 — 20

(no response) 17 3 3 7 — — 30

total 1,383 1,132 1,345 1,304 1,332 176 6,672

Source: Hawaii Small Business Development Center (2013).Note: Clients may request more than one area of counseling.

competition FiLene ReSeaRch inStitute

chapteR 3

CompetitionThe direct competition for microloans today is scant. Many traditional lenders avoid the business, and consumer finance companies such as Cash Express and Wal-Mart have not yet entered small business lending. The principal competition comes from credit cards, family, friends, and home equity loans. However, recent immigrants or individuals with “thin” credit files may not be able to access credit cards or the amounts needed, and it remains a challenge to use credit cards to fund cash-flow needs for salaries. With home values still depressed, many would-be users of home equity loans are now more wary of this type of financing given the recent foreclosures.

While not yet a serious competitor, crowd funding has emerged as a microlending strategy. The JOBS Act of April 2012 requires the Securities and Exchange Commission to promulgate rules for crowd funding. The primary player in the market for crowd-sourced microen-terprise loans is Kiva. It has been active in the global microfinance market for five years. Kiva raises funds via the Internet and works with existing lenders to on-lend money to low-income individuals running small businesses. However, as chronicled in a New York Times article, new companies like CircleUp and SoMoFund want to enter the small business market (Cortese 2013).

Florida and puerto RicoDespite having the highest proportion of microenterprises in the nation, Florida has only five entities that are registered participants in the SBA’s microloan program, and two of these entities are operating in Miami-Dade County: ACCION and Partners for Self- Employment. ACCION is the larger of the two and one of the largest, most established microlenders, operating nationally in 11 states through a network of offices and online. In addition, ACCION has 50 years of experience globally as one of the most innovative provid-ers of microfinance, having started 63 microfinance institutions in 32 countries.

In addition, only 14% of credit unions in Florida (i.e., 23 credit unions) report offering micro-enterprise loans. In Puerto Rico only a single credit union offers microenterprise loans.

accion miamiAs the author has worked with ACCION in the past, an extensive interview was conducted with its Miami office. It has three staff, and all underwriting for loans is conducted in New York. The maximum loan it will consider is $50,000; however, in practice, the average loan


is $7,000 and the largest loan outstanding is $35,000. Across seven parts of the United States, ACCION had $5.6M in loans outstanding at the end of 2011, of which $1.06M was in South Florida. ACCION has three loan products depending on the status of the business. Figure 5 is a summary of its products.

The prices for these loans are between 9% and 16% of the loan amount, with a $30 applica-tion fee and 3%–5% closing costs. The maximum term is 60 months, but many loans are 3–24 months.

During the financial crisis, losses increased and ACCION had to revamp its underwriting process as it slowed loan approvals. In 2012 the Miami office tripled its amount of loans outstanding compared to 2010. ACCION’s main sources for marketing are referrals from large banks that find these loans too small to make, a partnership with the SBA, the His-panic Business Initiative Fund, and the City of Miami.

ACCION’s product mix and underwriting standards are a potential place for credit unions to start, as they are an accurate reflection of the realities for very small, oftentimes immigrant- run, businesses. However, ACCION’s framework is lacking in terms of collateral or additional guarantees. It recommended that larger microenterprise loans be secured through a mortgage, assets in the bank or credit union, and/or the depreciated value of business equipment with a 50% market value from appraised value.

In addition, consideration should be given to requiring personal guarantees for loans. Although microenterprise loans of less than $50,000 are exempt from NCUA’s requirement

FiguRe 5

ACCion’S loAnS AnD unDERwRitinG

Start-up Mid-stage microenterprise Established microenterprise

Stage of business 0–6 months At least 6 months +6 months

Max. loan $1,000–$5,000 Up to $30,000 Up to $50,000

business plan 12 months’ cash flow 12 months’ business plan Steady cash flow to support loan payment

underwriting 2 pay stubs, less than $500 in past-due debt, and a bank statement

Cosigner; if not profitable, must have outside or spouse income to cover loan payments

Minimum credit score of 525; no bankruptcy in 12 months or foreclosure in 24 months; no more than $3,000 in past-due debt; if holding a mortgage it must be fixed-rate or will not adjust during term of loan


of a personal guarantee, there is value in this approach—the same approach employed by American Express with all of its small businesses. In some states, credit unions have specifically sought not to do this, as a way to differentiate from banks and aid small businesses. Nonetheless, such a framework would provide additional security and blend microenterprise best practices, credit union experience with personal loans, and some of the SBA’s framework.

Consideration should be given to requiring personal guarantees for loans.

wells Fargo bank—miami LakesIn addition to speaking with ACCION, on January 11, 2013, the author met with a business specialist from the Wells Fargo branch adjacent to JetStream’s headquarters. While Wells Fargo Bank offers small loans, the loans do not seem to be a core business of Wells Fargo, and the bank’s requirements seem to target larger, more- established businesses.

puerto RicoIn Puerto Rico, only the Corporación para el Financiamiento Empresarial del Comercio y de las Comunidades (COFECC) is registered with SBA’s microlending program. The author spoke with COFECC (2013) to determine market demand and to understand its business. COFECC operates several activities, but loans are its primary business. It ended 2012 with $1.5M in loans outstanding and maintains an allowance for loan loss of 5%. Demand for loans outpaces the organization’s current ability to identify sources of funds.

Although JetStream FCU does not offer business loans in Puerto Rico, its branch manager reports intense demand from members and has been asking the head office for approval to begin such a program (Kucey et al. 2013). As evidenced from recent membership growth figures at the JetStream FCU branch and unbanked figures, there is demand for affordably priced financial services.

hawaiiThe Pacific Gateway Center is the only organization in Hawaii that partners with the SBA on microloans to serve the state’s 107,000 microenterprises. The Pacific Gateway Center (2013) is primarily a social service organization with roots as an immigrant resettlement center. While it has outstanding loans of approximately $4.6M, loans are just one of a dozen social


services offered, including catering, a food bank, immigration services, job training, and so on. To obtain a microloan from Pacific Gateway, a borrower must present the following:

→ A business plan (including marketing plan with valid cash-flow projections).

→ Completed personal and business federal tax returns for the past three years.

→ Year-to-date financial information and the two most recent pay stubs.

→ Personal and business bank account statements for the past three years.

Ten percent of credit unions in Hawaii offer microenterprise loans as of December 2012.

evaluating the product: microloansIn contrast to what has been occurring with bank lending, credit union business lending has grown 5.7% in the past year and 18.3% since September 2009 (CUNA 2012b). This lend-ing is almost exclusively to small and midsize businesses since credit unions generally do not have the resources to lend to large institutions.

Neither JetStream FCU, Aloha FCU, nor The Queen’s FCU formally offers microenterprise loans today. However, combined, they have approximately $100M in loans outstanding, and some of these credit card, personal, and auto or home equity loans are likely used for business purposes. Unlike most microenterprise lenders, the credit unions in this report have plenty of excess surplus funds to lend, and they are seeking new avenues for lending while not overly exposing themselves to risk.

the Queen’s FcuThe Queen’s FCU has 16 member business loans for $700,000. Already one loan is an SBA loan, although the credit union is not an official SBA certified lender. The largest of these business loans is $200,000. A November 2012 membership survey revealed that one of the top services desired by existing members is for the credit union to offer business accounts. Despite this experience with business loans, The Queen’s FCU has not had much training in this area and needs to better understand the underwriting standards it should be using for micro- and small business loans.

aloha FcuAloha FCU does not have any business loans today. It does make signature (i.e., unse-cured personal) loans for 3.9%, but this has been an area of heavy losses. Before offering microenterprise loans, it needs to better understand what successful underwriting method-ologies are in this area.

buSineSS deveLopment SeRviceS FiLene ReSeaRch inStitute

JetStream FcuJetStream FCU is the most experienced small business lender of the credit unions in this report. As of September 2012 it had 15 small business loans for $1.5M. It works with a credit union service organization (CUSO) operated by Corporate One Credit Union. The under-writing is handled by the CUSO despite JetStream’s having a dedicated business lending specialist on staff. To date, JetStream FCU has reviewed 32 loans—17 have been approved and closed, 14 have been denied by JetStream FCU internally because it is aware of the conservative underwriting by the CUSO, and 1 has been denied by the CUSO. Many of these commercial loans have been commercial auto loans since the credit union is focused on auto loans and does not directly offer first mortgages.

One of the business loans is an SBA loan. JetStream FCU uses a local certified development company to handle its SBA loans and provide the funding. This allows JetStream to do SBA loans without the infrastructure costs associated with being a certified SBA lender.

JetStream’s CUSO partner requires a business to be at least three years old for a secured loan and five years old for an unsecured loan. JetStream is willing to work with younger businesses but indicates it needs the training and underwriting guidelines to do so.

chapteR 4

Business Development Services

Nationally 97% of entities offering microloans also offer busi-ness development services. Business development services are nonfinancial resources/training that help firms access markets, harness technology, and prepare entrepreneurs for success.

Figure 6 shows the top business development services offered by microlenders.

None of the credit unions in this report offer business develop-ment services today, nor do they have relationships with small business development centers. To effectively offer microloans,

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Source: The Aspen Institute/FIELD (2012).

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credit unions need to bring on staff or develop relationships with firms that could offer these services. Connections with the small business development centers in Honolulu, Puerto Rico, and Broward County (Miami-Dade currently does not have one) will be critical. These resource centers have proven track records of offering free business consulting ser-vices for start-ups. Services include training in writing business plans, human resources, compliance, managing finances, and accounting as well as guidance on financing..

chapteR 5

Operational ConsiderationsThis chapter briefly addresses the operational considerations that are important to be suc-cessful at microlending: technology, underwriting, and management requirements.

technologyA firm that is able to leverage the substantial technology that exists to assess risk and efficiently disburse and collect loans from small firms will do very well at microlending. American Express operates in this space but has not gone further down the market. To efficiently process microloans, credit unions will need to develop application, approval, decision, and disbursement mechanisms that are suitable for microloans. To the extent possible, this will need to include loan origination outside of branches and via digital signatures to reflect that many small business owners have trouble stepping away during core hours. Some of the most innovative work in this regard is happening with financial institutions outside the United States. A key part of their risk management and systems is to simplify approvals and disbursement for repeat borrowers.

underwritingThe credit unions that are part of this report have deployed a variety of practices to effi-ciently and safely approve loans. Two of the three credit unions have nonperforming loan levels of 0.48% and 0.41% as of September 2012; the third is at 2.25%. High levels of non-performing loans do not necessarily equate to high losses and weak profitability.

Internationally, it’s common for credit unions in the Caribbean or developing regions of the Pacific to have delinquency levels of 4%–6% but still maintain ROA figures of 1%–2%. Domestically, there are CDFI credit unions that the author has been affiliated with that

opeRationaL conSideRationS FiLene ReSeaRch inStitute

consistently have delinquency rates of 2.8%–3.8% and net charge-off rates of 1% and still maintain ROA figures of 0.75%–1.1%.

According to the SBA’s chief of the microenterprise loan guarantee fund, the 20-year loan loss rate for lenders that work with the SBA is just under 3% (Raskind 2013). In comparison, some of ACCION’s domestic programs average delinquency rates of 5.45% and 6.78%, and loan loss rates range between 2.97% and 3.42% (Edgcomb 2009). However, data from the Aspen Institute (2011) suggest that even before the financial crisis, many loan funds aver-aged 11% 30-day portfolio at-risk rates and 4% gross write-off ratios.

According to the SBA’s chief of the microenterprise loan guarantee fund, the 20-year loan loss rate for lenders that work with the SBA is just under 3%.

In summary, credit unions can expect higher losses on microloans than on any of their tra-ditional products. The credit risk mitigation lessons from international microlending that have proved to be useful and that ACCION has deployed domestically are (1) price accord-ingly, (2) start borrowers on short loan cycles, (3) start with smaller amounts, (4) collect on loans as soon as they go bad or before problems portend, and (5) have payment schedule reflect cash-flow cycles.

Once a borrower with no, or a weak, credit history demonstrates the ability to repay amounts, approvals are eased and amounts may be increased. While durations are often kept at or below 60 months, loan durations are also backed into based on a borrower’s debt- servicing ratio. To fully evaluate microlending as a product, additional assumptions regarding pricing, average loan size, and cross selling are described in Chapter 9.

management and personnel RequirementsOf the three credit unions in this report, only JetStream FCU has a dedicated business lender on staff. However, much of the underwriting is outsourced to its business lending CUSO. JetStream FCU also has a CDFI program manager who can help the credit union forge the critical partnerships to enter microenterprise lending.

Because small businesses are disproportionately started by immigrants, it’s important for credit union loan officers and business development staff to speak the languages and understand the cultural and historical banking practices of the home countries of the new members.

maRketing FiLene ReSeaRch inStitute

chapteR 6

MarketingThe most common refrain from JetStream FCU, The Queen’s FCU, and Aloha FCU is, “How do we find and connect with small businesses?” The ironic part is that with two-thirds of small business loan applications being denied, small businesses are asking, “Where can we find a lender that approves loans?”

The meeting place for many small businesses and lenders is through small business devel-opment centers and traditional or Hispanic chambers of commerce. Most of these entities provide free or inexpensive seminars and training for small businesses. Speaking at or sponsoring events would be an opportunity for credit unions to market their services. At a minimum, credit unions should get on the lists of these organizations as small business lenders.

However, the most direct form of marketing may be to the credit union’s existing members. Some of them may already operate home-based side businesses or established businesses. Financial patterns can be learned with existing members, and acquisition costs of their additional products may be lower.

Looking beyond microloansAll businesses were once small businesses. Developing these early relationships and help-ing a business owner turned down by others is a powerful way to build long-term loyalty.

Because most small businesses need not just microloans but separate business check-ing accounts, credit cards, and assistance with filing estimated and year-end taxes, credit unions should consider additional revenue streams when evaluating offering microloans. Many of these add-on services are not available at traditional loan funds. And while Ameri-can Express or Capital One credit cards might be attractive to small businesses, convenient branches for deposits are still important to many businesses.

For more than 23 years the Federal Reserve Board has gathered data for its Survey of Consumer Finances. In each triannual survey, self- employed persons have consistently had higher incomes and greater net worth than the population at large, and their families have been more likely to save. In addition, self- employment has been a greater predictor of wealth and income than educational attainment, age, occupation, region, family structure, or ethnicity. Even among disadvantaged groups, all else being equal, self- employed per-sons have higher net worth by comparison. The 2010 survey indicated that median family

ReguLatoRy conSideRationS FiLene ReSeaRch inStitute

income where the head of household is self- employed was 90% higher than the national median value (the average values were even higher), and net worth was 2.7 times higher for the self- employed (Federal Reserve Board 2012).

So while it’s true that approximately 50% of small businesses are gone five years after they start (see Figure 7), it’s also true that the average business owner has amassed wealth dur-ing the business’s existence and may now be a lucrative member for the credit union.

chapteR 7

Regulatory ConsiderationsRegulatory requirements and a legislative cap on member business lending have stopped many credit unions from investing in the capacity, systems, and programs needed to launch the product. Although credit unions have been pursuing a legislative change for five years to increase the cap on member business lending from 12.25% to 27.5%, it has not occurred, and it remains uncertain whether the cap will be increased.

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Sources: Created from data from the Longitudinal Business Database 1977–2010, US Census; Business Employment Dynamics 1994–2010, Bureau of Labor Statistics.

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While a small number of credit unions have a grandfathered exemption from this cap due to the size of their business lending portfolios at the time of the legislation in 1998, and low- income credit unions are exempt from it, all credit unions have a general exemption for microbusiness loans of less than $50,000. This exemption in Section 723 part 1(b) of NCUA’s (2010) regulations keeps the door open for credit unions to offer microenterprise loans. In addition, the requirements for employing business lenders with at least two years of expe-rience do not apply to microenterprise loans.

While not a regulatory requirement for credit unions, the SBA has a designated microloan program that banks, credit unions, and loan funds can utilize. However, because of an excessive loan loss reserve requirement ascribed to it in the SBA’s legislation (i.e., 15% loan loss reserve held at another depository institution), few credit unions participate in the pro-gram. Not only is this requirement unrealistically high based on an average historical loan loss experience of less than 3%, it is far outside Financial Accounting Standard 114, which allows for provisions based on a default event, not expected losses.

While changing the member business loan cap for credit unions has not been possible recently, there may be an opportunity for credit unions and banks to work together to change the loan loss reserve requirement for depository institutions. This would make it easier for credit unions and banks to participate in the SBA’s microloan program. While this program is far from what credit unions are seeking (and likely need) in terms of regula-tory relief on business loans, it could be an achievable place to start.

There may be an opportunity for credit unions and banks to work together to change the loan loss reserve requirement for depository institutions.

Lastly, although microloans are relatively small and short term, they would not be consid-ered part of NCUA’s “short-term small” (STS) loan program and subject to the allowable 28% interest rate cap for STS loans. Instead, they would be subject to the standard 18% rate cap that all federal credit union loans are subject to. However, based on experience from loan funds operating in this space, an argument could be made that even charging 18% is too restrictive for these loans.

FinanciaL conSideRationS FiLene ReSeaRch inStitute

chapteR 8

Data Tracing RecommendationsIt’s believed that most credit unions make microenterprise loans today as part of their home equity loans, personal lines of credit, or credit card offerings. However, the amounts of microenterprise loans are not tracked by the credit unions in this report or in the data that NCUA gathers. NCUA does track how many credit unions offer microenterprise loans. Tracking the amounts and types of such loans and showing what is already being done today would make appeals to the SBA, the CDFI Fund, and Congress more compelling.

chapteR 9

Financial ConsiderationsModeling the financial considerations for a credit union will depend on its cost of funds, operating costs, average loan size, interest rate/commission, loan demand, and losses. This chapter discusses some of the parameters that credit unions can assume based on microen-terprise lending averages and trends.

product profitabilityMicrolending can be profitable, but like most new business lines it will take adjustments and understanding of the market to succeed. Kingsville Community Federal Credit Union in Texas has had success with microloans. CEO Armando Martinez indicated that “the impor-tant thing is over the course of time, you communicate to the membership and community that we’re here to help. When you do that, it pays dividends, and delinquencies are control-lable. We may hit 2% [return on assets] because of the work we’ve done” (Samaad 2011).

Average interest rates on microloans tend to range from 8% to 17% depending on loss rates, terms, and conditions. That said, many small microloan funds struggle with profitability (Aspen Institute 2011). Unlike their international nonprofit brethren, where there has been a focus on profitability to ensure scalability, US microlenders have shied away from charg-ing rates that enable them to recover their full cost of operation (or they have not been allowed to charge such rates based on the SBA’s program or state usury caps). This has been exacerbated by the low volume of loans.

FinanciaL conSideRationS FiLene ReSeaRch inStitute

Average interest rates on microloans tend to range from 8% to 17% depending on loss rates, terms, and conditions.

While detailed operational reviews were not conducted on US-based microloan funds for this report, some of the same economies of scale present in credit unions also exist in microloan funds, except to a greater extent. For example, the average loan fund reporting its microloans to the Aspen Institute/FIELD (2012) had just $1M in loans outstanding in 2010. Increasingly these loan funds are shifting to also allow for making loans greater than $50,000 as a means to grow with clients and aid sustainability. Unlike credit unions, the loan funds do not have the ability to generate low-cost deposits.

While projections are provided below, the basic fundamentals of microlending will mirror other credit union products: generate as much volume as possible, keep operating costs low, and work diligently with members to minimize the losses that inevitably occur in lending.

capacityAlthough the Aspen Institute/FIELD (2012) reports the average microenterprise loan to be $9,000, other microlenders report average figures of $15,000–$20,000. The Federal Reserve Bank of New York’s (2012) survey indicates 41% of small businesses sought loans of less than $50,000. The director of Aspen’s microenterprise program, Joyce Klein (2013), indicated that for credit unions to be successful in this area, they have to assess the credit-worthiness of not only the borrower but also his or her business.

Financial projectionsIt’s reasonable to assume that with support from the CDFI Fund, a local small business development center, and the SBA, a credit union could have $1.8M in microloans in two years and the pro forma income statement shown in Figure 8 for the product.

Loan Loss ReservesBased on the SBA’s 20 years of experience with its microloan program, a 3% loan loss reserve ratio is being proposed. This is well above the national credit union average of 0.35% in loan loss provisions that was occurring in September 2012.

FiguRe 8

PRo FoRMA yEAR 2 FinAnCiAl PRoJECtion

loans outstanding (80 loans—Aspen avg.) @ $23,000 each $1,840,000

Gross loan income (16% rate + 2% origination fee) $331,200

operating costs (assumes a high 80% cost-to-income ratio as this is the peer avg. for credit unions in this report)

$264,960

net charge-off rate of 3% $55,200

Product net income—return on portfolio (RoP) assets $11,400 = 0.62% ROP

RecommendationS and FindingS FiLene ReSeaRch inStitute

capital Requirements and StrategyAs with any new product, a learning curve should be expected for the credit union. Although the net impact of individual microloans on a credit union’s balance sheet will be negligible, based on industry experience with such loans it is considered an area of elevated risk. Credit unions with already depressed capital ratios or sustained operating losses should be very cautious about entering this market.

To weather losses and fund start-up costs, credit unions may want to consider offering the product at a higher initial cost, seeking grant funding and/or ensuring sufficient reserves are available to fund a product launch.

chapteR 10

Recommendations and Findings

credit unions need to make more Loans to Remain profitableAs credit unions nationwide are experiencing their weakest loan-to-asset ratio in 18 years, they need to lend more to remain profitable. This problem is especially pronounced for the three credit unions that are part of this report. The author’s own observation in working with thousands of credit unions around the globe over the past two decades is that it is very difficult to sustain profitability when a credit union’s loan-to-asset ratio is below 50%, unless safe and high- yielding investments are available for surplus funds—this is not cur-rently the case in the United States.

many credit unions want to do business Lending, but barriers exist

The biggest demand and growth area among mainstream credit unions is member busi-ness lending. According to CUNA (2012b), over the past decade member business loans at credit unions grew at an annual rate of 21.1%, over three times faster than the 5.8% annual growth rate of all credit union loans. This is defined as business loans to members regard-less of size (keeping in mind prudence and loan concentration limits). However, federal credit unions (such as the three credit unions mentioned in this report) have a legislative cap in which no more than 12.25% of their loans may be for business lending. For several

RecommendationS and FindingS FiLene ReSeaRch inStitute

years credit unions have pursued legislation to increase this cap to a moderate 27.5%, but they have been blocked by bank opposition.

an unmet need for microloans exists, but the Regulatory barriers do not

Nationally and in the three potential markets of Honolulu, Miami, and San Juan, a large unmet demand exists for microloans. The confluence of more people turning to self- employment or small business for employment, the continued consolidation and disappearance of community banks, and the continued resistance from large and regional banks to offer such small loans all point to an opportunity for credit unions. Although a network of 762 microlenders exists, their aggregate portfolio outstanding is estimated at $760M.

NCUA Regulation 723 part 1(b) specifically exempts microbusiness loans that are less than $50,000 from the legislative cap. In addition, three years ago NCUA increased the maxi-mum interest rate that credit unions could charge for loans from 15% to 18%, which is near the top end of what many microlenders charge. The need for more lending, market demand, regulatory cap exemption, and the potential for credit unions to build a renew-able stream of small business loans by starting with a deep pipeline of microbusiness loans all lead to this time and product being ripe for credit unions.

Success in microlending will Require training, partnerships, and Support

As depository financial institutions, credit unions have stricter regulatory oversight than loan funds and tighter capital requirements than banks. These factors and a lack of incen-tives for credit union boards to take on risk mean they must get it right from the start. To do this, credit unions will need to do more than passively assume that if they build the product, new loans will come. Rather, proactive movement will require (1) underwriting training, (2) developing partnerships for referrals (e.g., getting on the small business devel-opment center’s lender list and building personal relationships there), (3) offering business development services or having them provided, (4) implementing alternative underwriting methodologies, (5) making corollary changes needed to serve small businesses by add-ing business accounts and tax preparation support, and (6) implementing larger loan loss reserve funds to successfully offer microloans.

ReSouRceS FiLene ReSeaRch inStitute

chapteR 11

ResourcesA credit union that is considering entering the microloan business has an abundance of resources to explore to learn about the local market conditions. Listed below are some of the top places to look and the people to speak to.

Small business development centersEvery state has a small business development center. These are often affiliated with or housed at universities. They provide tremendous amounts of free business consulting advice to small businesses. As demonstrated in the data and in the author’s interviews, small businesses often consult these centers for finding sources of finance.

Joseph Burns—[email protected]‘ahu Center DirectorHawaii SBDC Network2800 Woodlawn Dr, Suite 299Honolulu, HI 96822808.945.1430www.hisbdc.org

Florida Small Business Development Center in BrowardGary Kohl954.762.5134sbdcbroward.org/intro.html

Puerto Rico Small Business and Technology Development Centerwww.prsbtdc.org

cdFi Fund’s Scaling up microfinanceThe US Treasury’s CDFI Fund has launched an initiative called Scaling Up Microfinance. As part of this initiative, a Resource Bank has been developed. In January and February 2013 the program conducted three training programs on how to effectively provide microloans. The program is being conducted by Opportunity Finance Network and the Aspen Institute’s FIELD program.


aspen institute’s microtrackerThe microloan sector’s source for industry data—similar to what NCUA provides for credit unions and what FDIC provides for banks—can be found at the Aspen Institute’s FIELD program via the subscription- based MicroTracker database. The director of FIELD and lead-ing expert in the area is Joyce Klein.

the Federal Reserve SystemAll 12 regional Reserve Banks and the Federal Reserve Board in Washington, which collec-tively make up the Federal Reserve System, have research departments. These departments study their regional economies, among other things, and many have experts or research initiatives related to small businesses. As a former Fed staffer, the author believes these research departments are often underutilized treasures of information for credit unions.

ncuaNCUA’s Office of Small Credit Union Initiatives (OSCUI) is building a body of knowledge regarding credit union microlending (Myers and Terrell 2013). As a starting point, federal credit unions should review Section 723 part 1(b), the Letter to Credit Unions 12-FCU-04, where NCUA agreed to continue its maximum interest rate ceiling of 18%. Per Regula-tion 701.21(7) (ii) the allowable interest rate is reviewed by the NCUA board every 18 months and was last reviewed in August 2012. Finally, while not directly related to microenterprise loans, reviewing NCUA’s guidance on STS loans may help in determining distinctions of products. Within NCUA’s OSCUI, Lisa Terrell ([email protected]) is a great resource on the topic of microenterprise loans.

Sba’s microloan programFor 20 years the SBA has had a loan guarantee and capital fund. Despite the program’s cur-rent challenges for credit unions (i.e., the requirement to hold a 15% loan loss reserve fund against such loans), there is a strong body of knowledge there and historical loss data.

Jody Raskind—[email protected], Microenterprise Development BranchUS Small Business Administration409 3rd Street, SWWashington, DC 20416


association for enterprise opportunityThe Association for Enterprise Opportunity is a Washington, DC–based think tank that is dedicated to studying and advocating for microenterprises. It collects data and conducts research on the needs of microbusinesses.

endnote FiLene ReSeaRch inStitute

Endnote

1 By December 2012 the loan-to-asset ratio had grown to 58%.

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References

Aspen Institute. 2011. “Is the Price Right? The Role of Pricing in Microenterprise Lending.” FIELD Funder Guide, June.

Aspen Institute/FIELD. 2012. 2011 U.S. Microenterprise Census Highlights.

Association for Enterprise Opportunity. 2013. “Microbusiness Factsheets.” www.aeoworks.org/index.php/site/page/category/microenterprise_ factsheets.

Bureau of Labor Statistics. “Business Employment Dynamics 1994–2010.” http://www.bls.gov/bdm/entrepreneurship/entrepreneurship.htm.

Burns, Joseph (director, O‘ahu, Hawaii Small Business Development Center). 2013. Interview with the author, February 6.

Center for a New Economy. 2003. Channeling People into the Economic Main-stream: Financial Access in Puerto Rico, July 27.

COFECC. 2013. Interview with the author, February 7.

Cortese, Amy. 2013. “The Crowdfunding Crowd Is Anxious.” New York Times, January 5.

CUNA (Credit Union National Association). 2012a. Credit Union Report: Mid-Year 2012.

———. 2012b. Response to Objections to Raising the CU MBL Cap, October 18.

Edgcomb, Elaine L. 2009. “The Organizational Foundations of Sustainability.” Aspen Institute, July.

FDIC (Federal Deposit Insurance Corporation). 2012a. Community Banking Study. www.fdic.gov/regulations/resources/cbi/report/CBSI-2.pdf.

———. 2012b. 2011 FDIC National Survey of Unbanked and Underbanked Households.


Federal Reserve Bank of Atlanta. 2012. “Young versus Mature Small Firms Seek-ing Credit.”

Federal Reserve Bank of New York. 2013. Small Business Credit Survey. www.newyorkfed.org/smallbusiness/2013/pdf/full-report.pdf.

Federal Reserve Board. 2012. 2010 Survey of Consumer Finances.

———. 2013. Senior Loan Officer Opinion Survey on Bank Lending Practices. www.federalreserve.gov/boarddocs/snloansurvey/201302/table1.htm.

Hardy, Jamie (Florida Small Business Development Center). 2013. Interview with the author, January 8.

Hawaii Small Business Development Center. February 2013.

Klein, Joyce (director, FIELD Program, Aspen Institute). 2013. Interview with the author, February 5.

Kucey, Jeanne, Guy A. Petroro, Vanessa Ortega, and Leo Navarro (JetStream Fed-eral Credit Union). 2013. Interview and e-mail exchange with the author, January 11–24.

Maia, Marcia (ACCION East, Miami Office). 2013. Interview with the author, February 4.

Myers, William L., and Lisa Terrell (National Credit Union Administration). 2013. E-mail exchange with the author, February 14–15.

NCUA (National Credit Union Administration). 2010. Federal Regulation 723 Member Business Lending, March. www.ncua.gov/legal/documents/ ncuaregulationsmanual.pdf.

———. 2012. “Quarterly Data from Credit Unions.” researchcu.ncua.gov/Views/FindCreditUnions.aspx.

Pacific Gateway Center. 2013. Interview with the author, February 6.

Raskind, Jody (chief of the microenterprise loan guarantee fund, Small Business Administration). 2013. Interview with the author, February 8.


Samaad, Michelle A. 2011. “Microloans May Be a Sweet Territory for Credit Unions.” Credit Union Times, December 4, www.cutimes.com/2011/12/04/microloans-may-be-a-sweet-territory-for-credit-uni.

Sánchez, Juan M., and Emircan Yurdagul. 2013. “Why Are Corporations Holding So Much Cash?” The Regional Economist, January, 5–8.

Suzuki, Edwina (The Queen’s Federal Credit Union). 2013. Interview with the author, January 11.

US Census Bureau. “Statistics about Business Size.” 2007–2011 Data. www.census.gov/econ/smallbus.html.

Usui, Guy, and Doug Mashino (Aloha Federal Credit Union). 2013. Interview with the author, February 7.

LiSt oF FiguReS FiLene ReSeaRch inStitute

List of Figures 14 FiguRe 1

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about the authoR FiLene ReSeaRch inStitute

About the Author

dave graceManaging Partner, Dave Grace & Associates

Dave Grace, managing partner of Dave Grace & Associates, is an international expert in microfinance and credit union development, having worked with such institutions in 68 countries. His firm’s current and past consulting clients include the Filene Research Institute, the International Monetary Fund, the World Bank, the United Nations, and national credit union associations in Aus-tralia, Barbados, the United Kingdom, and the United States. Prior to launching his own firm he was senior vice president of the World Council of Credit Unions and manager of the Federal Reserve Bank of St. Louis. Domestically he started and operated the International Remittance Network (IRnet), which has trans-ferred over $3.5 billion through credit unions for low-income immigrants. He has served on the board of one of the nation’s largest community development credit unions, Latino Community Credit Union, and is currently helping launch a local foods microloan fund at one of the nation’s largest grocery cooperatives in Madison, Wisconsin. Dave counts himself among the nation’s 28 million small business owners.

About Filene

Filene Research Institute is an independent, consumer finance think and do tank. We are dedicated to scientific and thoughtful analysis about issues affect-ing the future of credit unions, retail banking, and cooperative finance.

Deeply embedded in the credit union tradition is an ongoing search for better ways to understand and serve credit union members. Open inquiry, the free flow of ideas, and debate are essential parts of the true democratic process. Since 1989, through Filene, leading scholars and thinkers have analyzed managerial problems, public policy questions, and consumer needs for the benefit of the credit union system. We support research, innovation, and impact that enhance the well-being of consumers and assist credit unions and other financial cooper-atives in adapting to rapidly changing economic, legal, and social environments.

We’re governed by an administrative board made up of credit union CEOs, the CEOs of CUNA & Affiliates and CUNA Mutual Group, and the Chairman of the American Association of Credit Union Leagues (AACUL). Our research priorities are determined by a national Research Council comprised of credit union CEOs and the President/CEO of the Credit Union Executives Society.

We live by the famous words of our namesake, credit union and retail pioneer Edward A. Filene: “Progress is the constant replacing of the best there is with something still better.” Together, Filene and our thousands of supporters seek progress for credit unions by challenging the status quo, thinking differently, looking outside, asking and answering tough questions, and collaborating with like-minded organizations.

Filene is a 501(c)(3) not-for-profit organization. Nearly 1,000 members make our research, innovation, and impact programs possible. Learn more at filene.org.

“Progress is the constant replacing of the best there is with something still better.”

—Edward A. Filene

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