A $30 million investment from the Ford Foundation has enabled community development financial institution Self-Help to merge with seven credit unions in California, kick-starting an effort to expand low- and moderate-income families’ access to responsible and affordable financial services across the state.
As the economic downturn threatened the survival of all types of financial institutions, including many providing responsible products to low-income families in California, Self-Help saw an important opportunity to dramatically increase its impact. By merging with credit unions in low-income communities—some struggling to navigate the difficult economic environment—Self-Help is pursuing a unique strategy that aims to preserve and expand the availability of responsible financial services for families who need them most.
Sixty percent of low-income neighborhoods in California do not have a bank or credit union, but the state has two times the concentration of check cashers and payday lenders than the rest of the country. Predatory financial services, whose unfair terms for those least able to pay—including loan interest rates of 400 percent and more, and check-cashing fees costing a family up to $2,000 a year—cost low-income families in California more than $8 billion a year, further depleting their already limited assets.
In the roughly 24 months since the Ford Foundation invested $30 million, Self-Help Federal Credit Union’s asset size has grown from $75 million to almost $400 million; its net worth from $12 million to $57 million; and its membership from 15,000 to nearly 50,000. Self-Help loans to borrowers also skyrocketed fivefold—from about 3,000 loans for $41 million to about 15,000 loans for nearly $225 million. More than 80 percent of Self-Help’s members are families living in communities that are either economically distressed or have high unemployment.
Self-Help continues to see a critical need to expand access to responsible financial services to low- and moderate-income Californians. Its ultimate goal is to grow into 40 branches that together have more than $1 billion in assets and serve 100,000 members. Building off Ford’s initial $30 million investment of risk capital, Self-Help is now seeking additional funding to expand the effort.
The investment is part of a larger Ford Foundation initiative to ensure that more of America’s low-income families can access safe and affordable financial services and products—marketplace solutions that are essential to families’ abilities to achieve economic security.
“Access to financial products and services is as essential to the well-being of low-income families as it for any family,” said Luis Ubiñas, president of the Ford Foundation. “Having access to fair and affordable financial services, such as savings and checking accounts, fair and affordable loans, and other transaction services, is fundamental to economic mobility and financial security. Any long-term effort to address poverty must include ensuring that all Americans can participate in the financial system.”
As one example of the many product improvements that Self-Help has made, the lender introduced a mortgage product specifically for low- to moderate-income borrowers with limited or challenging credit histories. The fixed-rate, 30-year mortgage products are now available at all 18 Self-Help branches.
“Self-Help has a proven track record of responsibly and profitably lending to low-income people,” said Frank DeGiovanni, director of financial assets at the Ford Foundation. “It has now successfully completed the first stage of what may become one of the largest efforts in the nation to create a financial institution focused on serving low-income people. With Ford’s initial funding, Self-Help has turned California’s economic difficulties into a momentous opportunity to build in three years what would normally have taken decades.”
Piloting a New Approach
Another innovation is the development of Self-Help’s Micro Branch, a unique credit union and check-cashing hybrid designed for low-income neighborhoods. The Micro Branch provides transaction services comparable to a check-cashing outlet, but at more affordable prices, and a range of traditional bank products such as savings and checking accounts, consumer loans, and home loans. By complementing its tailored products and services with a convenient location, extended hours, comfortable environment, and “in-line education,” the Micro Branch helps low-income people enter the financial mainstream.
“Community development credit unions like Self-Help are critical because they focus on the financial service needs of low-income communities and the people who live there,” said DeGiovanni. “These institutions are rooted in the community and provide a set of well-designed and responsible financial services to help their members manage their financial lives.”
Transforming the Financial Services Market: A Three-Part Strategy to Help Low-Income Families Achieve Financial Security
Across the United States, more than 9 million households do not have access to a savings or checking account and 21 million more have access to financial services only through costly payday lenders, check-cashing outlets, or other sub-prime financial institutions that deplete their precious assets. In 2010, more Americans had to go to payday lenders and loan sharks in order to get credit than ever before.
The $30 million loan to Self-Help is part of a larger $90 million effort by Ford to help the financial services market become more accountable and responsive to the needs of low-income people. Improving the access of low-income households to responsible and affordable financial services and products helps them build and maintain assets and become financially stable and secure.
The Ford Foundation’s three-part strategy reflects its effort to advance innovation in areas that it sees as essential to achieving this goal:
- Better Financial Products: By providing risk capital to grantees, the foundation is enabling them to test and develop innovative new financial products that meet the needs of low-income families and make financial sense for the companies that offer them. Good financial products are affordable, transparent, and fair. Responsive to consumer needs, these products can help people build and maintain assets and contribute to their long-term economic security.For example, Ford gave a grant to the Doorways2Dreams Fund to develop and test the idea of allowing tax filers to purchase U.S. Savings Bonds directly on their tax returns. The goal was to provide a simple, safe savings opportunity at the one time of the year that many low- and moderate-income households have disposable funds to save. Positive results from the three-year pilot led to the adoption of the idea by the U.S. Internal Revenue Service, and now all tax filers have the opportunity to purchase U.S. Savings Bonds with their tax refunds.
- Improved Delivery System: By supporting networks of organizations working to build a far-reaching system for the delivery of financial services, the foundation helps to ensure that families can access the products they need—when, where and how they need them.As one example, the National Federation of Community Development Credit Unions advocates for and provides resources to community development credit unions across the country. Ford’s support has helped federation credit unions expand their services in low-income communities. The federation co-founded the Fair Mortgage Collaborative to certify responsible lenders across the nation and has been shepherding Individual Development Accounts that provide matched savings for low-income households to purchase assets.
- Effective Policy & Regulation: By supporting advocacy efforts, the foundation enables its grantees to inform policymakers and the public about the importance of public policies and regulations that promote access to safe and affordable financial services. Smart and effective public policies can protect millions of Americans from predatory practices and can provide incentives to companies to offer services that help families build assets. Established in June 2010, the Consumer Financial Protection Bureau is the first financial regulator dedicated to “make markets for consumer financial products and services work for Americans.” Ford grantees, including Demos, National Council of La Raza, and National People’s Action, are working under the umbrella of the Americans for Financial Reform coalition to help ensure that the bureau enforces consumer financial laws, promotes community research and learning, and protects low-income families from predatory financial products.“Achieving financial security is not just about income,” Ubiñas said. “It is about building savings, growing equity in a home and beginning to take an ownership stake in our nation. You can’t do that without access to well-designed financial products.”
Learn more about the Ford Foundation initiative aimed at improving access to innovative financial products and services for low-income people at http://www.fordfoundation.org/issues/economic-fairness/improving-access-to-financial-services.
The Ford Foundation is an independent, nonprofit grant-making organization. For 75 years it has worked with courageous people on the frontlines of social change worldwide, guided by its mission to strengthen democratic values, reduce poverty and injustice, promote international cooperation, and advance human achievement. With headquarters in New York, the foundation has offices in Latin America, Africa, the Middle East and Asia.