With tightened lending standards many traditional lenders are exercising caution in order to conform to more stringent federal regulations, resulting in many consumers being shut out from receiving the credit they require. In line with this issue, both The Boston Globe and The Washington Post have explored novel ways that Americans are gaining access to loans they need.
The Globe explored the work of nonprofits that are creating community networks that help connect local borrowers and lenders. According to the source, these effort are based on traditional "sans" created by Dominican immigrants, which are lending circles in which friends and relatives rely on one another for banking services.
Teofila Richardson, who the Globe reports participated in informal lending circles for years, recently took part in the Lawrence Community Works's nonprofit program this year.
"It's not something just to do for the immediate need," Richardson said. "You can develop a long-term plan to manage your money."
According to Richardson, the program teaches participants how to access and understand their credit reports, as well as strategies to help improve their credit score.
Similar efforts are also being pursued in Virginia, according to The Washington Post. The Jubilee Assistance Fund is a church-backed program that offers "near-zero" interest rates intended to help struggling borrowers regain their financial standing.
Again, this program serves as an opportunity to provide financial education to borrowers as well as low-value loans. "When you give money, you're not necessarily teaching them how to use the money — you're responding to the crisis," explained Charles Swadley, the recently retired pastor of Lakeside United Methodist Church, who helped implement the program. "And what we've got to do is teach, which is the harder goal."
While it is uncertain what impact these programs will have on the demand for traditional lenders, it is important that institutions are aware of the potential impact from this trend. With increasing competition from online alternative lenders as well as community sources, the importance of having the right market offering to satisfy the changing customer landscape is imperative. Possessing comprehensive credit risk management experience in this segment, along with a flexible application processing solution, is imperative in supporting the diverse credit lending strategies needed to remain viable in this evolving market.