Publication Date

February 2016

Author(s)

Beth Brockland, Jess Dorrance, Lucy Gorham, Thea Garon

Client/Funder

Center for Financial Services Innovation

A Center for Financial Services Innovation report uses center research to shed light on how financial service providers can design high-quality, small-dollar loans that offer value to providers and consumers alike.

Millions of Americans lack access to high-quality, affordable credit. Many of the small-dollar loans available to consumers are high-cost, low-quality products that often lead borrowers into a cycle of repeat usage and mounting debt.

While there are challenges to innovating in the small-dollar credit industry, the opportunity to serve borrowers in need of high-quality, small-dollar loans is significant. In 2014, borrowers spent an estimated $44 billion on small-dollar loans and $4.2 billion on installment loans.

Financial institutions that offer borrowers affordable and sustainable loans will be able to serve a large and growing subset of consumers in need of products and tools that can help them build financial health.

The Center for Financial Services Innovation (CFSI) convened the Small-Dollar Credit Test & Learn Working Group to encourage innovation across the small-dollar credit industry. CFSI contracted with the UNC Center for Community Capital to execute the research for this initiative.

Administrative data and qualitative data from customer surveys were collected across four projects that offered small-dollar loan products. Qualitative data, in the form of interviews and focus groups, were collected from customers of some working group member institutions. The data were augmented with insights gleaned from conversations with the members of the Working Group about profitability considerations and business strategies.

This report articulates eight strategies for designing and delivering high-quality, small-dollar loans based on insights generated from the center’s research.

The strategies shed light on how financial service providers can design high-quality, small-dollar loans that offer value to providers and consumers alike.