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 The mission of the "Your Mark on the World Center" is to solve the world's biggest problems before 2045 by identifying and championing the work of experts who have created credible plans and programs to end them once and for all.
Crowdfunding for Social Good
Devin D. Thorpe
Devin Thorpe

Monthly Archives: November 2017

Is It Ethical To Lend To Working People At A 200% Interest Rate?

This post was originally produced for Forbes.

You can download an audio podcast here or subscribe via iTunes.

We’re all familiar with payday lenders who are providing loans to people who can least afford it at interest rates that shock the greediest of corporate bankers. Can a fintech company that lends at rates up to 200% annual percentage rates ever be considered ethical? In this piece, I’m going to share my conclusion.

To help me make this evaluation, I turned to Morgan Simon, a vocal advocate for using a social justice lens for impact investing. She is the author of Real Impact: The New Economics of Social Change and Managing Director of Candide Group. She framed the question for me:

In general, when we think about fintech, from microfinance in the global south to financial services for working class populations in the US, we think a lot about the question of fairness. It’s common for a social enterprise to focus on providing better rates to a customer compared to what they had access to. But better does not always mean fair. So, we always look at a company and try to assess–is the financing non-extractive, meaning the customer receives more value than the company?  Is the operating margin reasonable compared to the consumer value created? Does the product help build assets as opposed to focusing predominately on consumption? Each company and case is different, and hence it’s impossible to say that a certain range of APRs enables fairness. It’s important to take each company case-by-case and try to assess its particular impact.

She framed the question well but didn’t answer it for me.

Lendup is a fintech company based in San Francisco with offices in Richmond, Virginia that provides four tiers of consumer lending, with the stated objective of providing customers with a path to better financial health. At the bottom rung of their credit ladder, they provide loans of about $250 at an APR of 200%. The company, backed by Kleiner Perkins, among other well-regarded venture investors, now has 220 employees, has made 4 million loans totaling more than $1 billion. By their estimate, they’ve saved their customers $130 million. They have also provided 1.6 million free online courses about money management.

For this article, I visited with Sasha Orloff, CEO and Vijesh Iyer, COO, to learn what they do and how they justify lending at such rates. You can—and should—watch the entire interview in the video player at the top of the article.

Vijesh Iyer, Lendup COO

Iyer explained the Lendup vision, saying, “We believe there are two types of financial products: chutes and ladders. Ladders help people up; chutes push people down. One of our core values is that every product we offer at LendUp is a ladder, and our success is measured by the long-term financial well-being of our customers.”

That lending at 200% interest rates could be a ladder to greater financial health begs scrutiny.

Orloff, 40, was quick to put Lendup’s practices in greater context. “When you’re thinking about the payday lending industry you’re typically talking about 400 to 1,000% APR annualized rates. You’re paying the same rate day after day, week after week, month after month, year after year.”

Obviously, lending at half the rate or better than the competition is better for the customer, but it could still be a debt trap from which the customer might never escape.

The scale of the problem or opportunity, depending on your view of the situation, is staggering. Orloff points out that 56% of Americans don’t have access to traditional financial services. Payday loans are typically not reported to credit bureaus, which serves customers just fine when they default but is no help when they repay the loans according to the terms, leaving them stuck in financial purgatory.

No reader of this piece would want to borrow at 200% unless it were the best available option. Even then, we’d want to be sure that we wouldn’t be better off not borrowing the money.

Lendup takes the ladder concept seriously. Rather than go to a store-front with the employees working behind bullet-proof glass, customers borrow on their phones. They are encouraged to take financial literacy courses. As they make payments in a timely way, they move up Lendup’s ladder, earning the right to borrow more money at lower interest rates. At the top two tiers of service, the company reports credit results to all three major credit bureaus, potentially helping customers establish a credit score that would give them access to traditional credit products, Orloff explains.

Still, I worried what happens to customers that can’t repay their loans on time. Some payday lenders have been reputed to compound interest and fees monthly or even weekly, allowing an unpaid loan of a few hundred dollars to balloon out of control within a year. Does Lendup take the same approach to its slow-paying customers?

No. They assure me that the company never charges another fee. For their single payment loan customers, no late fees or interest accrue. Instead, the company works with the clients to ensure that customers are not stuck in a debt trap when they can’t pay.

Orloff says, “At the end of the day, we try to structure our products so that we make money when they pay us back not when they get further into trouble because we’re trying to lend people up.”

The problem has persisted despite the continued economic recovery, in part because so many people have been moving from salaried positions to hourly or even to the gig economy where people are paid only for the brief moments when they are working on a paid task. Uber and Lyft drivers, Upwork freelancers, Task Rabbit contractors and so many others now experience unprecedented volatility in their incomes.

Understanding how their model is designed to work, I set out to understand whether or not it does work. Orloff and Iyer were unwilling to provide data on the proportion of their customers who are able to climb to the top of their ladder and graduate. One can reasonably conclude the data isn’t encouraging.

They did share that a comparison of cohorts of their customers and non-customers showed that their customers improved their credit scores faster and farther than non-customers.

Credit scores matter. Iyer notes that a graduate of their program can save hundreds of thousands of dollars over a lifetime by earning a higher credit score.

A graduate of their program gains access to traditional credit cards with a grace period that allows them to borrow money for longer than just one payroll cycle at zero cost. Orloff says, “They’re going from paying 400 to 1,000% APR to a zero-dollar borrowing cost. To me, that’s one of the proudest most incredible things that we’ve accomplished here at Lendup.”

They don’t see Lendup as the solution to the problem. Iyer points out, “We’re talking about over 50 percent of the US population not having $400 to take care of themselves in an emergency.”

They see Lendup as part of a growing movement to give people better access to the financial services they need. The company collaborates with nonprofits to help address the systemic challenges that make being poor so expensive.

Orloff says, “If our system is working really well for 44% of the country and it’s not working really well for 56% of the country then something has to change.”

He adds, “The reason why I’m excited about this interview and other interviews is creating a broader awareness of this movement has started and that we need the support of a lot of different players from the press from the regulators from the financial markets.”

One of the nonprofits with which Lendup collaborates is The Aspen Institute. Joanna Smith Ramani, the associate director for the Institute’s financial security program, helps answer my fundamental question:

One of our goals at the Aspen Financial Security Program is to build and spotlight leadership that is committed to solving the financial challenges of working Americans. Sasha is a real innovator in the financial service and fintech industry around his commitment to solving not just the credit needs of low-wage earners, but also the overall financial health needs of families as well. We have been encouraged by LendUp’s eagerness to directly learn from their consumers, to iterate their products, and to engage in cross-sector discussions, even with critics and advocates, about how to not just make their product better, but also the industry better.

So, is it ethical to lend to people who are struggling financially at an APR of 200%? Yes. When the customer’s interests are put before corporate interests, lending at such high rates is ethical. But I’ll be watching.

Over 1 million people have read my books; have you? Check out my free webinar exposing the three myths that impair and two keys for crowdfunding success.


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Devin is a journalist, author and corporate social responsibility speaker who calls himself a champion of social good. With a goal to help solve some of the world’s biggest problems by 2045, he focuses on telling the stories of those who are leading the way! Learn more at DevinThorpe.com!

Impact Investor: You Don’t Have To Give Up Returns To Do Good

This post was originally produced for Forbes.

You can download an audio podcast here or subscribe via iTunes.

One of the most controversial topics in impact investing is whether it is possible or fair to expect market returns on investments that do good. Gloria Nelund, chairman and CEO of TriLinc Global, says yes.

Nelund says her firm, which manages about $320 million, is designed to prove it. “The whole firm is really dedicated to creating and sponsoring funds that will prove to investors that they don’t have to give up investment returns to do good.”

TriLinc is a private investment fund that lends money to small businesses, including businesses in the developing world. To do business effectively in frontier and emerging markets, the firm partners with local experts.

Nelund explains, “We created a partner model where we went out and found the best private debt fund managers in the world in the countries where we wanted to invest and we developed a partnership with them where they would originate loans for us. We actually co-underwrite and co-structure all of the loans.”

Gloria Nelund, TriLinc Global

TriLinc typically funds the loans directly to the businesses; local partners do not act as intermediaries. Some of the loans are sufficiently large that TriLinc reaches out to other funds to complete the financing.

Nelund highlights a loan to Corporacion Prodesa, S.R.L., a manufacturer of affordable disposable diapers in Peru, as an example of the firm’s impact. The company’s founder, a Peruvian American who worked at Kimberly Clark identified hygiene problems associated with cloth diapers being used in Peru and utilized abandoned technology to produce diapers low and moderate-income families there could afford.

The company not only solves a social problem in the developing world but also provides jobs that raise the standard of living for the community.

Nelund says, “When they were really struggling at one point and we were working with them to try to restructure everything, his biggest concern was the people in the community losing their jobs because it was so important to them and their families.”

The loan of about $3 million represented about 2.1% of the funds’ assets, according to the 2015 10K filed with the SEC and has an interest rate of 15.5-15.6%. The firm’s loans have interest rates ranging from more than 8% to just less than 18%. The loans are made in Central and South America and in Africa.

Nelund explains the investment strategy. “We have a private debt strategy that makes loans to growth stage companies that meet certain environmental social and governance standards and who are committed to creating impact and then we provide loans to those companies so that they can grow and they can create more jobs and they can pay higher wages.”

While Nelund admits that some projects require non-investment capital—philanthropic or aid forms of capital—she sees market rate impact investing as the key to attracting sufficient capital to solve big problems. She says, “You should hold companies to the same [return] standard regardless of the impact they create.”

Matthew Weatherley-White, co-founder and managing director of The Caprock Group, who has invested in the funds, highlights two features of the TriLinc funds. First, he notes that retail investors have been invited to participate in the funds via public offerings—most impact investments are limited to accredited or institutional investors. The other point he highlights is the firm’s focus on doing things better. “This isn’t about perfect. It is about steadily raising the bar.”

Jeff Shafer, co-founder of CommonGood Capital, praises Tirlinc’s team and procedures for sourcing deals outside the US with an emphasis on impact. He adds, “Since investing today in the US is dominated by the left brain, market rate returns and proof of positive impact are critical to mobilizing large amounts of capital.”

Dr. Patricia Dinneen, senior advisor, EMPEA and chair of Impact Investing Council, agrees with Shafer’s analysis. Like Weatherley-White, Shafer and Nelund, she concludes that impact investing at market rates is possible. “TriLinc Global provides credible and convincing evidence that you can achieve both financial returns and social benefits.”

Over 1 million people have read my books; have you? Check out my free webinar exposing the three myths that impair and two keys for crowdfunding success.


Never miss another interview! Join Devin here!

Devin is a journalist, author and corporate social responsibility speaker who calls himself a champion of social good. With a goal to help solve some of the world’s biggest problems by 2045, he focuses on telling the stories of those who are leading the way! Learn more at DevinThorpe.com!

How to Promote Your Cause Without Provoking Your Friends

Recently the Pew Research Center published a report showing that Americans are more politically divided than any time since they started tracking such data in 1994. Our country has survived greater divisions than we now see: abortion, civil rights, slavery, and federalism.

Increasingly, at least anecdotally, it appears that people are fed up with divisions and conflict. At some level both liberals and conservatives find themselves wanting to check out. My readers challenged me to write this article to find a path forward.

Tempting as it may be to check out, the things that divide Americans are important issues. Gun safety is a critical issue with 35,000 people dying from gun deaths every year. Those on the left would like to reduce the availability of guns. Those on the right see more guns as the key to safety. That’s a pretty big disagreement on a topic that matters.

Climate change threatens to destabilize the planet while some continue to argue that it isn’t anthropogenic or even that it isn’t happening at all. And this issue doesn’t just impact America; what we do here impacts the entire planet. We need a process by which we can talk about this without completely talking past one another.

The social safety net helps millions of Americans avoid death, despair or homelessness each year but millions of others slip through the cracks. One sure way to avoid finding solutions is to not talk about the problems.

To figure out how we can have a productive discussion that respects people more than policies I had to ask experts because I’m not good at this. I’m as prone to getting emotional as anyone else but like my readers, I want to find a way to have these conversations constructively.

Cheryl Snapp Conner, courtesy of Snapp Conner PR

Cheryl Snapp Conner, courtesy of Snapp Conner PR

Cheryl Snapp Conner, CEO of Snapp Conner PR and a regular Forbes contributor approaches communications professionally. She helps businesses formulate messaging in these fraught times with an eye toward building audiences and customers.

She suggests you start by highlighting your common ground and acknowledge them for the things you may admire about them: awareness, passion, civic engagement. Only then does she suggest delving into the areas of disagreement.

Dr. Paul Jenkins, courtesy of Live on Purpose

Dr. Paul Jenkins, courtesy of Live on Purpose

Dr. Paul Jenkins, a professional psychologist and author of Pathological Positivity offers this advice:  “I remind myself to put people before problems and values before valuables.”

He points out that we are all prone to confusing facts and opinions.

In the animated film Inside Out the characters are riding along on the train of thoughts and a stack of boxes containing facts and opinions get jostled and spills out on the floor. One of the characters is concerned about getting them all back into the right boxes, and another character comments that it doesn’t really matter because they all look alike anyway. Your position is an opinion.

Ouch.

Jenkins goes on to say that once we form an opinion, we are subject to confirmation bias, where we look for or even create evidence to support our opinion. I’ve seen this happen in my own life. Having no opinion about the color of the new carpet, asked for one I weakly offered one. Suddenly, I find myself offended by every other color option. Three minutes earlier, I couldn’t have cared less.

It is probably more important to be open than to be right,” he says.

Conner similarly suggests acknowledging the inherent biases we all have.

Even when you’re on your best behavior, others may push your buttons, perhaps making a personal attack. What to do then?

Nancy Hoole Taylor, licensed mental health counselor, says, “Do not internalize what others say. It is usually more of a reflection of who they are and not yourself.”

Or, as Jenkins puts it, “A sure fire way to escalate a situation is to take things personally.”

He spent over a dozen years doing child custody evaluations for the court. “In these nasty divorce situations where people really needed to discuss issues in the interest of the children, their engagement in the personal conflicts commonly derailed the discussions and they spent an enormous amount of time and energy fighting and being offended.”

Jenkins offers four ideas for de-escalation:

  1. Understand that person’s opinion is not about you, even if they say it is. It is about their own position and may include their perception of you. The troubling aspect here is that it sounds like they are describing you because the character in their story has your name, face, and social security number. But think about it, how well does that person really know you at your core? They really don’t, right? That means that the person they are railing against, hating, or disparaging is not you – it is a fictional character they have fabricated in their own mind. Don’t defend that person – you would hate them too.
  2. Use the social gifts of appreciation, connection, enlightenment, and elevation instead of defensiveness or retaliation.
  3. Remember that the person who has offended you is merely supporting their opinion. It is not their job to support your opinion, take care of you emotionally, or make you feel good about yourself – those things are your job.
  4. Use the strategic non-response.

Jenkins’ number four seems especially appropriate when the only response you can conceive involves language your mother wouldn’t approve.

Conner has her own approach. She notes that if someone else was personally attacked she’d come to their defense. “If it were about me, I’d maybe address it with humor–‘I may somewhat have resembled that’–and then move the focus to the issue at hand.”

She suggests making a kind or empathetic remark and then closing the discussion with a note of mutual agreement more positive than simply agreeing to disagree. She also agrees that in some cases, the best strategy is to disengage.

Therapist Judith S. Moore shares her strategy: “I express my love for the one disagreeing with me, letting them know we can still be friends.”

Jenkins offers this important reminder, “People are not wrong about how they feel or their opinions, their position is completely consistent with their current set of beliefs and perceptions. Let them be right about that. It’s also okay to not have an end to a discussion, to remain in the question and remember that opinions (including, and perhaps especially, your own) change.

The best advice of all, I think, was Jenkins’ parting wisdom: “Give up your need to be right.”

Key Job Skill for This Position: No Complaining About Rats and Roaches

“I look for a great communicator who can tell some of the most important stories in the world. Also, someone who won’t complain about staying in a $2-a-night room with rats and roaches,” New York Times columnist Nick Kristof summarized by email what he looks for in his annual “Win-a-Trip” contest.

Each year, Kristof of the New York Times holds a “Win-a-Trip” contest to find a student journalist to travel with him on a reporting trip. For 2017, he selected Aneri Pattani to accompany him to Liberia.

Pattani, 22, described her experience as a “one of the best” she’s had.

“Because I had the privilege of traveling with Nick, interviewing people and writing about my experiences for a global community of readers, I was able to chip away at my own ignorance and hopefully spread new knowledge to a few others, too.”

Nick Kristof and Aneri Pattani, courtesy of the New York Times

“Aneri was fabulous!” Kristof said.

“She’s a natural journalist who wrote compellingly about leprosy, African journalism and so much more–and her work is blessed with empathy and intelligence, even though she’s pecking away at full speed,” he explained.

Pattani, for her part, admits that the key lesson she learned in Liberia was “how little I know.”

She admitted feeling “guilty” when visiting a hospital that serves 75,000 people, knowing all the while that she had more medicine in her luggage–including some basic antibiotics and ibuprofen–than the entire hospital had.

She was inspired by Mae Azango, a Liberian journalist who wrote about female genital mutilation and was then forced into hiding.

That experience is exactly what Kristof hopes to accomplish with the “Win-a-Trip” program each year. “I want to help nurture the next generation of journalists who care about the issues that I consider important, and more broadly, I want to encourage young people to engage with issues of global health and poverty.”

For the sake of future applicants, I coaxed some advice out of Pattani. She noted that Kristof chooses all sorts of students, not just journalism students. Her primary advice, “Just be really authentic and explain why this is important to you in a personal way.”

See my past interviews with 2015 winner Austin Meyer and 2016 winner Cassidy McDonald.

As for this year’s winner, Kristof shared his final thoughts on Pattani’s performance: “She didn’t protest a room with rats!”

Aneri Pattani

Aneri Pattani

Pattani’s bio:

Twitter: @aneripattani

Aneri Pattani is a recent graduate of Northeastern University, where she studied journalism and Spanish. She spent part of the summer traveling with Nicholas Kristof to Liberia as the winner of his annual international reporting trip contest. After that, she spent 10 weeks working as a James Reston reporting fellow on the health/science desk of The New York Times. Her work has previously appeared in The Boston Globe, The Texas Tribune, CNBC and The Hartford Courant. When she’s not working, she enjoys learning new dance forms and cooking new types of food.

Never miss another interview! Join Devin here!

Devin is a journalist, author and corporate social responsibility speaker who calls himself a champion of social good. With a goal to help solve some of the world’s biggest problems by 2045, he focuses on telling the stories of those who are leading the way! Learn more at DevinThorpe.com!

 

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