Giving Rhode Islanders the credit they need.
John works two full time jobs to support his growing family; between paying rent, buying groceries, and the monthly utilities they barely scrape by. Driving through Providence, on the way to his second job, smoke begins pouring from underneath the hood of his aging car. As the tow-truck pulls away, John calls for a ride to work. The next day the mechanic tells him it will cost $350 to fix his car, and $150 to cover the tow.
With no savings, John hesitantly turns to a well-known payday lender, who lends him $500. The terms of the loan require $550 be repaid within two weeks — an APR of 260%. When John is unable to repay the full amount, the loan is extended another two weeks, costing him an additional $50; this cycle continues for a year. Paying the bi-weekly minimum, John finally pays off the loan — it cost him $1,300 to borrow $500.
After seeing the devastation caused by the 2008 financial collapse, Brown University student Andrew Posner became interested in how finance could be used to help people, instead of hurt them. “I conducted a lot of research about the size of the [payday] loan industry, and saw the need for access to credit locally,” explains Andrew. He realized experiences such as John’s, low-income Rhode Islanders not having access to traditional loans — leaving them susceptible to high interest lenders, were all too common.
Three months before graduation Andrew founded Capital Good Fund; a small nonprofit that gives loans to those who otherwise would not qualify. In the beginning, they granted loans to cover the cost of citizenship, and to help Rhode Islanders start green micro-businesses. Although they no longer lend to businesses, Capital Good Fund has expanded its number of personal loan categories to include products such as the credit builder loan, consumer loan, utility loan, car loan, and the emergency loan.
The emergency loan, their most popular product, was created with a grant from United Way of Rhode Island. “It’s our payday loan alternative, before that we didn’t have a loan that directly competed with the [payday lenders],” says Andrew. Many people use the emergency loan to pay off high interest loans — 35% is a far better alternative than 260%.
Eight years have passed since Andrew began using micro-finance to help the community. During this time, he has given over 5,000 loans to people who may have otherwise turned to payday lenders. Capital Good Fund’s goal of lending $5 million in 2017 seems insignificant when compared to the $46 billion payday loan industry, but to the people being helped by Andrew and his team, it’s life changing.
By: Jason Boulay, Communication Coordinator, UWRI