Personal Micro Credit

The “It Makes Sense” Loan

Presentation to Chapter 21

22nd November 2017

Agenda

• Background

• The PMC Journey – Pilot to Rollout

• PMC – Key Statistics

• Product Features

• Household Budget System

• What Next

• Q&A

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Personal

Microcredit

Foundation’s Journey

Community & Voluntary Sector

Microfinance for business

Social Enterprise Sector

2007 2012

2017+

2015

3

Personal Micro Credit - Background

330,000 customers Interest Rates of 190% Convenience and speed

Circa 280 CUs Great reputation Funds to lend Interest Rates of 6%

How come the most vulnerable in Irish society are finding it difficult to obtain small affordable loans to meet genuine

needs ?

4

Personal Micro Credit - Background

Money lending organisations provide a convenient service and

price is not an issue Central Bank Regulations

are preventing Credit Unions from lending

Small no. of credit unions have lost their raison d’etre

– serving the community Perception that credit unions are not available to

me

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“The Social Injustice”

Equivalent CU loan repayable €520

2 x €500 loans in a year – difference in interest is €260

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PMC Objectives

1. To offer an alternative to money lenders

2. To enable the credit union movement to support its ethos by

serving all members of the community

3. To encourage education and move individuals from financial

exclusion to sound money management

4. To create a useable credit history for members to ultimately

enable them to access other financial services and products

5. To create a path to “graduate” to becoming a mainstream

credit union member

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• Pilot - 30 sites – 50 cases - word of mouth

• “Cash” social welfare customers - repay via direct deduction

• No membership/savings

• Indebtedness or default did not disqualify

• Ability to repay is essential

• Customer satisfaction 97% - transformative

• 1,200 loans - 4% default – 94% borrow again

• Some issues – overall a success

Pilot – Nov 15 to May 16

• Central Bank of Ireland

• Departments - Finance/DSP

• Credit union movement

• An Post

• Social Finance Foundation

• CIB/MABS

• NGOs - SVDeP

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• Roll-out to the

majority of CUs – 242 offices offer the product currently

• Take time – agendas are full

National Rollout

• Need to get people to switch to CUs

• Consider restricting interest rates in Ireland as is the case in 21 of 27 EU countries

• Positioning of the CU movement being a credible alternative

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Program for Government 2016

“I commend participating credit unions for their continued support…I would encourage any credit union which has not

yet got involved to consider the benefits to their local communities”

An Taoiseach, Mr. Leo Varadkar, T.D.

Importance of PMC

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https://www.youtube.com/watch?v=frb-PyyDZrA

Estimated over €3.6m lent to borrowers using

the HB repayment method

111 Credit Unions are live – 242 sites across

the country Average loan €590

Average loan duration 7-12 months

Typical default rate ~5%

Growth in monthly repayments via An Post

€58k Feb ’16 to €330k June ‘17

~10% of PMC lending is repaid via EFT

Over 6,000 people have used the HB

repayment method

~20% of borrowers are saving

Headlines

PMC Live Locations

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111 Credit Unions 242 Locations

• Post pilot extension to all social welfare recipients (cash & EFT)

• Semi automated processes introduced 05/16

• Savings dimension introduced 12/16

• Ability of borrower to retain HB repayment method for standard loans

12/16

• Enhanced training and support materials Q1/17

Work underway

• Progress IT automating An Post weekly files. This is being done at no

cost.

• Discussion underway with Wellington – awaiting response

• Working with CUs where there are any issues

PMC Enhancements and WIP

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• Can’t claim a national solution if the credit union movement as a whole are not bought in – common bond problematic

• How do we align with CUs who state that they don’t need PMC as they already cater for this section of the community?

• Need to automate further

• Where a CU does not have a good experience with PMC we need to understand why and address the issues

• Separate fact from fiction on PMC’s performance

Barriers to PMC Success

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PMC is a journey, great inroads made but not there yet

Product Features

Feature Detail

Eligibility • Social welfare receipients where repayment is via the the household budget scheme (HB) or SO / DD. Likely to be currently using licenced and / or un-licenced moneylenders. They are genuine individuals seeking financial inclusion to traditional sources of credit through the CU movement.

Member • Fast track membership if not a member • Membership fee applies (unless waived by CU) • AML requirements (agreed exceptions apply) • Member Documentation as per existing CU process

Repayment Frequency

• Weekly, in line with S/W schemes • Loans can be repaid early without penalty

Purpose • Any provident and productive purpose

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Product Features

Feature Detail

Loan

• If a person discharges 2 PMC loans then they would be eligible for a standard loan

• To assist with this transition it has been agreed that PMC

borrowers who move to be assessed under normal credit union lending policy can continue to use the household budget deduction facility for subsequent loans (once these are under €2,000 and the duration is not longer than 24 months).

Savings • The deduction amount for the loan repayment agreed with the PMC borrower can now include a small savings element if the borrower so wishes.

• This amount is still subject to the 25% cap • For example, if the loan repayment amount is 10euro, a small

savings element of 3euro can be applied for, making the total deduction amount 13euro (assuming the total deductions are not in excess of the 25% weekly social welfare payment)

Product Features

Feature Detail

Loan Top-ups • Except for exceptional circumstances, at the CU discretion, a member cannot apply for a top-up until at least 50% of the existing loan is repaid

Loan sub-type • Separate loan sub-type to ensure that these loans are separately identifiable

Loan Amount • Minimum loan will be €100 • Maximum loan will be €2,000. • Suggested first loan of €500

Loan Term • Minimum one month, Maximum 24 months

Interest Rate • Max 1% per month (12% per annum, APR 12.68%) • Individual CUs can choose their own rate

An Post Transaction Fees

• 25c per transaction – cost borne by credit union • Protocol from DSP does not allow customer to be charged.

Aggregate PMC loans

• Cannot exceed 0.5% of the CU’s total assets

Household Budget System (HB)

• HB facilitates direct deduction from certain social welfare payment

schemes

• Operated by An Post on behalf of DSP

• Only applies where SW payment is in CASH collected at PO – Full list of

applicable S/W schemes available in Appendix 4 of PMC Loan Policy e.g.

Job Seekers Benefit, One Parent Family

• Deductions allowed at present

Local Authorities / Housing Bodies

Utility Suppliers

PMC Loans

• Total deductions cannot exceed 25% of weekly social welfare payment -

includes rent and utilities

• Rent takes priority over any other deduction – both now and into the

future

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What do PMC Credit Unions think?

“Part of our social

responsibility”

“PMC is offering another repayment

method, but one that enables us to lend to

those that are financially vulnerable

and excluded”

“To keep people on social welfare away from moneylenders.

In the hope of increasing our

membership and attracting new

customers”

“The PMC product works

to grow our loan book in a low risk manner”

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What next ..

We encourage Credit unions to sign up to offer PMC loans

Obtain Board approval of the dedicated PMC Loan policy

Sign up with An Post to use the Household Budget system for

repayments

Contact the IT team in the League to get set up on the secure email

The support team will assist with the on-boarding process, providing

access to:

Procedures and relevant documentation

Training

Marketing material

Ongoing support

Full repository of documents on creditunion.ie/itmakessense & CUDA

Credit Union Support Platform

Contact the support team on the dedicated PMC help line: 01 614 67 37

Email: Lisa.magee@afanite.com or Tracy.pelosi@afanite.com

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It’s actually a long journey

We need to get the vast majority of relevant credit unions signed up to offer PMC – by 2018 We also need to ensure live CUs are using it effectively

We need a strategy to encourage people to switch from moneylenders to credit unions

We need to get the CBI to consider the question of capping interest rates following the study

Stakeholder management, project management and issue resolution

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Why am I here tonight ?

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Could we dare envisage an Ireland where licensed

money lending charging usurious rates of interest

has been eliminated ?

Would you like to be part

of that story ?

Q&A

LIA Code = LIA-0-14320

IoB Code = 2017-2064

ILCU Code = 17147

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