Community Dividend

CFSI releases small-dollar credit products guide

Published April 1, 2014  |  April 2014 issue

The Center for Financial Services Innovation (CFSI) has released a publication designed to help lenders improve the design and delivery of small-dollar credit products, defined as consumer loans of less than $5,000 that have terms ranging from two weeks to three years. The category includes deposit advances, refund anticipation checks, and payday loans—products that, depending on their specific terms and providers, can carry high costs and can lure borrowers into a cycle of repeated usage and escalating debt. The CFSI’s Compass Guide to Small-Dollar Credit, which was developed with support from the Ford Foundation and the Omidyar Network, lists guidelines and recommended practices for creating high-quality, reasonably priced, small-dollar credit products that have a business model based on successful repayment instead of high probabilities of default. The guide’s contents are grounded in CFSI’s four Compass Principles (Embrace Inclusion, Build Trust, Promote Success, and Create Opportunity), which are aspirational guidelines to assure quality innovation and execution in financial services. To download the guide, visit www.cfsinnovation.com/content/compass-guide-small-dollar-credit.

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Narayana Kocherlakota