When the Lender Extends a Helping Hand: Native CDFI Client Counseling and Loan Performance in Indian Country

Abstract

Native Community Development Financial Institutions (NCDFIs) fill credit-supply gaps and promote financial inclusion in Native communities. To mitigate lending risks and aid clients, NCDFIs often rely on unconventional lending practices, such as providing clients with free financial counseling. Drawing on uniquely detailed loan-level data from one prominent NCDFI and using survival analysis, we find that borrower exposure to NCDFI-provided financial counseling appreciably reduces the prospects of loan failure when the borrower has had limited prior credit-market experience. Our findings are indicative of the importance of the growing, but understudied, NCDFI industry for financial development of Indian Country.

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