meeting with Quentin Flores, Bill Henry, and Howard Hodel

Met with Bill Henry, Howard Hodel (both formerly of Bank of Hawaii) and Quentin Flores from the Office of Hawaiian Affairs. Howard and Quentin had worked together to create the Malama Loan program that is a part of the Native Hawaiian Revolving Loan Fund. (This program is not to be confused with OHA's Consumer Micro-Loan Program that focuses mostly on emergency funds up to $7,500 at 5% interest up to 60 months for a death in the family, health crisis, home or auto repairs, or career development courses.) The Malama Loans can be up to $75,000 and they are to be used for education, business expansion, or home improvement.
OHA utilizes First Hawaiian Bank's application, underwriting, and servicing systems to manage the loans (although if you go their main site and plug in Malama Loan, or micro loan, or micro-lending into the Search function nothing comes up). The Native Hawaiian Revolving Fund apparently has close to $28 million in it, half from OHA and half from the federal government. According to to Howard and Quentin, the federal involvement has significantly undermined the efficiency of the program due to onerous guidelines— appointed committee to approve the loan, a committee to recommend processing, automated formula for underwriting— which cause a lot of duplication between OHA and FHB. FHB provides these service basically as a community service since the size of the loans do not make them very profitable for them.
One of the key challenges they mentioned is getting enough qualified borrowers for the money they have available. According to Quentin Flores they have approximately 140 outstanding loans totally about $700,000. The main reason they can't do more is that their underwriting is dependent on the applicants FICO score, which needs to be above 650 for a Tier One loan, and above 600 for a Tier Two loan. That right there will eliminate the vast majority of applicants and is also where an opportunity exists for something like what we're proposing at Kuleana Micro-Lending can step in. We will be utilizing a non-quantifiable underwriting process based on what has been called "character investing." Essentially that means that we will rely on the testimony of a case worker from one of our partner agencies to say that a particular candidate is worth the risk of receiving a loan.
This case makes me think of Dr. Daniel Kim's explanation of "stock and flows". The amount of micro-loans out there sounds sort of impressive but if people were made aware of the amount of waiting just sitting around waiting to be loaned they might react differently. We need to get more of that stock into the flow of credit being extended to low-income borrowers.
That leads to the next challenge— supporting the borrower in such a way that they can and do succeed. Quentin said many of their loans go delinquent around the holidays but then they get back on track by March. Bill and Howard also mentioned that mentoring/business training are crucial for the borrowers success, but there remains the question of whether a borrower will do the work in order to get such a small amount of money. The key is to establish a training program similar to the one utilized by Grameen Bank in their North American programs— 5 1-hour sessions. If those are weekly then hopefully the borrowers can take the classes while their application is being considered by the Application Review Committee and the Loan Review Committee. If the borrower drops out of the class then we probably didn't want to loan them the money in the first place.
Some possible partnerships we can explore for the training are: Bank of Hawaii, Pacific Gateway, SCORE, the Hogan Entrepreneurs program, the Akamai Foundation, and Empower Hawaii (several of which have micro-lending/enterprise program which we can learn from).
One of our goals will have to be helping our very incipient borrowers graduate up to more traditional, and therefore larger scale, lenders. That's the the the Credit Builders Alliance can help us and them as well.