Meeting with Kina Mahi, Hawai'i Community Foundation

Kina Mahi from HCF/Island Innovation Fund and formerly of Hawai'i Community Loan Fund was very gracious to attend one of our Kuleana meetings (along with her three-month old daughter) to share her knowledge of micro-lending.

Kina shared with us how the Hawai'i Community Loan Fund existed for approximately ten years from the mid-to-late 90's to the early 2000's. They specialized in non-bankable loans to individuals and families to start businesses. They serviced about 30-45 active loans ranging from $15,000 to $100,000. (Although an article from the Advertiser puts the top range at $250,000. Either way, that's way higher than we propose.) Some of the enterprises that received loans were Ho'ala School and a restaurant on the North Shore that is still around (I forgot the name). The staff consisted of some very talented people who did loan servicing, accounting, and technical assistance that helped to customize the payback route for each loan.

They started off with $1.5 million in seed money from local banks and OHA. The interest rate charged was usually about 12-14% and was used to fund their revolving loan fund. Ultimately they ran out of operating capital to pay the salaries of the staff members and they were reluctant to charge much higher interest rates in order to be more financially sound.

One of the challenges they faced, as expected, was getting people to pay back their loans, one of the many arguments skeptics make about micro-lending in Hawai'i or any other first world economy. Some borrowers would say things like "you're a non-profit so we don;t need to pay you back." Kina said they also found a direct linear relationship between borrowers' credit scores and repayment/delinquency rates. One of their problems is that they didn't have a cut off for a minimum credit score for applicants. (We don't plan to either, but we're hoping that the referral process from our partner agencies will help us avoid some of those pitfalls.)

Other areas that she said we should be aware of or look to implement:
— a standardized program to train borrowers. (We can hopefully look to Maui Economic Opportunity or even Grameen America for workable models in that area.)
— collateralization. Rebecca Soon mentioned that this is very difficult with low-income borrowers but is still a good idea, especially if the money borrowed is used to buy inventory of some kind.
— technical assistance is important, but mentoring could possibly make up for a lack of quantifiable metrics
— board representation by the banks can be good or bad, depending on mission. She mentioned that we should look to the credit unions as well.
— reporting to credit agencies could also be a good idea
— engendering a professional environment is important to create a higher level of expectation from the borrower
— private donors tend to be better over the long term versus foundations or even banks (who expect their money to be paid back)
— Loan Loss Reserve— 20% of loans outstanding— crucial!

One idea that came out of the discussions was to create steps in the loan implementation process that reinforce the idea of success for the borrower. For example, finishing the basic financial education course should be celebrated with a formal occasion; making eleven consecutive payments could then allow the borrower to skip the twelfth. We could even time it around Christmas time so that if the borrower makes a minimum of six consecutive payments on time then s/he could skip the payment in December or January to offset holiday bills.

All in all it was a great conversation about what is possible, what to look out for, and how difficult micro-lending can be.