On New Year's Resolutions & Behavior Change

Happy New Year!
It's that time of the year again: family gatherings, reflections on the past, and commitments for the future. That last item, New Year's Resolutions, is of particular interest to me.  I see a lot of similarity between the packed gyms of January 1, the "back to business as usual" gyms of January 30 and the challenges of affecting social change.  A fundamental tension seems to exist in humans; evolutionarily speaking, it is in our best interest to eat when the bounty if plentiful, for we know not when we will again be flush with food.  In modern life, however, we must constantly resist that instinct--when food isn't scarce and calories are cheap, the challenge is not starvation but rather obesity.*

Put another way, we struggle to think long-term and to delay gratification.  We eat too many sweets and tell ourselves we'll exercise tomorrow; we buy the cheapest appliance even though the more efficient one will cost less over time; and we avoid building retirement savings until it's too late.  So powerful is this dynamic that social science research has shown that "..a child's ability to delay [gratification]...predicted higher SAT scores and a lower Body Mass Index" thirty years after the initial study (the famous Marshmallow Test).  Why?  The hypothesis--and I think it makes perfect sense--is that those with better self-control are more likely to have the discipline to eat right and study.

Observations and Ideas (That Involve Dogs!)

Image Credit: The.Rohit

Dogs!
Bianca (my fiancee) and I are interested in adopting a dog and, as many perspective dog owners are wont to do, we've visited more than our fair share of adoption websites and shelters.  Throughout the process I've noted several things.  First, there are (obviously) far more dogs than there are people to adopt them.  No surprise there.  But second, I've been blown away by how many nonprofits exist to help animals: each shelter is full of volunteers and and veterinarians and computerized systems for keeping records on the animals.  And lastly, the more I pay attention to dog owners walking their dogs, the more I see that pets immediately bring smiles to strangers, passers-by, children, the elderly...pretty much anyone and everyone.

So what does all this have to do with Capital Good Fund and The Nonprofit Life?  Well, it seems to me that whenever there is an excess supply of something that brings people joy (adoptable dogs) and a lot of people in need of that joy (ex-offenders, the homeless, the elderly),  you have the opportunity to put two-and-two together and solve a problem.

Nonprofits & Sloppy Data

Suppose I were to tell you the following about Capital Good Fund clients: borrowers who pay off their loan on-time are more likely to build their credit than those who default.  I imagine you wouldn't find that surprising; after all, by virtue of making payments you are bettering your credit, and those who don't pay us are likely falling behind on other debts as well.

So far so good.  Now what about this: borrowers who complete Financial Coaching before taking out the loan are more likely to pay back than those who did not receive Coaching.  Again, not too surprising.  The skills you learn in Coaching translate to better and more responsible financial habits.

Into The Belly of the Beast

Going Undercover

"Pay Off Later", of course!

Once per quarter we gather the staff of Capital Good Fund for a half-day "staff date." Each of these staff dates revolves around a different topic: customer service, fundraising, social impact, etc.  Last Friday's topic was all about understanding our competition, and to do that we decided to go into the "belly of the beast."

We met at our storefront office in Woonsocket, RI and then split up into two-person teams.  We assigned each team to a predatory lender--payday lender, pawn shop, or rent-to-own store--and then sent them out to pose as customers and learn how they do business.  Laura, our Connecticut Programs Coordinator, and I posed as a brother and sister making $1,500 per month and looking to purchase the biggest TV possible.  To do that, we went to Aaron's Rent-to-Own, a publicly traded firm that sells TVs, furniture, appliances, and other electronics.  Our goal was to pay attention to signage, the layout of the store, the nature of our interactions with their employees, and how they pitched their products.

Predatory Lending - Brazil and the UK

I've spent so much time thinking about predatory lending here in the US that it's been a while since I've contemplated what the picture looks like in other countries. Sure, I know that Grameen Bank got started in Bangladesh in the '70s to put the money changers out of business, but I haven't stayed on top of what's going on today.

Some of Pocket Money's outrageous material.

Two articles this week helped me gain some perspective. First, Eli, my Development Assistant, spotted a hilarious art installation called Pocket Money Loans, which satirizes the payday loan industry in the UK; I highly recommend you check out their website, http://pocketmoneyloans.com. The joke is brilliant: pocket money cash advance loans for kids at the wonderful interest rate of 5,000%!

The fact that such a site exists indicates that payday lending is an issue in the UK, and that indeed is the case: according to Consumer Affairs, "In a relatively short period of time, the UK payday loan industry has experienced explosive growth" from about £900 million in 2009 to over £2 billion in 2012. And much as in the US, these payday lenders charge obscene interest rates; engage in shady, if not outright illegal, collection practices; and profit off the financial vulnerability of the working poor.

Second, a NY Times article blew my mind with the its opening paragraph: "Interest rates in Brazil would make an American loan shark blush. Credit cards charge more than 240 percent a year. Bank loans top 100 percent." After re-reading that three times, I still struggled to believe it; Brazilians pay more for "mainstream" financial services than Americans pay for "alternative" financial services. The article then goes on to note that pawn shops, which--thanks to the decree of a former dictator (a weird story in-and-of-itself)--can only charge 19%, have become one of the most viable and affordable options in the country. Talk about an interest rate environment that's wildly different than ours!

It's certainly not good that other nations struggle predatory lending, but it's undoubtedly interesting. To paraphrase the opening to Tolstoy's Anna Karenina: all equitable financial services are alike; each unjust financial service is unjust in its own way.



-Andy

The Financial Implications of the President's Executive Order

President Obama's recent executive order on immigration will have a significant impact on the 4-5 million immigrants who are at present living in this country illegally. I'm not interested in discussing the politics of his action, so no need to read on if you're looking for that! Rather, I want to go over a key challenge for immigrants who wish to participate in the programs (known as DACA and DAPA): the cost.

This is nothing new. Ever since our founding in 2009 we've been providing loans to cover the cost of applying for US citizenship: $680 to the government plus legal fees. For many low-income families, that cost is simply too high; in fact, the Pew Charitable Trusts estimates that there are 700,000 to 800,000 legal permanent residents in this country who are eligible for citizenship but don't begin the process due to cost.

An Ongoing Miasma: The Misdeeds of Big Banks

It has become a cliché to excoriate the big banks for their financial misdeeds, in large part because the public has grown tired of the litany of law-suits, controversial settlements, accusations of manipulation, cover-ups and other shenanigans.  But I'm going to write about it anyway, for a simple reason: this is no laughing matter, and it's not going away.

The inspiration for this post came from two stories, both posted on November 12th, detailing the latest corporate malfeasance.  In the first story, we learn that "some of the nation’s biggest banks ignore bankruptcy court discharges, which render the debts void. Paying no heed to the courts, the banks keep the debts alive on credit reports, essentially forcing borrowers to make payments on bills that they do not legally owe."  The second story informs us that a number of big banks have agreed to a $4.25 billion fine for illegal currency-rigging.

Ideas For Serving Deeply Vulnerable Populations

Yaay Equitable Financial Services!
There are a lot of wonderful things about the use of financial services as a tool to tackle poverty: it respects the dignity of the poor; generates a revenue stream for the lender; builds the borrower's credit; and allows borrowers to make investments, such as in a security deposit or computer purchase, that they would otherwise be unable to make.  One challenge, however, is that there is an inherent tension between making loans to the poor and maintaining high repayment rates: the lower the income of the borrower, the riskier the loan.  This is not due to any character flaws on the part of the poor, but rather the instability--financial and otherwise--that often defines their lives.

Given that our poverty-fighting mission, it is imperative that we figure out how to make loans to deeply vulnerable populations without taking on an unacceptable level of risk.  Many of our referrals come from caseworkers and agencies that work with the temporarily homeless, the mentally ill, ex-offenders and survivors of domestic violence, and there it is very frustrating to deny a loan application that can transform the life of the applicant--a loan to cover the cost of a security deposit for a homeless family, for instance.

Whence The Next Check?

The Things You Just Have to Do

Ask any CEO of a nonprofit about the worst part of their job, and they will almost certainly speak to the never-ending struggle to raise funds.  I come to that conclusion not only because it is how I respond to the question, but also thanks to nearly six years of interacting with my fellow nonprofit leaders. Grant reports, newsletters, proposals, lunch meetings, and calls with potential donors are all critical elements of our job descriptions; yet they, on the face of it, have nothing to do with the mission.

Almost all of us get into the nonprofit sector to serve others and solve problems.  What motivates us is knowing that our clients' lives are improved: we like to see the borrower, talk to the recipient of Financial Coaching, and read success stories.  Of course we all know that without money, none of this good work can be accomplished.  Still, as we spend hours staring at a computer or schmoozing, it can at times feel like you are more a glorified paper-pushed and beggar than agent of social change.

I Must Write

I need to write something, anything, be it profound or prosaic, masterful or awful. For once, I can't afford to worry about grammar, for I fear that unless I release the flow of stymied creativity, the poetry will languish and grow heavy, like so much ballast sinking me to the bottom of the sea.

I'm afraid to pause.  My fingers tremble, so let them strike the keys, and to do so violently if they must.  I am tired and frustrated and angry.  My inadequacy follows me wherever I go.  I question my ability to better the world; to put my best foot forward; to inspire others; to write poetry and prose of worth to others, and worthy of my lofty expectations; to live up to my ideals; and to persevere in the face of hopelessness.

Being Healthy Costs Money

My Fortunate Experiences with a Healthy Lifestyle

I'm an athlete, and have been one my entire life. Growing up, I played all the usual sports: soccer, baseball, basketball, and then, more seriously, tennis. For each sport I had lessons, practices, and games to which my parents drove me. There were the costs of gas, equipment, and any number of other expenses. As I got into my teens I began to really focus on tennis, which meant gym memberships, a focus on healthy food, lessons, clothing, gear, and travel to and from matches. None of this came cheap; no matter how frugal you are, these costs are unavoidable, especially if you want to perform at your best.

Nowadays I am an avid cyclist. I bike to and from work, and go for training rides whenever possible. I take advantage of everything I can to stay motivated and make the most of my riding: I keep my bikes maintained, have the requisite gear for any weather, and even use a coach. As a result of all this and more, I am able to lead a healthy lifestyle.

Many Are Less Fortunate

Even though I spend my days thinking about poverty and how to serve the poor, I've long taken it for granted that--when it comes to obesity and losing weight--it's a simple question of "eat less and move more." But an article in The Guardian, 'Poverty, not gluttony, is the cause of obesity,' forced me to remember that it is that much harder for the poor to be at a healthy weight. Why? Think about all the things I do, and have done, to stay fit. And then think about what you do: try to add up the cost of all the exercise books, food, clothing, equipment, and coaching you pay for, and you'll quickly realize the problem.

Sure, it's possible to be in great shape just by jogging and doing jumping jacks, but as the article rightly asks, "...why do a certain class of people feel that it is perfectly reasonable for them to require expensive, sustained, multi-layered help to keep fit," only to expect the poor to do so through a kind of Rocky Balboa, up-from-your-bootstraps fitness regime?  Yet the problem is even more insidious: the stress of poverty, the need to work two or even three jobs, the lack of access to healthy food and safe places to walk or run or bike--these are all significant, additional barriers.

A Different Kind of "Budgeting"

In our modern society, replete as it is with cheap, calorie- and fat-dense foods, it is all too easy to gain weight. Consider this: if your basal metabolic rate is 1,800 calories (meaning that's how much, at rest, you burn in a day), you can only eat three, 600 calorie meals without gaining weight. If you drink a soda with lunch, then, you've already consumed nearly half of your allotment for the meal; add in some fries or a cookie, and you've blown your budget!

Exercise makes things easier, since it increases your daily caloric burn, and therefore increases your "break-even" caloric intake, but the logic is the same: you can very easily, and very quickly, eat more than you burn. In fact, if your daily caloric surplus is 500 calories, you will gain 1 pound per week (conversely, with a caloric deficit of 500 calories, you will LOSE 1 pound per week). Put another way, one cookie and soda each day is enough to make you gain over 50 pounds per year!

Perspective Is Key

As I often like to point out, we all make bad decisions, but the poorer you are, the greater the ramifications of those decisions. The bottom line is that it's hard to lose weight in general (even with all the resources out there) but for the poor, weight loss is just one of a myriad of difficult issues--financial, emotional, educational--to address. Not only must we show more compassion, then, but we must also advocate for policies that give low-income families the tools they need to make healthy decisions and then stick with them. There are no quick fixes, to be sure, but we can start by adjusting our attitudes and seeing the problem from the point of view of the less fortunate among us.

The NY Times Editorial Board Gets It Right on Usury

Someone Needs to Stop the Bad Guys

As we've frequently discussed, we are very focused on putting the $100 billion / year predatory financial services industry out of business. Not only do predators like Advance America trap low-income, vulnerable families in a vicious cycle of debt, but at the macro level they are a serious drain on the economy; after all, every dollar spent on interest is a dollar not spent in the local, regional, or national economy. In short, predatory lending keeps the poor in poverty, it harms the economy, and it perpetuates the divide between the "haves" and the "have-nots."

The Problems We Face

When it comes to putting the bad guys out of business, we face several challenges. First, these predators are well-resourced and possess a powerful lobby. Rhode Island is a case-in-point: despite bi-partisan support over the past 4 years—as well as a coalition of several dozen non-profit, religious, and community groups—we have been unable to cap the interest rate that payday lenders can charge at 36% (the current rate is 261%). Second, legislation has its limits, and can often look like a game of "Whack-a-mole"; every time we rein in one predatory practice, another one pops up. Third, a patchwork of state regulations make it hard to ensure that consumers receive consistent, across-the-board protections from the worst offenders.

And finally, these predators have a massive brick-and-mortar presence in low-income communities (consider, for instance, that in many states there are more payday loan shops than there are McDonald's! csun.edu). This one makes it hard for us to compete for customers against these predators; the convenience and immediacy of getting a payday loan is something we will simply never be able to replicate. Why? For the simple reason that—because we care about a client's ability to pay—we actually review their application. In contrast, payday lenders require little more than a pulse, a bank account, and a paycheck—and I like to joke that they are flexible on the pulse!

NY Times Endorses a Potential Solution

This is why we are delighted that the NY Times EditorialBoard has endorsed a plan "that would adopt the 36 percent [interest rate cap] standard for all consumer transactions, including those involving payday loans, mortgages, car loans, credit cards, overdraft loans, and so on." If written correctly (and that is a big "if"), the proposed legislation would make it very simple for lenders to understand and comply with regulation while creating a universal consumer protection. One big barrier to our scale, in fact, is that each state has its own usury limits, and they are often confusing and contradictory. I don't even want to think about the issues this would raise between state's rights and the power of the federal government, but at the end of the day only federal action can truly create a level playing field for all (and it will save us a lot in legal fees!).

You can view the original NY Times piece here: http://www.nytimes.com/2014/10/19/opinion/sunday/a-rate-cap-for-all-consumer-loans.html

Reconsidering Need: The Case For Personal Loans

When I started Capital Good Fund in 2009, I was inspired by Dr. Muhammad Yunus’ model for using micro-business loans to tackle poverty.  The idea immediately struck a chord with me: by tapping into the entrepreneurial spirit of impoverished families, we could enable them to become self-sufficient.  With this in mind, we started off by offering loans of up to $3,000 for income-generating activities, such as home repair or catering.

It didn’t take long, however, for me to see that impoverished families had other, perhaps greater, needs. As we spoke with our low-income clients and conducted our own research, we realized that there is a $100 billion predatory financial services industry—payday lenders, check cashers, rent-to-own stores, auto title lenders and others—that takes advantage of the reluctance of mainstream firms to serve the low-income consumer. In addition, we discovered in our meetings with community partners that many immigrants couldn’t afford the $680 cost of applying for US Citizenship. As a result, they either deferred their dream or sought out predatory lenders to finance the process.  

Financing Nonprofit Growth, Part 5: High-Volume, Low-Margin

This is part 5 of our series on financing nonprofit growth. You can see the first four articles below:

• Why Growth?
• The Menu Of Options
• Playing Catchup
• The Balance Sheet

Here's the basic concept: Fun Finance is a high-volume, low-margin business, meaning that they make very little per loan and therefore have to make a LOT of loans to cover their costs.  The good news is that their margins are good.  Here's how we can calculate that:

- Take the average interest rate they charge.  Let's call it 20%
- Subtract the average default rate, which we'll set at 7%
- Subtract the "cost of capital," a fancy term of the average interest paid to investors; let's say 3%

We are now left with 10%, which has to be enough to cover the cost of marketing, underwriting, loan closing, loan servicing, and administration (rent, utilities, software).  Let's assume that the average margin on a loan (also known as gross profit), in dollars, comes to $594

Financing Nonprofit Growth, Part 4: The Balance Sheet

This is part 4 of our series on financing nonprofit growth. You can see the first three articles below:

• Why Growth?
• The Menu Of Options
• Playing Catchup

We last left off with Fun Finance struggling to find a way to convince its Board of Directors to approve a plan for borrowing $1.5 million to finance costs associated with building the infrastructure to scale.  In order to discuss next steps, we need to take a moment to briefly review what a balance sheet is.

The Balance Sheet
A balance sheet is a financial statement that summarizes a company's assets and liabilities: what it owns and what it owes.  On one side of the balance sheet are the company's assets, and on the other side are its liabilites.  For a for profit, the balance sheet follows a simple formula: Assets = Liabilities + Shareholders' Equity.  Because a nonprofit doesn't have equity, the formula is even simpler: Assets = Liabilities

Types of Assets
There are two asset types or classes (information from Investopedia):

1. Current assets, which include cash, inventory and accounts receivable (e.g., services for which you are waiting to get paid.  The primary feature of current assets are that they "may be converted into cash, sold or consumed within a year or less."
2. Long-term assets, which include buildings and land, patents and investments "that management does not expect to sell within the year."

Liabilities
Liabilities are also broken out into current liabilities--those that are due within one year--and long term liabilities--those that are due in more than a year.  Liabilities can include a variety of monies owed, including debt, contracts to be paid, wages owed, taxes and even lawsuits.

Great!  Let's examine Fun Finance's balance sheet and start to identify the issues.

On the asset side, the value of their loan portfolio is $500,000, and they have another $250,000 in assets in the form of accounts receivable and cash.

On the liabilities side, they have borrowed $450,000 for lending and another $50,000 to support heir operations, for a total of $500,000.  Remember, for nonprofits Assets = Liabilities, so for now everything is copacetic; the balance sheet balances out.

Now watch what happens when Fun Finance goes out to raise $2 million. As we saw before, they are going to raise $500K of that in the form of grants, which increases their Assets to $1 million.  But once they assume $1.5 million in debt for operating, their liabilities soar to $2 million!  Of course, the idea is that with the investment they're going to make in people and systems they'll be able to significantly ramp up their lending, and therefore the value of their loan pool; still, that loan capital has to come from somewhere.  If Fun Finance borrowers another $5 million for lending and turns that into $5.35 million in terms of the value of the loan portfolio (given a margin of 7% on the loans), the new balance sheet still looks bad:

Total Assets [Loan portfolio ($500,000 + $5.35 million) + Cash ($250,000 + $500,000)] = $6,500,000

Liabilities [($450,000 + $50,000 + $1.5 million + $5 million)] = $7 million

Notice that the net assets are now negative $500,000!  Granted, it is expected that high growth companies will have negative burn rates (spend more than they earn) for several years while they ramp up and make investments, so long as those investments lead to positive cash flow and returns for the investors in the future.

In the next post we'll talk about how a high-volume, low-margin business can become profitable!

Financing Nonprofit Growth, Part 3: Playing Catchup

This is part 3 of our series on Financing Nonprofit Growth.  Click here for part one and here for part two.

We left off our last post with Fun Finance struggling and Kite Drones taking off (pun intended).  Let's now take a look at where they are five years later.

Despite the odds, Fun Finance has perservered.  Though they only raised $30,000 in their first year, their revenues have increased year after year, reaching $390,000 in 2013.  They have maintained a 93% repayment on their loan portfolio; garnered national attention for the quality of their products and services; secured a US Treasury designation; built a robust network of community partners, funders, supporters and clients; and refined their business model to the point that they are ready to scale--exponentially, in fact.

So what's Fun Finance, a nonprofit, to do?  After running the numbers, they realize that they need at least $1.5 million in funding for operations for the first year of their scaling plan, as well as an additional $500,000 in funds for lending.  Bob's first instinct is to raise the $2 million through traditional philanthropy, though he quickly realizes the infeasibility of this approach: since their founding, Fun Finance has only raised $1.6 million.  The chances of raising more than that in a reasonable time frame seem infinitesimal.

Financing Nonprofit Growth, Part 2: The Menu Of Options

How Companies Grow
This is part two of our series on Financing Nonprofit Growth.  You can read part 1 by clicking here.

Joe The Entrepreneur
Let's start with the model with which most of us are familiar: Joe the Entrepreneur in his proverbial garage, ready to change the world.  Joe, you see, has invented something amazing--let's call it a combination kite and predatory drone, the Kite Drone--that he thinks is going to sell like chocolate in the desert (dessert in the desert, anyone?).  He puts together a business plan showing how he is going to take 1% market share in two large markets: military drones and, well, children's kites.  The financial projections are solid, the team is experienced, and now it's time to get investors; all he needs to do raise is $250,000 for a first round of funding.

As an entrepreneur, at this stage your biggest challenge is that your company is, at present, worthless: it has no assets, no revenue streams, no customers; it is just an idea, all potential energy.  Your pitch is based entirely on the promise of future earnings, and the investment is therefore inherently risky.  Lenders, such as banks, don't like risk; sure, they may make a loan to a new Pinkberry franchise or a restaurant--these are, in a sense, "cookie cutter" businesses in that the banks have seem them time and again--but they aren't going to want to touch the Kite Drone with an, um, remote control.

So what is Joe the Entrepreneur to do?  The answer: venture capital!  Venture capitalists do like risk; their business model is all about making bets on good ideas and good companies, in the hopes that they will break even on some, make a little profit on a few, and hit the jackpot with one or two.  As a result, they are less afraid of failure; if they think the Kite Drone has a reasonable chance of growing to the point that it's purchased--by either Hasbro or Raytheon, I guess--they will probably invest.

Financing Nonprofit Growth, Part 1: Why Growth?

The issue of sustainable nonprofit growth is so central to my thinking--and, I believe, so crucial to the well being of our planet and the people and plants upon it--that I want to devote a series of posts to the topic.  Specifically, I'm going to look at how a nonprofit finances its growth as compared to a for profit; the unique barriers we face; potential solutions; and other things to consider, such as what point should one reconsider the tax status of one's social venture, or any regulatory or policy changes that might spur more growth in the social sector.

Why Growth
First, let me get the obvious question out of the way: why worry so much about growth?  Look, this debate has been hashed and rehashed ad nauseam. Some people argue that small organizations are better attuned to local needs, or that large nonprofits are too corporate, inefficient and bureaucratic to be effective; others argue that there are simply too many nonprofits with overlapping services.

 Here's where I stand: no matter what you think and no matter how you look at it, the nonprofit sector is neither succeeding quickly enough, nor on a grand enough scale, to warrant self-congratulation.  Whether it's poverty, hunger, environmental degradation, homelessness, domestic violence, cancer research or education reform, our space is littered with lots of small, localized success stories and weighed down by national statistics that belie the optimism contained within our glossy brochures and annual reports.

Optimism

Today was a good day.  Early this afternoon I hopped on my bike for the 8 mile ride from our office in downtown Providence to the Elizabeth Buffum Chace Center in Warwick.  It was one of those rides where you want to just open your arms and embrace the soft breeze; where you can't help but smile and feel optimistic about the world and good about life.

I was at the Chace Center, an agency that serves women affected by domestic violence and other forms of abuse, to talk about our products and services and ways in which we can collaborate.  In attendance were a group of court advocates and other case managers, all of whom immediately recognized the relevance of our work: so many of the women they serve face severe financial barriers as they overcome their circumstances.  For instance, the legal costs of divorce, custody disputes and eviction--costs that many domestic violence survivors must incur to move on with their lives--can be prohibitive; women are left with the choice to take out predatory debt or forgo the expense.

The caseworkers asked phenomenal questions and, I hope, got good answers from me; but what most inspired me--indeed, what gave me chills--was the feeling that here was a group of people committed to serving vulnerable women and their families, coming together to identify their needs and how to meet them.  There wasn't a question of why women need loans, why we charge interest, or why we don't do grants; the focus was entirely on how this will help the women, what they need to apply.  The participants were eager to start referring their clients, and I was equally eager to serve them.

As I stood up to leave I thanked everyone for the work they do.  They reminded me that the six main domestic violence agencies in Rhode Island serve about 10,000 women per year, and that that is but a fraction of the people in need.  For a state of just over 1 million people, well that is simply astonishing.  We have our work cut out for us, to be sure.  And it will take a lot of presentations to caseworkers, a lot of loan referrals and loan applications, a lot of counseling services, court advocacy, education and legal services, and a lot of funds for all of this, but at the end of the day we have to succeed: for the 10,000 women, for the thousands more in need, and for the soul of a nation stained by so much violence and so much pain.

On the ride back my heart was heavy, yes, but again I felt the cool air on my skin, felt the clear sky clearing my thoughts, and despite all the bad news around us I smiled, pedaled and allowed myself to feel optimistic about the world and good about life.

Loan Portfolio Performance--By The Numbers

Following up on my previous post about our revenue growth, I'd like to share some data on our loan portfolio performance (current as of August 25, 2014):

• 129 loans disbursed year to date totaling $129,216.  Of these
• 15 are for energy-efficiency upgrades ($53,969)
• 33 are "standard consumer" loans ($39,273)
• 79 are payday loan alternative, or emergency, loans ($35,974)

* Standard consumer loans range from $700 - $2,000, carry an interest rate of 20% APR (fixed) + 4% closing fee, and can be used for a variety of purposes, including a security deposit, vehicle repair, applying for US Citizenship and paying off high-interest debt

** Emergency loans range from $300 - $500, carry an interest rate of 30% APR (fixed) + a 4% closing fee, and are often used to catch up on rent or utilities, pay off a payday loan and make minor vehicle repairs

Growth--By The Numbers

I was just preparing for a presentation when I came across some interesting numbers vis-a-vis our growth over the past few years.  Specifically, I wanted to generate a report on how much we've raised each year, starting in 2011, as well as what percentage of that has been earned income (e.g., interest on loans and fees we charge for Coaching, as opposed to grants or donations).  Here are the numbers:

2011

• $167,000 in total income
• 6% of that was earned income

2012

• $306,000 in total income
• 13% of that was earned income

2013

• $393,000 in total income
• 13% of that was earned income

2014

• As of July 23rd, we had already raised $368,000
• Of that, 24% was earned income
• Since July 23rd, we have secured over $200,000 in new grants ($125,000 from the US Treasury, $75,000 from Rhode Island Foundation, and others), putting us on track to raise over $600,000 for the year

Our year-over-year growth, then, has been quite good.  From 2011 to 2012, for instance, we grew 83.2%; from 2012 to 2013 we grew 28%; and from 2013 to 2014 we will see growth of 65% (assuming total revenue of $650,000).  Equally importantly, the percentage of our funds coming from interest and fee-for-service income has increased by 18% since 2011.  We are especially proud of this because, in absolute terms, the dollar value of the earned income has gone from a measly $10K in 2011 to a projected $125K this year.

Still, in order to get to our five-year goals of scale, impact and significant earned income, our growth rate will have to remain strong.  In fact, our five-year plan calls for year-over-year growth of 47% next year and 26% by year five; this is compared to growth of about 7% for well-established companies.  And of course, the larger the budget, the harder it is to grow: going from $167K in revenue to $306K is a lot easier than going from $1.5 million to $3 million.

What do you think about these numbers?  What kind of growth are you seeing at your company?

Two More Thoughts On The Ice Bucket Challenge

My last post on the Ice Bucket Challenge focused on what I think is the key question: how do we transform nonprofit giving from a zero sum game (there's only so much money to go around; what I give you I won't give to another org) into one of abundance (total charitable giving, as a percentage of GDP, increases each year).

This morning I read the best article on the subject that I've seen: Why the Ice Bucket Challenge is bad for you (Maclean's).  The author, Scott Gilmore, makes two phenomenal points:

"First, ALS research is not an especially great need in public health. It is classified as a rare disease and, thankfully, only about 600 people die from it every year in Canada. That sounds like a lot, but that is not even close to the top 20 most fatal diseases according to StatsCan (the top three being cancer, at 72,000 deaths per year; heart disease, at 47,000; and cerebrovascular disease, 13,000).

Live By The Spreadsheet, Die By The Spreadsheet

Image Credit: CraigMoulding

I can't imagine what life was like before the spreadsheet, but it probably required a lot of Advil and Kaopectate!  We use 'em for loan evaluation, financial projections and budgeting; Microsoft Excel is our new pain reliever.  But that's not the end of the story.  Just because it's easier to build a financial projection doesn't mean that the projections themselves are any more accurate.  If anything, the spreadsheet--that beautiful array of rows and columns and built-in formulas--is a kind of Siren Call, luring us to believe in her calculations.  Alas, whether done on paper, tablet, phone, cell phone or rock, calculations are only as good as the assumptions built into them.

Put another way, if you live by the spreadsheet, be ready to die by the spreadsheet.  I've long contended that almost all projections are wrong, but I'd like add my own aphorism: the more complicated the Excel sheet the more likely it is that it contains errors.  I'm specifically thinking about the work Libby Kimzey (VP of Coaching & Systems) and I are doing to determine at what point we can become profitable.  To do this, we have built a fairly large (and pretty!) Excel file containing all manner of assumptions about, among other things, average loan size, number of loans per loan officer, repayment rates, and customer acquisition costs.

My Take On the Ice Bucket Challenge

Yea, I'm Jealous. I Admit It!

Ellen Ford, CEO of People's Credit Union

I'm going to say it up front: I am jealous of the success of the Ice Bucket Challenge.  The reason should be obvious; for every hundred thousand nonprofits like Capital Good Fund--racking our brains just to raise that next dollar--there is but one wild viral success story.  You may recall the Kony 2012 video put out by Invisible Children, which raised tens of millions for the organization, and the Ice Bucket Challenge has already poured (pardon the pun) 50 million into the coffers of the ALS Association.  Unfortunately, these are outliers.  Aside from responses to natural disasters and attacks such as 9/11, the 2010 Haiti Quarthquake and Typhoon Haiyan (click the links to donate to these causes), nearly all nonprofit fundraising campaigns are limited in ambition and even more limited in their impact on the bottom line.

Predicting The Future

The Weather--And More
No one can predict the future, of course, but statistical analysis can make estimates with varying levels of accuracy about the future.  And we rely on these estimates all the time in our lives: the weather, risks associated with certain behaviors (smoking, eating fatty foods), the likelihood of a sporting team or political candidate winning, the ups and downs of the stock market.  Still, as we go about our days it can be easy to forget these probabilities; our most profound interaction with statistics, after all, is usually deciding whether or not to bring an umbrella to work.

In business, however--and especially in the social impact / financial services business--we are constantly making guesses about the future.  As a recent incident has highlighted, hiring an employee can be a crapshoot; when all is said and done, the interview process is all about reducing the risk of a bad hire to the lowest level possible. The challenge?  People are complicated.  They are hard to judge, and each person has different judgement.  One person may seem lackluster on paper and phenomenal in-person, only to turn out to be unreliable and irresponsible.  Another may receive a tepid letter of recommendation yet thrive in a particular role: maybe it's the new environment, maybe it's the tasks associated with the position, or maybe it's something else.

A Golden Opportunity, But Not For Long

The Golden Opportunity
For our friends in the banking sector--traditional banks as well as credit unions--the next few years represent a golden opportunity to find new customers, deliver them equitable services and turn them into sustainable sources of profit moving forward.  Why?  Two fundamental reasons: first, "28 percent of the U.S. population, or about 88 million people, are either unbanked (they have no checking or savings account) or underbanked (they have some relationship with an insured financial instution but still rely" on alternative, or predtaory, service providers (Forbes).  Second, the marketplace is rapidly changing, with pre-paid cards swooping in to take advantage of bank branch closures and fewer free checking accounts.

On the face of it, pre-paid cards are both simpler and cheaper than checking accounts.  No checks to deal with, no visits to the nearest bank branch, and it is impossible to overdraft because you can only spend whatever money you "load" onto the card.  But in reality many of them are quite costly.  Consider, for instance, one of the most popular cards, offered by Green Dot.  The fees include $4.95 to get the card in a retail store (it's free online); $5.95 monthly charge, unless you have a balance of $1,000 or make 30 purchases per month; $2.50 when you withdraw from an out-of-network ATM; and $4.95 to reload the card in a store.  These fees can quickly add up to tens of dollar per month, and are tantamount to a tax on money that has already been taxed.

The Pitfalls Of Pre-Paid Cards
Another disadvantage of pre-paid cards is that you aren't building a relationship with a financial instution, something that becomes critical when you are looking for a car or business loan, or a mortgage.  They tend to lack some of the security features of a debit card (such as fraud protections) and, finally, often don't offer checks.  This means that you must either pay for things with the card or with cash; how else will you pay your landlord, for example?  What's more, the lack of checks forces many people to run around town every month to pay bills in-person--utilities, cell phone, cable, etc.  For those barely able to afford a tank of gas, the financial burden can become overwhelming.  At the same time, however, new players are beginning to offer better and cheaper cards; one of the best examples is the AMEX Serve Card, whose fees are quite low.

So why aren't banks swooping in to secure these potential customers?  According to an article in The Guardian, it's because "banks...are leaving poor Americans behind.  Many Americans are not banks' ideal customers--not enough money, not enough transaction--and they are punished for it with a barrage of fees."  The same article points out that credit unions, which are owned by their depositors and aretherefore more responsive to their needs, are taking advantage: "In the last year, credit union membership [added] 2.85 million new members."  One obvious reason is that "about 72% of the nation's 50 largest credit unions...offer free checking...As for banks, that number dropped from 76% in 2009 to 38% in 2013."

Wake Up & Smell The Opportunity!
Still, credit unions have drawbacks, namely smaller networks of branches and ATMs and, in many cases, less robust online banking options.  Which is why we strongly encourage all depository financial instutions to wake up and seize the moment.  Recognize that if you don't compete on price and features, you will lose customers to the pre-paid cards, and once you lose them, you've likely lost them for life.  Recognize that even if you lose money on them in the short-term, in the long-run the investment will pay off.  And finally, recognize that a strong banking sector is essential to a strong and equitable economy, and it's incumbent on you to play a role in ensuring that mainstream financial services are available to all Americans.

All this said, banks aren't for everyone, nor will they ever be.  Below you can find out more information about pre-paid cards.

• 6 things to know about reloadable prepaid cards
• 8 ways to avoid getting burned with prepaid debit cards

Five Ways To Stay Motivated

When we were getting started and the going got tough, I would frequently receive the following advice: "Don't worry, it gets easier."  Nearly six years on, and I'm no longer waiting for that!  Instead, I've come to anticipate, prepare for and ride out the inevitable moments of frustration and despair, the way a sailor quickly adjusts to the roiling sea.  Still, no amount of preparation and acclimatization can inoculate you from burnout.  So here are five ways to stay motivated:

1. Let it out.  Something frustrating happen at work?  Go home and yell, or write an angry journal entry!  Sure, don't do anything stupid--no outbursts at the office, no emails you'll regret in the morning--but don't deny that you are a human being.  Remember the famous Seinfeld line, "Serenity now.  Insanity later."
2. Change It Up.  I am a creature of habit.  As a case-in-point, I eat two bagels with avocado for lunch nearly every day, and I never tire of it--well, almost never.  Every once in a while I have a sandwich or pizza or bowl of pasta for lunch.  Our jobs should be like those bagels--something we enjoy and look forward to, but we inevitably get sick of it at times. In those moments, you've gotta try something else.  Feeling antsy?  Why not take an hour break and go for a walk?  Bored? Watch a funny TED talk or a satirical expose of payday lending.  The idea is not to just goof off, but rather to engage your mind in a different way.  Yea?
3. Rest.  Sometimes you just need to step away, and when you do that, don't half ass it: rest means rest.  It doesn't mean checking your phone 50% of the time; it means shutting it off and going for a walk, bike ride, seeing a movie...you see what I mean.
4. Reconnect.  When I'm really down I like to read essays, watch videos or listen to talks by people who inspire me.  You can't go wrong with Letter From A Birmingham Jail, Civil Disobedience, or Making The Impossible Possible.
5. Get Over it.  Sure, we all know it, but it's worth remembering: we've got it pretty good.  Running water, AC and heat, enough to eat.  A little perspective goes a long way, and at some point you have to just suck it up and get back to work.

What do you do to stay motivated?

How Long Does It Take?

I'm an impatient person.  A two-edged sword, to be sure: Capital Good Fund has grown as quickly as it

Image Credit: Filter Forge

has in no small part due to that impatience, but I have also made more than my fair share of dumb decisions, personally as well as professionally, because I couldn't wait a bit.  Depending on the time of day, and my mood, my impatience is either something of which I'm proud, or something I seek to change.  Either way, it's there--an element of my personality, as elemental, it seems, as hydrogen and carbon.

But let's step back for a moment and ask what I think is one of the most important questions of them all: How long does it take to make change?  In so many ways, the world is getting better--less poverty, hunger, war and disease, and more opportunity, health and democracy.  But in so many others, we face problems that either must be solved urgently to be solved at all--namely, climate change--and those whose timetable represents for how long, and how much, poverty and injustice we are willing to accept.