Validation Of Our Underwriting Algorithm & Approach!

Note: Underwriting simply refers to the process of reviewing an application for credit.  In our case, it's how we review loan applications

Magic Algorithms?
There's no such thing as a "magic" underwriting algorithm--one that, using data alone, accurately predicts the likelihood of an applicant paying back a loan.  In fact, one could argue that so-called "data driven risk models" do more harm than good (think about the financial collapse and all the statistical geniuses who were behind Collateralized Debt Obligations and other weapons of financial mass destruction).

Still, there's no shortage of people trying to convince investors and the public that they have just such an algorithm.  An especially poignant example is a company called Zest Cash, the founder of which boldly proclaims that "all data is credit data..."  Wow, that sounds fantastic--data mining, algorithms...powerful stuff.  Except that when you go to their website, you see that the Annual Percentage Rate on their loans is 390%.  Let me make this extremely clear: if you are charging 390%, your algorithm is worthless.  You could close your eyes and make loan decisions based on the roll of a dice and still make money at that rate.  It's laughable.

If You Could Go Without Sleep, Would You?

Last night my girlfriend Bianca and I left Montreal, where we had gone for a mini vacation, at around 11 PM.  We then drove straight through the night and finally got home and to sleep in time to watch the sunrise at 6 AM.  Given that I spent  hours staring out a windshield at empty pavement stretching on for mile after mile, I had plenty of time to think, especially about the beauty we sometimes miss when we are exhausted and choose to go to sleep.

http://www.tunisiaonline.com/road-trips-for-beginners/

Stick with me here.  Yes, I was extremely tired.  Yes, sitting in a car for that long makes your body stiff and your mind numb. However, there was something gorgeous about that ride.  At times a thick fog pelted me with its haze, and the world around me dripped into a puddle of light, that suspended in front of my car.  The mountains of Vermont were like verdant dying embers, a flame that's fallen asleep to dream pleasant dreams.  There was a strident quiet pervading everything, despite the fact that I was hurling through space at 65 miles per hour.

Finally, my drowsy and groggy mind began to form a question from the silence: If I could go without sleep, would I?  How many more books could I read, bike trips could I take, poems could I write, things could I explore?  Daylight reveals what is already there, but darkness makes the mysteries of life crawl out from under the rocks.  Is it better to sleep and rest, or to stay awake and explore?

You can guess what the poet in me says!  But what about the social entrepreneur? I'm not so sure.  There's no doubt that I wasn't as productive today as I would have been had I had a full night's rest.  Still, maybe we are all too rested and too comfortable.  Maybe there is a delicate dance between physical limits--the body needs sleep--and emotional ones--the soul needs mystery.  And maybe the way we choose to dance dictates the way we lead our lives and the impact we have on the world.

So what will it be, then?  When shall we shut our eyes to dream, and when will we force them open to see what is already there?  Perhaps we do neither well enough, for to change the world we must both see things for what they are and dream up new ways for them to be.

Just some thoughts from a sleep-deprived mind.

Obamacare, Medicaid Expansion, And The Politics of Poverty

This is a guest post by Capital Good Fund intern Stephanie Johnson

The Patient Protection and Affordable Care Act, commonly referred to as Obamacare, is the Obama administration's signature piece of legislation. Passed in 2010, it is a complete overhaul of the United States’ healthcare system, with the ultimate goal of providing health insurance to the vast majority of Americans. The impetus for the ACA was the fact that for years health care costs had been exceeding the rate of inflation, to the point that by 2009 national health care spending exceeded $2.5 trillion, or ~17% of Gross Domestic Product[1]. 

 

Image Credit: Mark Fischer

 Ever since the debate over health insurance reform began, the issue has been deeply polarizing and partisan, resulting in a number of legal challenges, of which many have ended up in U.S. Supreme Court. A source of particular controversy was the federal mandate to raise the Medicaid eligibility bar to all individuals living at up to 138% of the federal poverty line. In effect expanding Medicaid coverage from $15,730 to $21,707.40 for a family of two, for instance, this move captures a majority of the uninsured population in the United States.  Many states sued the federal government, claiming that the mandate impinged on their sovereignty, even though the federal government would cover 100% of the costs through 2016, and between 93% and 95% of expansion costs thereafter[2].  Unfortunately, in June of 2012 the Supreme Court ruled in the National Federation of Independent Business V. Sebelius that the states had the right to choose whether to or not to participate in Medicaid expansion.

Payday Lenders Want Your Business!

A Great Offer?
One of my employees recently received a seemingly exciting offer: pre-selection for a loan of up to $450 from Check 'n Go, one of the largest payday lenders in America!  Given that she works for a company keen on putting them out of business, it seems like they did a poor job with their marketing strategy, no?  This got me thinking, though.  Have you ever noticed that middle to upper-middle income individuals are bombarded with credit card offers in the mail, not to mention the constant barrage of TV and radio ads asking them what's in their wallet and shouting, "Cash back rewards," and "Bonus miles"?  Or that if you are lower-income you can't take a step without seeing bright neon signs, flyers, mailers, and radio and online ads practically thrusting "Instant Cash!" into your hands?  Those least able to afford it are encouraged to make use of the most expensive products, often delivered by companies all-too-happy to hide fees, engage in predatory or illegal practices and wring every ounce of profit from the financially insecure.

Is It Worth the Drive?

Image Credit: Senor Anderson

This morning Jake (my VP of Accounts), Rachel (my Head Financial Coach) and I drove out to the University of Rhode Island for a meeting with Dr. Jing Xiao, a professor of family finance at the university. The meeting was fantastic: Dr. Xiao is a leading expert in consumer financial behavior, and he had a lot of insight into ways in which we can strengthen our Randomized Control Trial (learn more about it here) and find more research into the efficacy of Financial Coaching programs.  We also talked about the possibility of him, or a colleague of Dr. Xiao, serving as an External Evaluator for the study, something we'll need as we look to publish our findings in a peer-reviewed journal in early 2016.

We All Want Impact Data...And We Rarely Have It

Nowadays you can hardly throw a rock at the nonprofit sector without hitting the words "data driven," "outcomes based," "evidence based," or some other terminology referring to the desire to understand the efficacy of a given intervention. It makes perfect sense: given the roughly $30 billion / year that is donated to social service organizations, it's critical that we know if those funds are making a difference. However, in the rush to quantify impact, something extremely fundamental has been forgotten: it is shockingly expensive to collect, analyze and report this type of data, and the vast majority of nonprofits lack the funding to do so.

Photo Credit: refinerysource.com

The simple fact of the matter is that when we talk about impact, we are usually referring to outputs: 'X' number of people receiving loans or 'Y' number of budgets built.  We may go a step further and say that the average increase in FICO score of our clients is 75 points, which is true (and we are proud of that), but it's also misleading because, as far as we know, that's only true of the clients we are able to reach for follow up surveys.  In other words, selection bias--the people most motivated to improve their credit are also the most likely to stay in touch long enough to do a survey--skews the numbers in our favor.

Social Media Lessons From A CGF Rookie

Guest Writer, Ashley Lynch

In my experience there tends to be a lot of built up anticipation when starting a new job. You barely know anyone and hardly know what to expect. The mind starts to stir up questions like, “Will I be liked?” “With whom will I eat lunch?” “How on Earth will I remember all these names?” Fact is, being the new kid on the block can be tough.

Boosting CGF’s social media is one my primary fields of interest. In my beginning weeks, I began to expand our social media platforms to sites like Instagram, Pinterest, and StumbleUpon. You might start to wonder, “What does Instagram have to do with the mission of a nonprofit?” Well, it is important to get the word out there. The more information about us we put on the web, the more likely we are to be seen. Posting pictures about what people are doing around the office, or what kind of decorations are displayed, might seem silly, but they catch people’s attention and add a personalized touch to our organization.

Fortunately my transition into the role of Marketing Officer at Capital Good Fund was smooth. On my first day I was taken out for lunch. I met pretty much the entire staff and found everyone to be friendly and welcoming. Setting up accounts and learning new technology took up a lot of time at first, but after the first week I was able to jump right into productive tasks. 

After all, how can people get involved with us if they don’t know about our work? Sharing the stories of the family in need of a loan to keep the lights on, or the survivor of the domestic violence in search of a loan to move into a safe apartment, serves to galvanize our supporters. These stories are why I chose to come work for CGF. I love that everyday I am granted the opportunity to be a part of the cause to end poverty.

So yeah, social media is a great marketing tool to network with donors, clients and other supporters. It’s free, manageable, and, if done right, guaranteed to bring results. In conclusion, my next post is dedicated to the man or woman out there trying to put food on the table for their children, and the person trying to fix their expensive car repair, so they don’t get fired from not being able to arrive at work on time, and lastly, to the everyday hard-working American who is just trying to get by and make ends meet. As the new Marketing Officer at Capital Good Fund, I promise to not only promote our wonderful services, but to spread the word to the rest of the world...here at CGF, there is hope!