Small Dollar Lending Receiving Federal Support

By Josh Engle, Summer Associate and MBA Candidate at Northwestern University

The inclusion of a loan-loss-reserve provision in the recently passed Dodd-Frank Wall Street Reform and Consumer Protection Act signifies increasing federal-level interest in small-dollar lending. These loans, unsecured and under $2,500, offer low- to moderate-income individuals a safe alternative to predatory lending. The still undetermined amount of funds will provide lenders with bandwidth to begin or expand small-dollar programs. It will be particularly useful to smaller community development financial institutions that will only have to put up an equivalent of 50 percent of the distributed dollars

Additionally, the legislation authorizes technical assistance grants that will help organizations get their staff and technology up to speed while demonstration grants will focus on small-dollar alternatives bundled with financial literacy and education.

Meanwhile, the FDIC just wrapped up its small-dollar loan pilot and will be focusing on technology and guarantees from this point forward. This shift reflects a mood of supporting the marketplace mechanisms that are nearly ready to provide access to under or unbanked people.

The federal environment seems to be moving quickly in the direction of supporting small-dollar lending and Emerge Workplace Solutions, Inc., New Foundry Venture’s first portfolio company, is well positioned to help lending institutions take advantage of this trend with its integrated technology and education platform. Through lining up employer partnerships and facilitating the loan, repayment, and education process for lenders, Emerge strives to make it as easy as possible for financial institutions to grow their small-dollar loan programs.