Opinion: Getting a mortgage or small business loan shouldn’t be a punishment


When it comes to banking, it takes a village. I mean that in the truest sense of the word.

I recently had the opportunity to meet with Andrea Jung, President and CEO of Grameen America, a non-profit organization founded by Muhammad Yunus, winner of the 2006 Nobel Peace Prize. Yunus founded Grameen, a bank in Bangladesh that provided loans to villagers in his local community for as little as a few dollars at a time. Since Grameen Bank was established in Bangladesh in 1976, it has provided capital to more than 8.5 million people, 97% of whom are women.

Read: Women-led businesses face a lack of finance – and here’s how you can change that

Modeled in part on its Bangladeshi counterpart, Grameen America fulfills a similar mission: to provide affordable capital to those in need.

For those of us who work in the financial services sector, Grameen’s social banking endeavors can draw inspiration and guidance. I’m the CEO of a for-profit organization that provides capital to those looking to buy a home. Here are three things you can learn from social banking:

1. Banks need to increase creditworthiness in their communities: Here’s how the Grameen Model works: A group of five women go through a five-day financial training program in which they learn the principles of money management. After completing the course, each woman will receive a microloan of up to $15,000 to start a small business. Because each borrower is part of a group, they not only feel an obligation to repay Grameen, but also not to let those in their group down. The group has to meet weekly with the Grameen staff for further training, which helps them build even more relationships between people in the community.

Notably, Grameen America a 99% repayment rate.

For those of us in for-profit finance, it’s not enough to sit back and wait for potential borrowers to walk in the door or for loan applications to be submitted. Because banks (and homebuilders) are an integral part of the US economy, we should explore integrating this group application and training method into our affordable lending programs. Imagine a loan officer holding weekly meetings with borrowers about how to increase credit. This would not only be a boon to the community but also to the company as it would help improve the financial literacy of its customers.

2. Financial firms must take credit responsibility and resist the urge to lower underwriting standards: Grameen America has issued more than 433,000 loans since 2008, totaling more than $1 billion. This organization has used a rigorous method to identify those who intend to pay.

When I was CEO of Citi Mortgage during the 2008 financial crisis, I realized that while the system was being consumed by “strategic borrowers” such as those who had the ability but had no intention of paying, there were just as many who did so had the intention to pay but not the ability. These were people who could benefit from financial education and concrete help in obtaining and paying back a loan. While the various loan modification programs aimed to get people back into home ownership, many others who fell off the train never had a chance to come back.

By focusing on both payment intention and ability to pay, financial institutions can provide better access to capital for those in need.

In fact, millions of Americans today want to buy a home and intend to pay their mortgage, yet large financial institutions are unable to approve their applications because of a missed payment or other credit event. Accordingly, specialist housing companies like mine have stepped in to provide affordable housing in a responsible manner. By focusing on both payment intention and ability to pay, financial institutions can provide better access to capital for those in need.

3. Banks should focus on motivating customers: Grameen reports its customers’ repayments to Equifax and Experian, which helps borrowers improve their creditworthiness. Once a loan is repaid, a Grameen borrower can apply for a larger loan. In this way, Grameen helps its customers to rise economically.

Imagine banks and housing specialists making a point of motivating clients, which reflects the true spirit of home ownership. That is, after a loan has been repaid, a loan officer should advise their clients so they can access even more capital to increase their business or standard of living. Perhaps local bankers and loan officers with a track record of improving their customers’ economies should be rewarded for their service to their communities.

Those of us in the financial sector are always looking for inspiration on what we can do better. Note Grameen’s impressive work. We can all do better by doing the right thing.

Sanjiv Das is CEO of Caliber Home Loans, one of the largest home acquisition specialists in the United States. From 2008 to 2013 he was CEO of Citi Mortgage.

Related: These risk-taking mortgage lenders could trigger the next real estate crisis

Also read: 3 reasons the housing market isn’t as strong as it seems


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