In the U.S. credit system, it’s not the size of a loan that determines your score, it’s the record of paying the loan back. The smallest of loans — just $100-300 — alongside financial education and coaching, can help someone transition into the financial mainstream and establish a new life.
The International Rescue Committee’s Center for Economic Opportunity (IRC-CEO) specifically meets this need. It’s the kind of program that can help transform Baltimore’s economy, driving growth while ensuring that growth is inclusive.
When a client in Baltimore receives an auto loan at an affordable rate, they do not have to rely on a public transit system with notoriously long commute times. So, they gain the flexibility to work more or different hours. Their enhanced earnings are used to buy from local businesses and build savings in local institutions. Some of our clients have even started their own businesses, creating jobs and opportunities for others in the community. As they become financially stable, they are likely to have more time to spend with their families and the ability to become engaged and active in their new communities.
IRC-CEO is a Community Development Financial Institution, certified by the U.S. Treasury Department, and a subsidiary of the International Rescue Committee. It provides affordable and flexible consumer loan products to refugees and others who often face significant barriers to accessing traditional banking services. This includes a 0% credit building loan that allows clients to build or repair their credit scores, as well as low-interest personal loans, auto loans and small business loans.
The three digits in a credit score hold an outsized impact on a person’s life. A good score opens doors to financial opportunities, a chance to acquire assets and to build wealth across generations. A bad credit score opens only trapdoors to predatory lenders whose subprime interest rates and inflexible financing options threaten the already limited resources of those living on the margins.
The long history of discriminatory lending practices, not to mention the lack of financial education in public schools, has made the credit system a burden for generations of low-income Americans.
Immigrants and refugees face additional language and cultural barriers, a nonexistent credit history and limited access to collateral. Imagine coming to a new city in a foreign country, determined to build a new life, only to be judged by a credit score. Your security deposit is twice the amount your neighbor paid to rent an apartment. You’re told to pay upwards of 28% APR on a car loan, even with a down payment.
Capital can be hard to come by for many in Baltimore and elsewhere. Fortunately, there’s a way to support the IRC-CEO’s programs and other community development financial institutions serving various neighborhoods and populations by recycling the same resources: impact investing. With impact investing, individuals and institutions invest in programs and projects that offer both financial returns and positive social change. Imagine how far these dollars can go when they are deployed to make a difference and returned — with interest — to be used again.
We have found an important partner in the Baltimore Community Foundation. Through its Invest in More program, the foundation provided an early investment of $250,000 in IRC-CEO, as well as technical expertise to strengthen the program and set the stage for growth — from Baltimore in 2018 to 16 states today.
But more is needed. Baltimore is a hub of social innovation, finding new and different ways to create more vibrant and inclusive communities full of opportunity for all. I hope every reader, now with a greater understanding of how it works, will consider the power of impact investing to build a more equitable and vibrant Baltimore while also generating a return that can be deployed again and again.
Kasra Movahedi is executive director of the International Rescue Committee’s Center for Economic Opportunity.