Pushing the bounds of who is creditworthy



If fallout from the massive cybersecurity breach at Equifax, one of three U.S. companies that rate consumer credit histories, doesn’t engulf the full credit-bureau system, simple out-datedness just might. “In a world flooded with information, we’re still relying on a tiny set of sensitive data to protect us from fraud,” writes Russell Brandom in The Verge.

A hallmark of impact investing has been to look beyond traditional credit histories — which many poor-but-creditworthy customers and potential entrepreneurs lack — to other indicators of trustworthiness. Going back to the arrival of microfinance, social investors have sidestepped credit history and looked to such factors as a borrower’s community reputation and relationships.

The latest case: Detroit-based Entrepreneurs of Color Fund. Instead of using FICO scores to assess loan recipients, the $6.5 million loan program that counts among its investors the Detroit Development Fund, JPMorgan Chase, and the W.K. Kellogg Foundation provides support before and after the loan to increase the likelihood of success.

Over the last two years the fund has backed more than 40 entrepreneurs of color or businesses that primarily hire people of color, including Benkari Mechanical, the nation’s first licensed master plumber owned by an African American woman. The companies are credited with creating 420 jobs, and only $8,000 of the loans has been written off. Backers are looking to double the size of the fund and replicate it in other cities.

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