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Community Investments Vol 15, Issue 3
CI Notebook: What Do You Know About the
Unbanked?
Author(s): Lena Robinson, Community Affairs Specialist, Federal Reserve
Bank of San Francisco
November 2003
What many of us in community development know is that there are
reportedly 10 million unbanked households in the U.S. What remains
somewhat unknown is how to meaningfully reach these households and
appropriately transition them into profitable bank customers. This issue of
Community Investments looks at some of the successful ways this market is
being reached and served.
Before you roll your eyes at reading yet another article about unbanked and
underserved markets, take a moment to answer the following questions.
These questions are intended to illustrate some methods for identifying
characteristics of populations that are more likely to be unbanked and the
market opportunity they represent. Your responses may help you realize if
you know as much as you think about this significant population that has the
potential to increase your institution's market share.


What is the most common reason cited among unbanked households
for not having a checking account?a



Where can you obtain information about the banking habits and
financial characteristics of U.S. families?b



At what rate per day is the number of immigrants growing?c



What is the estimated annual fee revenue on foreign remittance
transactions?d



Where can you find data about the number of non-English speaking
households by city?e



What is the income cutoff for a family of four to receive the Earned
Income Tax Credit?f

In the pages that follow and on our website we have compiled interesting
stories about products, services and programs targeted to unbanked and
underserved consumers. We hope that these stories will reveal the rewards
that can come from providing the right services to the right markets and will
refresh your interest in banking the unbanked.
-------------------------------------------------------------------------------a

Do not write enough checks

b

The Survey of Consumer Finances produced triennially by the Federal

Reserve Board
c

3,000

d
e
f

Approximately $12 billion

American Factfinder section of the U.S. Census Bureau

$33,178

Community Investments Vol 15, Issue 3
Serving Untapped Markets
Author(s): Lena Robinson, Community Affairs Specialist, Federal Reserve
Bank of San Francisco
November 2003

Immigrant, unbanked, underserved, emerging, untapped: labels used to
identify different segments of a large potential market. Are there any real
distinctions, and if so, what are they? If the diversity of the terms is any
indication, these potential customers may be as difficult to label as they are
to serve. We try to define these markets and how to serve them in this issue
of Community Investments because untapped markets can be significant to
the business capacity of the banking industry and perhaps the economy
overall.
In identifying a potential market, labeling may be the easiest part. The hard
part is getting beyond the label to a quantitative value of the return on

investment for pursuing a new market. Labeling should be thought of as the
first step and perhaps the most critical step towards clarifying the
appropriate strategies, partners, products and services.
Following are a few definitions intended to distinguish the labels and clarify
their nuance.
Unbanked: a consumer without an active checking or savings account
Underserved: a consumer with a checking or savings account who may be
ready for more sophisticated products such as an investment account or a
credit account
Emerging: potential candidates for significant financial commitments such
as homeownership or small business loans
Immigrant: underserved, unbanked or emerging customers that are not
native born and may be unresponsive to mainstream outreach or marketing
efforts
Untapped: the revenue potential associated with any of the above market
niches
"In the Search for New Customers, Start Here," James Ballentine asserts
that immigrants, or newly arriving Americans, are increasing at a rate of
3,000 every day. His article outlines a six-step process for attracting new
immigrants or working with existing minority populations. This article is
excerpted from a handbook entitled, "Reaching the Immigrant Market:
Creating Homeownership Opportunities for New Americans," which describes
successful strategies for working with immigrant communities.
Step five of the above-mentioned process talks about the need to tailor
effective products. Ronald Rawson illustrates this step in his article, "The
Keys to the Kingdom of Financial Empowerment for the Unbanked," which
describes an innovative partnership that is enabling migrant workers in

California's Central Valley to safely and economically handle their financial
transactions.
While language and national origin are neat ways to categorize and target
potential immigrant customers, the task becomes far less clear cut with a
category such as the unbanked. Perhaps the single most significant barrier
to serving the unbanked is finding them. Three stories illustrate the value of
grassroots outreach and community involvement for overcoming this
obstacle. In his article, "Providing a Headstart with CRA," Brian Scrip
provides a compelling and innovative example of how to make connections
with low-income populations and how to begin a dialogue about financial
service needs.
Connecting with a local site that provides volunteer income tax assistance
(VITA) is another way to find the unbanked. Every year, the Internal
Revenue Service trains volunteers to prepare basic tax returns for lowincome individuals. In addition to helping poor taxpayers keep more money
in their pockets, this service saves many of these taxpayers from the
scourge of predatory "rapid refunds." There is a national effort underway to
create relationships with local financial institutions to open accounts for the
many unbanked customers who otherwise rely on check cashers or pawn
shops to cash their tax refund. Ana Marie Argilagos's article, "Reclaiming
Native American Tax Dollars," will help you learn more about the VITA effort
in Native American communities and beyond.
Supporting community-based financial institutions is yet another mechanism
to ensure that consumers who want bank accounts but do not have access
for various reasons are served. Notwithstanding the convenience and
ubiquitousness of electronic banking platforms such as ATMS, the lack of a
local financial institution may deter some consumers from opening an
account. Other consumers may be shut out due to past transgressions.
Increasingly, community-based financial institutions—such as People's

Community Partnership Federal Credit Union in Oakland, California—are
opening their doors to address these concerns in low-income neighborhoods
across the country. Maeve Elise Brown discusses the process of creating "A
Credit Union from the Ground Up" and the positive impact it is having for the
area's unbanked.
Underserved and emerging consumers present a different set of
complications beyond just locating them. Issues such as the modest amount
of money they may have to invest or desire to borrow and the high cost of
providing these products to them is a challenge for traditional banks.
Intermediaries and innovative products such as those described in "Investing
for Social Good and Investing For 'The Little Guy'," offer solutions.
In "Investing for Social Good," Kerwin Tesdell and his associate Charity
Shumway provide an update on how the community development venture
capital industry is helping emerging entrepreneurs capitalize their businesses
and share details about the first investment made by Central Fund, CDVCA's
own fund. Developing a small business is one way that individuals seek to
build assets, another is portfolio investing. "In Investing For 'The Little
Guy,'" Mark Maruyama introduces us to a new approach that is helping small
dollar investors afford a piece of the pie.
Somewhere among these stories may be just the idea you need to serve a
special niche in your geography. Each of these articles offers something that
can be adapted or adopted to realize the potential of untapped markets.

Community Investments Vol 15, Issue 3
In the Search for New Customers, Start Here
Author(s): James Ballentine, Director, ABA Housing & Community
Development
November 2003

Reprinted from the American Banker, August 1, 2003.
One group of potential new bank customers is growing at the rate of about 1
million a year. They're not new babies or recent college grads. They're
America's immigrants, and nearly 3,000 arrive here every day to join
America's 33 million other immigrants who are making America their home.
They're not just the customers of the future. For banks that act strategically
- and quickly - these are today's customers. In fact, to ignore America's
burgeoning immigrant population is to miss a market opportunity that
includes many men, women, children, families, small business operators,

skilled artisans, laborers, professionals and many more who value home
ownership and need banking services to help make their dreams come true.
Combined with America's already considerable minority population, these
new Americans represent a still largely untapped source of future customers.
Consider these facts, for example:


Immigrants are three times as likely as all U.S. adults to rank buying a
home as their number one priority



Less than half (49 percent) of America's foreign-born population
actually own a home (compared to 74 percent of native non-minority
Americans)



At 39 million, Hispanics are now America's largest minority population



One large U.S. bank estimates that 80 percent of its new customer
growth in 10 years will come from the Hispanic population

How can bankers tap this growing market? How can they attract new
immigrant and minority customers? And how can they convert them into
lifelong customers?
To help bankers answer these questions, ABA has been working with the
Georgetown University Institute for the Study of International Migration and
the Development Training Institute. Through a series of nationwide
workshops and using specially developed resources, we are helping bankers
develop a comprehensive approach to this growing market.
To be truly successful in this marketplace, a bank must rethink its traditional
approach to marketing. In fact, successful immigrant and minority outreach
techniques go beyond mere marketing. While it's not necessary to create a
new department in the bank, or hire many new people, it is essential that
everyone from the CEO to customer service representatives commit to the

effort. You want skilled people who understand the marketplace. You also
want dedicated people who are going to make it happen.
A Six-Step Process
A good strategy for attracting and retaining immigrant and minority
customers is to follow the six-step plan worked out by ABA and its
immigrant marketing partners. These basic steps can work whether you
hope to attract new immigrants or want to work with existing minority
groups in the community.
1. Understand the Market. Language, culture, regional differences,
race, religion and many other unique characteristics help differentiate
immigrant and minorities. Native Americans are not Pacific Islanders.
Asian Americans come from many nations. Hispanics include people of
many different characteristics, and from many countries. Also, assess
the size of the community you hope to reach. In other words, know
the marketplace you're dealing with. Understand its differences and
similarities. Identify those people in the community who you can
reasonably hope to serve. Be realistic about what the bank can and
cannot do with regard to staffing, additional resources and regulatory
compliance. Start small, if necessary.
2. Build Infrastructure. The most important decisions you will make
involve recruiting and hiring the right people. Your marketing and
outreach team should reflect the ethnic makeup of the new customers
you hope to reach. Choose people who fit into your organization's
corporate culture and, where possible, find individuals who are
multilingual, who understand the cultural nuances of the marketplace
and who will be credible and trustworthy in the eyes of your new
customers.
3. Reach Out. These new customers may not be familiar with the way
banks work, or know what it takes to open a checking account or get a
loan. Build trust and establish credibility with your new customers by

helping them understand the financial basics. A good outreach
program incorporates education and information about the basics of
personal finance.
4. Determine Creditworthiness. Standard underwriting criteria may
not work for consumers who are often paid in cash, don't use credit,
work several jobs and don't have a checking account. Look for
alternative ways to deliver banking services to these customers.
5. Tailor Effective Products. Consider programs that incorporate lower
down payments or higher qualifying ratios. Don't assume that your
immigrant and minority customers possess traditional credit histories.
Look at government programs like those provided by HUD, the
government sponsored enterprises and others to help overcome these
initial barriers.
6. Develop a Plan of Action. Establish organizational goals that pull all
of the resources of the bank together in serving the immigrant and
minority consumers you've identified. Track your progress and
measure success. Set realistic, long-term goals.
Obviously, the goal isn't just to sell banking products. Not in the short run.
Bankers need to build long lasting customer relationships in the immigrant
marketplace based on specially defined services, developed trust and
customer loyalty. In today's search for new customers, every bank in
America, big or small, should be taking steps now to reach out to America's
growing immigrant and minority populations. The banks that are successful
today in reaching this market will, themselves, be the banks of the future.
James Ballentine is Director of ABA Housing & Community Development. To
find out more about how to develop a comprehensive approach and
infrastructure in the bank for reaching the immigrant market, contact him at
1-800-BANKERS.

Community Investments Vol 15, Issue 3
The Keys to the Kingdom of Financial
Empowerment for the Unbanked
Author(s): Ronald C. Rawson, CEO, The Minotaur Group
November 2003
In Mexico, bank accounts are not federally insured as they are in the United
States. Legends abound among immigrants about a friend or relative who
deposited his or her life savings into a bank only to find the doors locked and
the business gone the very next day.
Banks here in the U.S. face that same distrust from Mexican nationals. "It's
hard to get workers into [a financial] institution. They like to see their cash,
to be able to count it, and to feel it in their wallet," says Terrie Olivera, a
financial counselor with the Idaho Credit Union League. Credit union and
community bank education programs are now teaching about cost effective
methods to remit money and make bill payments that may help change
much of this thinking among workers here.
Olivera teaches financial management classes targeted to migrant workers
at the Idaho Migrant Council. Her primary goal is to get workers affiliated
with a financial institution. But first, she has to show them how not having a
bank account can eat up their paycheck, little bites at a time. She continues,
"Farm workers earn little to begin with. For example, let's say the average
wage is approximately $6 per hour in Idaho. Workers often spend 12 to 16
hours a day in the field during the summer, without the benefit of overtime
pay. A 60-hour week in the field would gross $360. Take-home pay after
taxes would be about $300. Fees from check cashing and payroll loan outlets

can add up quickly. Cashing a $300 check would cost about $10. Used only
occasionally, the fees are nominal; but making it a weekly habit can cost
more than $500 a year—nearly two weeks pay."
An Unfortunate Reality
Nearly 10 million U.S. households do not have a bank account. This
represents 9.5 percent of all U.S. households, 22 percent of low-income
families, and 8.4 million families earning less than $25,000 per year who do
not have either a checking or savings account. In fact, 83 percent of those
who are unbanked earn under $25,000 per year. Among low- and moderateincome families, households are more likely to be unbanked when they have
less wealth, have less education, are not working, are younger, have more
children, rent their home and are a racial or ethnic minority. Broadly
speaking, the common reason for lacking a checking account is being unable
to afford the costs of the account.1

Olivera adds, "Bankers take note, the magic here is to find a low-cost
delivery system that will keep an account within your organization. We've all
too often heard many a wife lament, 'If our money is not in my husband's
pocket on payday, he's not going to spend it.' Both employer and employee
relationships with banks can be strengthened by low-cost services that
reduce cash handling and keep funds on deposit.

Wiring money to their home country is another significant expense migrant
workers face. The rates may even vary from day to day. The cost for
sending an immediate transfer of $1,000 to a recipient in Mexico (via a wellknown national money wire house) was recently quoted at $50. Olivera said
she has seen fees as high as $70 per $1,000. Some wire services also
charge the receiver a fee. Even after the check is cashed and the money
wired to Mexico, exchanging U.S. dollars for pesos can cost another 10 to 20
percent.2
Many workers who send money abroad to relatives are dissatisfied not only
with the reliability and speed of the present informal remittance networks
but also with the exorbitant fees they charge: 6 to 15 percent of the
remitted amount for the transaction, as well as a hefty exchange rate
margin of 3 to 5 percent. They take the cash to a neighborhood agent
located, for instance, in a convenience store. These agents, mostly
representing small remittance companies in the immigrants' home countries
or, in a few cases, multinational operators, pocket half of the transaction fee
and then deliver the cash to the office of the remitting company, which wires
the money at a previously negotiated exchange rate through its own bank
account to a bank in the country of destination. The recipients there can
collect the cash from local agents or local branch offices representing the
remitting company or its partners or they can pay to have the cash delivered
to their front doors. McKinsey and Co. estimates that remitters collected
about $12 billion in fees last year and that the remitters' revenues are
growing at a compound annual rate of around 8.5 percent.3
Money remittances are big business. Official statistics vary; however,
general estimates are that immigrants in North America and Europe send
more than $60 billion to their home countries each year (Exhibit 1 & 2),
transmitting the funds largely through small and informal neighborhood
players. Just over half of all global remittances originate in the United
States, with 65 percent of that money going to Latin America. And while it

appears that banks and other major financial institutions are getting into this
high-margin business, the cost associated with pursuing and adding
unbanked account holders is relatively high for many banks. This experience
may be changing as grassroots organizations, technology companies, and
even community bankers see opportunities in sensitive economic regions-such as the San Joaquin Valley in California — to address the special needs
of unbanked workers through third parties.

New Technology as the Opening Wedge
Many analysts and market watchers suggest that innovations in technology,
rapid rates of adopting new technology, and creating strategic partnerships
may be the best solutions for decreasing the costs of foreign remittances
and bill payment services for the unbanked.

One such company, The Minotaur Group, offers a cost-effective payroll card
that can be used for "cash back" at any POS device or ATM. Branded "Con
Dios Financial" to appeal to the largely Hispanic unbanked market, the card
features a companion debit/ATM card for receiving remittances anywhere in
the world. Over 50,000 Con Dios-type payroll cards have been issued to
date. Con Dios is one of several private-label products available from the
Minotaur Group, which was founded by ex-bankers and payment systems
experts.
A Confluence of Events and Caring Constituents
While there are several payroll debit card companies in the marketplace, Con
Dios is unique in its approach to distribution. As a first step in the initial
rollout, Con Dios partnered with Maderans Making a Difference (MMD); a
community-based nonprofit seeking to better the lives of those in the city of
Madera and the Central Valley of California through education, financial
empowerment, and access to asset-building opportunities. This partnership
enabled Con Dios to develop ties within the Hispanic and Asian communities,
which facilitated delivery of financial education through trusted sources. This
and other innovative approaches are changing habits and behaviors away

from high-cost payroll check cashing to low-cost payroll debit cards.
Community groups are able to keep a small share of the revenue earned
from card usage fees or, in some cases, from a monthly per-card royalty,
creating a sustainable stream of money that flows back to help each
community.

Recently MMD hosted "Fiesta en Madera," a unique festival with Oaxacan
music, dancing and food for the many Oaxacans in Madera. A number of
vendors, including financial institutions, sponsored education tables. Mike
Fuller, founder and director of MMD, reported that a respected leader in the
Oaxacan community called to tell him that people from the Oaxacan
community were very happy with Fiesta en Madera. He continued, "Our
community-based affinity groups are able to share in a win-win-win
proposition because we're working toward financial empowerment,
education, and a better quality-of-life for everyone."
The second part of Con Dios' unique strategy is to work directly with key
community employers whose longevity and success are tied to the well being
and economic prosperity of their employees. Using a model developed by the
Central San Joaquin Valley Federal Inter-Agency Economic Development
Task Force,4 Con Dios and eligible employers have began offering a "split
funded" payroll option for employees. Payroll is deposited by employers to
employees' new debit card with a small portion earmarked for a specialty
account. Employees may choose to fund a regular or periodic allocation to an
individual development account (IDA) that earns match funds. These savings

accounts are dedicated to securing the down payment on a first-time home
purchase. Cyndi Abbott, CTO and director of Minotaur Group said, "Con Dios
sets up the easy-to-use employer check lists and the bank-sponsored trust
accounts. As an ex-banker, I believe there's a great opportunity for bankers
to help move their best clients into further bank services."
The third and potentially most influential key to the sales process is Con
Dios's cost model for employers that can save up to two-thirds of present
paycheck issuance and distribution costs on weekly or semi-monthly
payrolls. Funds are simply uploaded into a sponsoring bank's trust account,
and as the cards are used for bill payment, cash back, ATM withdrawal, or as
a remittance vehicle, transactions are authorized, cleared and settled exactly
as with any PIN-based product. Clearly, employees benefit from making
remittances and transactions costing cents rather than dollars each week,
and they can save much more readily for their future with the addition of
matched funds from entities sponsoring IDAs on their behalf.
Conclusion
Ronald Rawson, CEO of The Minotaur Group said, "Our goal for Con Dios
Financial is to provide an [user-friendly] employer-sponsored debit card
payment vehicle (other than checks and cash) so workers can send low-cost
remittances to their home countries, access the cash-back feature from any
point-of-sale terminal, or use ATMs worldwide, all on existing payment
networks. We know connectivity, cash access, and cost-effective remittance
payments are essential for improving life for unbanked and foreign workers
in the U.S."
Changing the behavior and financial education levels of millions of lowincome and unbanked households takes vision and time. Raising the
financial well-being of these individuals requires help from community-based
nonprofit organizations, financial education from bankers and credit unions,
support from employers, forward thinking from new technology companies

and federal resources. Perhaps most importantly, the availability of new
financial empowerment opportunities must be communicated to these
consumers and to their families back home.
Sources for more information:
The Minotaur Group, Con Dios Financial
Cyndi Abbott – Director
Contact information for Terrie Olivera, 1-800-627-1820,
http://www.Idaocul.org
Maderans Making a Difference
http://www.accessmadera.org/home.html
Mike Fuller, Chairman of the Board
Central San Joaquin Valley Federal Interagency Economic Development Task
Force
Rollie Smith, 2003 Chairman
Ronald C. Rawson, CEO, Minotaur Group
The Office of the Comptroller of the Currency has published a study about
the growth of payroll cards and their potential for use with unbanked
consumers. The study can be downloaded from:
http://www.occ.treas.gov/cdd/payrollcards.pdf (PDF off-site)
1

Michael S. Barr, a working paper prepared for the Brookings Institution

Center on Urban and Metropolitan Policy, July 2003: University of Michigan
Law School

2

Geralda Miller, "Money Transfers to Mexico a Growing business," Reno

Gazette-Journal, March 17, 2003
(http://www.hispanicvista.com/html3/032403fi.htm)
3

Andres Maldonado and Alejandra Robledo, "Sending Money Back Home,"

The McKinsey Quarterly, 2002 Number 4
4

The Central San Joaquin Valley Federal Inter-Agency Economic

Development Task Force was established by Executive Order 13173, under
President Clinton. Rollie Smith, Operations Specialist at HUD in Fresno, CA.,
serves as lead of the rotating federal partner management and currently
chairs the task force. Rollie has brought together the leaders of many
community groups and institutions to jointly resolve intransigent quality of
life challenges in the central San Joaquin Valley. This group has declaredamong others-the goal of providing financial education that will help to
financially empower low-income workers. The group also seeks to utilize
private sector business and technology in promoting task force objectives.
(http://www.archives.gov/federal_register/
executive_orders/2000.html)
Biography

Ronald C. Rawson is CEO of Minotaur Group, providing
specialized payment solutions for companies with employees who don't have
access to bank accounts by choice or circumstance. Minotaur offers an FDICinsured, employer sponsored payroll debit card.
Prior to taking this present assignment, he was president of R. C. Rawson
Co., a family business and industry leader in the marketing and strategic

business development of both debit and credit card payment products since
1952. R.C. Rawson has facilitated many marketing and product usage
programs for card issuers, associations, and merchant acquirers, which
include Bank of America, American Express, Chevron, MasterCard, and Visa
International.
Mr. Rawson continues to develop business strategies and strategic alliances
within the card payment industry and the seed capital investment
community, and is currently working with clients in specialty payment
products, in multi-application loyalty, micro payments, and smart card
(integrated circuit chip) strategies for business and consumers using ecommerce interactivity. He consults to venture capital partnerships, has
been a speaker at financial industry conferences and seed capital venture
investor meetings. Mr. Rawson also is active in writing articles for
publication, reviewing content for film and television production, and serves
in an advisory and board of directors' capacity with early stage companies.
He earned a BFA degree in film and television from UCLA and an MBA from
Golden Gate University, and resides in Orinda, California.

Community Investments Vol 15, Issue 3
Providing a HEAD START with CRA
Author(s): Brian Scrip, CRA Officer, Westamerica Bank
November 2003
The thing that keeps CRA interesting is that one project often uncovers
another opportunity that leads to another project. Westamerica Bank
discovered this when a simple plan to expand our financial literacy training
for adults (How to Budget Your Money and Save) led to the opportunity to
promote computer training for children.
Financial literacy has always been a core value of Westamerica Bank. We
developed custom financial literacy training materials and used them to
sponsor community seminars for many years. However, the bank was at a
point where we wanted to take this training to a larger audience. We began
the search for a new partner; an organization that offered a valuable service
in the community, with a successful track record and strong grassroots
support. We learned about Head Start and it seemed to be the perfect
opportunity.

Head Start agencies have a mission to help provide learning skills to children
of low-income families, to emphasize early childhood health and to provide
social services to Head Start families. We felt Head Start families would
really benefit from financial literacy training so it seemed like a natural fit to
us.
Initially, it was difficult to convince Head Start that a bank wanted to help.
At my first meeting with Edward Condon, executive director of the California
Head Start Association, he was perplexed about why someone from a bank
was sitting in his office offering to provide free basic budget training. This
was not something he typically heard from bankers, but it wasn't long before
he realized it made sense. Head Start families face immense financial
hurdles. Raising a child is expensive anywhere, but raising a child in
California with high costs for housing, food, vehicles and child care can be
daunting.
After our meeting it was decided. Westamerica Bank would attend the next
Head Start state conference, set up a booth to display our basic budgeting
curriculum, teach three breakout sessions on budgeting, and offer to teach
additional Basic Budgeting seminars with any Head Start agency that

expressed interest. The response overwhelmed us. Our supply of handouts
disappeared the first day of the three-day conference and we had to put out
a call for a new supply by express mail. Plus, all three basic budgeting
sessions had overflow crowds.
We learned a lot from the conference. For instance, in the budgeting
sessions, we learned that families are really struggling with budgeting. We
learned that budgeting is much more that just balancing a checkbook and
opening a savings account; it has a lot to do with controlling the expenses of
everyday life and the pressures to spend. We learned that budgeting success
is essential to the stability and welfare of families, and that managing money
successfully is crucial to success in America. Now, when we teach any
budgeting seminar we display a large poster that reads: "Money doesn't
come with instructions (see box 1)."
Head Start also taught us an important lesson about early childhood
education, which eventually steered Westamerica into a new CRA direction.
We learned from Head Start that a child's early school success has a direct
correlation on their future success in school and as an adult. If a child from a
low-income family is to compete successfully in society, the child needs to
be given basic educational tools. Head Start has an amazingly successful
record in giving children these tools. According to studies:


One-third more at-risk children who attended a quality early childhood
program graduate from high school than those who did not attend



Children at-risk who have been enrolled in a quality early childhood
program are 25 percent less likely to be retained a grade



In a study comparing matched groups of low-income children
attending Head Start, other preschool or no preschool, the Head Start
children scored higher on school readiness measures



As adults, those who attended a quality early childhood program are
three times as likely to be homeowners by age 271

These statistics made it obvious to us that we could make a significant and
long-lasting difference in our communities by doing more. We felt we could
be of direct help to the children by providing them with educational
materials. In discussions and brainstorming with Head Start management,
we formed the commitment to help increase the children's' computer,
reading and math skills through interactive software programs. We bought
25 computers and installed in each the highly-rated educational software
programs "Reader Rabbit" and "Math Blaster." We asked Ed Condon to
distribute the computers to various Head Start agencies throughout our
service area. It worked great. The children had fun with the interactive
educational games and the bank realized its investment was a tangible
contribution to the success of at-risk children in our communities.
Through our experience with Head Start, Westamerica Bank discovered that
helping our communities is an on-going process. It means always looking for
new and more effective tools. Effectiveness in CRA means finding new ideas
that lead to better approaches. The process never ends. Head Start is
wonderful organization and now we ask ourselves where do we go from
here?
To learn more about the partnership between Head Start and Westamerica
Bank, email Ed Condon or phone: 916/44-7760. Email Brian Scrip or phone:
707/863-6801.
Box 1
Lessons Learned from Head Start Families
After teaching basic budgeting for three years we have come to the
conclusion we need to refresh our basic budgeting materials to better reflect
the financial needs of our communities. Following are some of the candid
comments we received from Head Start participants.



During a speech at the Head Start conference, I asked everyone to
raise their hand if they wished a bank would move into their
neighborhood. The room fell silent and no one raised their hand, so I
moved on with the speech. After the speech one of the senior
managers at Head Start came up to me and politely said, "What we
need is not another bank in our neighborhood; we need are jobs so we
have something to take to a bank."



The question of how to manage credit card debt comes up in every
class. High credit card debt is a burden that is hurting all of these
families. We often hear comments like, "some months I have a choice
of paying my credit card minimum or my electric bill." After doing a
monthly budget, many of the families barely have enough money to
live on or they have none. It is not unusual to see a family making
$28,000 per year with $9,000 in credit card debt. It is clear that the
banking industry needs to be more responsible in giving out multiple
credit cards with no thought of repayment ability. We have found that
giving someone too much credit can hurt as much as unfairly denying
credit. Now we teach in every seminar how to avoid the "credit card
trap" and will include this in the basic budget rewrite.



We often get questions about the best way to search for a loan. With
approximately one FDIC-insured branch for every 250 people in San
Francisco and many other loan companies, people simply get confused
trying to find the best loan program.



Another question we hear asked in a lot of different ways is, "I have
poor credit what can I do?" About 26 percent of low-income families
have what would be considered poor credit. WestAmerica Bank is not a
credit repair counseling agency so we have stayed away from this

issue. However, it is becoming too important a topic to skip over and
we plan to address it in the rewrite.
-------------------------------------------------------------------------------1

Head Start facts provided by the National Head Start Association

(http://www.nhsa.org/research/research_re_bites.htm)
-------------------------------------------------------------------------------Biography

For the past five years, Brian Scrip has been the vice president
and compliance manager for Westamerica Bank and its affiliates as well as
the community reinvestment officer for the Bank. As compliance manager,
Brian monitors the bank's regulatory compliance program. As CRA officer, he
is responsible for creating the bank's CRA plan, developing a strategy for
implementing the plan and creating new ways to help the community and
the bank's CRA efforts.
Brian's CRA motto: "there is always better idea and approach, we just
haven't thought of it yet" precisely reflects his creative, "outside the box"
attitude towards CRA. His CRA dream is to create a giant web site dedicated
to all things CRA that could provide a one stop place to convene CRA people,
projects, ideas and opportunities.
Prior to working for Westamerica Bank, Brian was an examiner for the
Federal Reserve Bank of San Francisco and the Office of Thrift Supervision.
As an examiner, he worked in all areas of regulatory compliance and
examination. He also completed several special projects concerning fair

lending. Before becoming a regulator, Brian worked for 12 years at various
financial and mortgage banking institutions. There he performed compliance
and research duties. Brian earned a B.A. from the University of the Pacific.

Community Investments Vol 15, Issue 3
A Credit Union from the Ground Up
Author(s): Maeve Elise Brown, Staff Attorney, National Housing Law Project
November 2003
In addition to her work with the National Housing Law Project, Maeve Elise
Brown volunteers for the People's Community Partnership Federal Credit
Union as board chair, fundraiser, active participant on the marketing and
education committees, and financial literacy teacher. Other volunteer work
includes developing a project to protect seniors from predatory mortgage
lending.
CI: What was the impetus behind starting the People's Community
Partnership Federal Credit Union?
MB: In 1996, Sandy Turner, a 30-year resident of Oakland, California,
approached the East Bay Community Law Center (EBCLC) to solve the
growing problem of people on welfare not being able to access bank
accounts. And it wasn't just persons receiving welfare. Apparently, a series
of bank mergers over a 10 to 15-year period had resulted in branch closures
in low-income neighborhoods throughout Oakland leaving community
members from all walks of life without basic banking services. Some
neighborhoods, such as West Oakland, had not seen a bank branch since the
1960s.

CI: Why did you get involved?
MB: Like many other nonprofit law offices, EBCLC focused on eviction
defense, as well as other housing and public benefits issues. Our office had
never worked on an issue even remotely similar to banking issues, and I had
not worked on anything similar at my previous job. However, I had been
brainstorming with the director about the importance of addressing broader,
systemic problems that made it difficult for our clients to escape poverty.
The least I could do was talk to Sandy and try to understand the problem. I
learned that there were other community members concerned about the
same issue, so I offered to host a meeting to gather more information. Thus
began my four-and-a-half year journey into the research, planning,
organizing and development of what ultimately became People's Community
Partnership Federal Credit Union (People's).
CI: What came out of this first meeting?
MB: The initial group of eighteen who came together consisted of
representatives from various community-based organizations, the county
social services department, and other concerned community members who

were discontented about the lack of access to basic financial services. A few
folks at the table had already considered the idea of a credit union but did
not understand the difference between various types of credit unions, much
less how to form such an entity.
CI: Once you realized that there was momentum around the idea of a
credit union, what was your first step in moving the idea forward?
MB: Sandy invited a speaker who had participated in the organization of
what became Santa Cruz Community Credit Union. His insights helped the
group begin to believe that such an entity was indeed the right vehicle to
address the needs of low-income people for financial services. Next, we
faced the real work: the nuts and bolts of the formation process. This
process entailed several critical questions including whether to be state or
federally chartered and how large of a service area we could manage.
CI: What role did you play in the process of getting the credit union
launched?
MB: Following a community lawyering model, at first I believed it was my
role to simply take direction from this group of people who were coalescing
into a working body. When a couple of the group's participants acquired
funds from a national bank closing a neighborhood branch, the group
decided to use those funds to pay a consultant who had participated in the
formation of a credit union in Los Angeles. After about a year and a half, the
funds were gone, and progress had been made, but a great deal of work
remained to be done. I came to realize that the concept would not reach
fruition if I did not take more of a leadership role. The group of community
members became an advisory committee to me, and I reported back to
them at meetings rather than expecting them to spearhead formation
efforts. My students and other volunteers were invaluable to completing the

important work necessary to getting the credit union chartered and the
doors open.
CI: What resources did it take to accomplish this process?
MB: Over the course of the four-and-a-half years it took from the first
meeting with Sandy to the day the National Credit Union Administration
granted our charter to become a community development credit union, I
along with students from the East Bay Community Law Project and other
volunteers conducted market research, surveyed community members,
researched federal regulations, developed a business plan and raised funds.
Meanwhile, the advisory group of community members continued to talk up
the entity and request support to whatever extent they could through their
existing networks. All told, a very long list of volunteers contributed
invaluable work in getting the doors of the credit union open.
CI: What were the other critical aspects or challenges of bringing
People's to the people?
MB: We had to raise just that much more money in preparation for opening
doors to an office that was not going to operate in the basement of an
existing nonprofit. We wanted to hire an experienced manager, as well,
which further increased our up front funding needs. With all of that planned
for, we chose to open our doors in West Oakland, the neighborhood most in
need of financial services in the city of Oakland.
CI: What did you see as the most significant benefits to being
chartered as a community development credit union as opposed to a
different structure?
MB: Our designation as a low-income CDCU means that our dedication to
serving low-income people is built into our structure. In addition, we are

managed by members, which also keeps us true to our mission. We then
went the extra step of obtaining both state and federal community
development financial institution (CDFI) status, which permits individuals
and corporations to receive tax credits and other advantages for investing in
us.
CI: What is the core membership of People's?
MB: We are more than fulfilling our mission of serving Oakland's low-income
residents. Approximately 75 percent of membership is low- or very lowincome. A majority of our members were "unbanked" before joining
People's. In other words, they had not had a bank account for at least three
years, if ever. Approximately 60 percent of our membership have been listed
on ChexSystems (a bounced check reporting database used by a majority of
banks to determine whether to open a new account). People's does not
exclude persons with a ChexSystems' record from having an account.
Anyone who lives, works, worships or volunteers in Oakland's flatlands may
join People's Community Partnership.
CI: How have you been so successful in reaching a group historically
resistant to banking with traditional institutions?
MB: Word of mouth continues to be the number one way in which People's
attracts new customers. From January 2003 to the present, we have more
than doubled our membership for a total of almost 900 members. Outreach
has included community walks through the local neighborhoods,
participation in fairs and other community events and presentations at
community meetings. We have not advertised much in any media as yet
because we believe that it is the reputation and trust that we build with our
members that are the best advertising of all. Community members come to
us with horror stories about how they were treated by whatever institution
they banked with previously. It may sound corny, but it seems to be true

that treating members with dignity and personal attention has been a large
part of our success. Residents hear about us from friends and family and are
willing to walk through the doors and give us a try.
CI: What services do you offer your members?
MB: To meet our mission of reaching the unbanked, we built into our
business plan the goal of carrying cash early on in our existence. In
researching the types of services that other community development credit
unions provide, I was struck by how many of them had chosen not to carry
cash. In other words, at the time of our organizing PCPFCU, there were
CDCUs over 20 years old that had never been able to cash member checks.
Instead, they issued vouchers that members would carry to a bank to be
cashed. Our decision to make sure that we undertook the proper security
measures and training to be able to cash checks was non-negotiable. Within
fifteen months of opening our doors, we began cashing member checks.
That service, in conjunction with small, affordable loans including auto loans
enables our members to rely on us for all their basic banking needs.
CI: When you say small loans, what is your upper limit and what
percentage of your members are actually qualified?
MB: The most time-intensive part of our services is our loans. The majority
of our membership does not have a great deal of uncommitted income, and
a significant percentage also has credit problems. We spend a considerable
amount of time helping members understand the process of improving their
credit and structuring debt. The education portion of the loan transaction is
vital to meeting our mission. Members may borrow up to $3,500 for a
personal, signature loan. We offer other types of loans as well that allow
members to build or repair credit.

CI: People's is to be commended for filling the gap in banking
services. Where do you go from here?
MB: Credit union members have listed ATM service as a number one
priority; and there are community members who will not join until we offer
that type of remote access to their funds. We are in negotiations with
providers so that we can offer this service by the end of the year. In the
meantime, we are working to expand services to meet the needs of
immigrants. We need to increase our staffing and establish a presence in
neighborhoods to the east of us.
We are also about to embark on what is at least for us a large-scale media
campaign as an experiment to see who it attracts. We may learn that for the
unbanked, it is still word of mouth that wins the day.
CI: This all sounds very ambitious. Will you be able to accomplish
this with your current operating budget?
MB: Raising capital through investments and grants is essential to our being
able to have a physical presence in other neighborhoods in the near-term
and expand membership. Individuals and institutions interested in investing
in us through California's CDFI program can claim a significant tax credit,
while other vehicles such as the federal Bank Enterprise Award program also
provide an economic benefit to banks that invest with us. We also seek
talented people to volunteer on our committees and/or to assist with specific
tasks within the office.
Maeve Elise Brown can be reached at the National Housing Law Project: 614
Grand Avenue, Suite 320, Oakland, CA 94610, 510/ 251-9400, ext. 110,
510/ 451-2300 (fax).

Biography

Maeve Elise Brown is a staff attorney with the National
Housing Law Project (NHLP), working on a range of issues that includes
Section 8 Homeownership, voucher utilization, and income discrimination. In
2003, Maeve Elise launched NHLP's new predatory lending initiative, a joint
project with the National Consumer Law Center under which both programs
are working to expand the pool of advocates available to assist low-income
consumers who have fallen prey to abusive lending practices. Building on
this effort, Maeve Elise has also devoted attention to assisting the City of
Oakland in the development of its own predatory lending initiative and is
working to form a regional collaborative with other groups in Northern
California that are working to combat this problem.
Prior to working at NHLP, Maeve Elise served as director of the community
economic development unit (which she helped to form), and director of the
housing unit for the East Bay Community Law Center (EBCLC). A major
project realized under Maeve Elise's leadership was the planning,
development and start-up of the People's Community Partnership Federal
Credit Union (PCPFCU). Maeve Elise is board chair for PCPFCU, spearheads
fundraising for the credit union, and serves on the education and marketing
committees.

Community Investments Vol 15, Issue 3
Investing for Social Good: Community
Development Venture Capital
Author(s): Kerwin Tesdell, President and Charity Shumway, Program
Assistant, Community Development Venture Capital Alliance
November 2003
Venture capital can be a powerful tool for building strong entrepreneurial
businesses. Because of the patience of equity capital and the entrepreneurial
and managerial assistance that a good venture capitalist provides to
augment the investment, businesses are able to grow in ways they generally
cannot with debt financing alone. The field of community development
venture capital (CDVC) recognizes this and seeks to use the powerful tool of
equity finance, not just to build businesses, but to build businesses that
benefit low-income people and distressed communities.
Like traditional venture capital funds, CDVC funds look for businesses with
strong growth potential that promise to provide outstanding financial returns
for investors. However, unlike traditional venture capital funds, CDVC funds
also have their eye on a second, social bottom line. They look to invest in
businesses whose growth has the potential to create good jobs for people
with limited job opportunities. This double-bottom line approach means that
while traditional venture capital funds and CDVC funds use the same
financing techniques, their investment portfolios ultimately look quite
different.
CDVC funds invest in geographic areas that are not typical VC hotspots.
Between 1991 and 2000, 65.2 percent of all traditional venture capital

investment dollars went to companies located in just five states — California,
Massachusetts, New York, Texas, and Colorado. In contrast, CDVC funds
invested in places like rural Kentucky, the Mississippi River Delta, and
Macedonia; and when they invest in states like Massachusetts, their
investment dollars tend to go to areas like Roxbury rather than high-tech
hot spots around Route 128.
CDVC funds also invest in industry sectors that are atypical for traditional
venture capital funds. While CDVC funds make some investments in
technology or biotechnology related businesses, two sectors where
traditional venture capital dollars are concentrated, CDVC funds typically
focus elsewhere. Manufacturing businesses made up 39 percent of all CDVC
investments in 2002, with service-related businesses following at 20
percent. Both these industry sectors tend to offer good employment for
people without advanced degrees.
The Community Development Venture Capital Alliance (CDVCA) is the trade
association for the community development venture capital industry. As an
outgrowth of its mission to promote the use of venture capital to create jobs,
wealth, and entrepreneurial capacity that benefit low-income people and
distressed communities, CDVCA has its own investment fund the CDVCA
Central Fund, which makes investments in CDVC funds and co-investments
alongside other funds in businesses that meet its social and financial criteria.
In August 2003, the Central Fund closed its first direct investment into a
business — SelecTech, Inc. This investment highlights many of the
characteristics typical of CDVC investing.
SelecTech is located in Taunton, Massachusetts, a formerly thriving
industrial area that has suffered as textile manufacturing has moved
offshore. The company manufactures products made from 100 percent postindustrial and post-consumer plastics. Its newest product, Freestyle, is a
durable flooring material ideal for commercial spaces. Freestyle, named

because it is a free-lay product that requires no subfloor preparation, special
adhesives, or professional installation, is also moisture resistant and does
not expand or contract with changes in heat and humidity — all significant
commercial flooring considerations. SelecTech already has large contracts
with a number of major customers, and with the introduction of this new
product line, CDVCA expects SelecTech to experience tremendous growth in
the next few years.
In addition to looking like a company that will generate terrific financial
returns, SelecTech has already begun generating strong social returns. The
company has created 15 manufacturing jobs and anticipates creating 30 to
40 more in the next four years. All of the jobs are located in Taunton with
wages starting at $9 to $9.50 an hour for production jobs and $18 to $22 an
hour for supervisors. The company provides health care coverage, a stock
option plan, and a 401(k) plan. Additionally, SelecTech provides on-the-job
training and opportunities for employees to move up to more independent
and supervisory roles as they master the necessary skills.
With its investment of $250,000, structured as a five-year subordinated loan
paying 10 percent annual interest and ten-year warrants as an equity
kicker1, the Central Fund joined other CDVC co-investors — SJF Ventures,
Fleet Development Ventures, and the Boston Community Venture Fund. This
group will move forward together, not only to provide further financing as
necessary, but also to provide technical assistance to the company to help it
grow.
The growth of small businesses is integrally connected to healthy economies
and successful communities. With the awareness of the role equity capital
can play in developing such businesses, the CDVC industry is one of the
fastest growing sectors of community development finance. Since the end of
2000, the industry has grown from 52 domestic CDVC funds actively
investing or in formation with $300 million in capital under management to

80 funds investing or in formation with $548 million in capital under
management as of the second quarter of 2003. Banks have been the single
largest provider of capital for the industry, accounting for 40 percent of all
equity investments made into funds. This growth has taken place during one
of the most difficult fundraising environments the venture capital industry
has ever faced. In the year 2000, the venture capital industry raised $106
billion in new capital. In 2002, the venture capital industry was able to raise
only $6 billion. During those same years the CDVC industry grew by 38
percent.
To learn more about the community development venture capital industry,
visit the Community Development Venture Capital Alliance's website at
www.cdvca.org.
1

Warrants entitle the holder to buy a specified amount of common stock or

preferred stock at a specified price for a period of years. In the case of
CDVCA's investment, the price at which CDVCA can purchase stock in
SelecTech is locked in for the next 10 years.
Biography

Kerwin Tesdell is the president of CDVCA. He is also an
adjunct professor at New York University School of Law, where he teaches a
course in community development law. Prior to joining CDVCA, Kerwin was a
program officer at the Ford Foundation. Before that, he was the director of
the Community Development Legal Assistance Center, which provides
corporate, tax, and real estate legal assistance to community development

organizations in New York. Kerwin was also an associate with the law firm of
Debevoise & Plimpton and served as a law clerk to a federal judge in
Manhattan. He graduated from Harvard College with a degree in economics
and holds law and business degrees from New York University, as well as a
certificate from the Venture Capital Institute.
Charity Shumway is a program assistant at CDVCA where she focuses on
communications and development initiatives. Prior to joining CDVCA, she
worked for a business news radio station and directed several educational
programs for at-risk youth. She graduated from Harvard College with a
degree in English.

Community Investments Vol 15, Issue 3
Investing For "The Little Guy"
Author(s): Mark Maruyama, Executive Vice President, SaveDaily.com, Inc.
November 2003
In an era when mainstream investment firms are turning away clients with
less than $100,000 in assets to invest, is it possible for banks to not only
provide their low-income customers with quality investment services, but to
do so with attractive margins?
The Challenge
Historically, financial institutions have viewed business opportunities in lowand moderate-income markets as marginal at best, especially investment
and advisory services. Meanwhile, the competition to attract and retain
lucrative high net-worth investment customers has created an ever widening
gap between the products and services available to low-income consumers
and the affluent "target market." The result: the affluent market has become
saturated while the low-income market remains largely underserved despite
a strong demand for financial services. This gap is manifest within many
banks where low- to moderate- income banking customers make up the
"bread and butter" of the customer base.
Why have traditional providers been slow to penetrate the low-income
market? Simply put, in the past, banks and brokerages have found it too
costly to open and maintain the small-volume investment accounts
appropriate for low-income consumers. There is significant expense in
servicing an investment account, so the bank must either cover these costs
through high fees (commissions, transaction fees, account maintenance

fees), and/or ensure that its investment accounts have high asset levels
(through minimum investment requirements). Of course, these very fees
and investment minimums act as financial barriers to exclude many lowincome investors from participating. A new approach is needed that will
remove the barriers preventing low-income investors from participating and
banks from serving this market; an approach that encompasses affordability,
guidance, and simplicity.
The Opportunity
Evolving technologies and innovative new models are laying a path for both
traditional and non-traditional financial service firms to realize attractive
profit margins on investment services, regardless of income level or account
size. As these new models drive down costs and enable access to financial
tools and education, low-income consumers are emerging as a large and
viable market. This article introduces an innovative platform that banks can
employ to offer a comprehensive set of investment and advisory services to
their low-income customers, empowering them to affordably save and invest
towards core financial goals such as a first home, business or retirement.
A Solution
Founded in 1999 with a mission to bring affordable investing and advisory
services to underserved markets, California-based SaveDaily
(www.savedaily.com) has created a financial services platform which
delivers a new approach. SaveDaily designed its all-electronic
LiquidFinanceTM platform from scratch with an emphasis on cost efficiency
and simplicity. Launched in November 1999, it helped pioneer paperless
brokerage solutions, effectively eliminating printing and mailing costs while
allowing for electronic registration, confirmations, quarterly statements, tax
reporting, and account history. Devoid of manual processes, it incorporates
straight-through processing capability to ensure maximum efficiency and
minimum transaction processing costs. This ultra-low-cost investing and
recordkeeping platform makes it possible to profitably service smaller

balance accounts by lowering the financial entry for investors. The platform
also allows for private label integration by banks, brokerages, and nontraditional financial service providers.
How It Works
Using SaveDaily's LiquidFinance platform, banks can offer their customers
access to mutual fund investing with no minimums and no transaction fees
at a cost that is a fraction of the industry standard. Customers can be
provided complete 24/7 access to open accounts, make investments,
redeem shares or view transaction histories through web sites, kiosks or
ATMs. Transactions are settled utilizing the automated clearing house (ACH)
network, allowing clients to invest directly from existing checking accounts
into their mutual fund accounts. The platform also features systematic
transfer capabilities, which allow for regularly scheduled deductions from
payroll or other sources. This "out-of-sight, out-of-mind" investing allows
new investors to practice regular, disciplined investing in any amount they
choose while leveraging the benefits of dollar cost averaging.

At the heart of the model's transactional efficiency is SaveDaily's use of an
"omnibus" account, which allows the pooling of multiple smaller investments
into a single large aggregated transaction that is executed at the completion
of the trading day when the mutual fund pricing (net asset value) is
established. For example, 1000 individual $10 investments can be rolled up
into a single $10,000 transaction direct to the fund provider at the end of a
given day. Since all 1000 investments share a single transaction cost, the
allotment for each of the 1000 individual investments is truly minimal. And
since all the individual investments are rolled into a single larger investment,
the need for investment minimums is also eliminated, allowing customers
the flexibility to invest any amount of money in nationally-known mutual
funds that would normally require high minimum investments. SaveDaily's
proprietary sub-accounting technology also allows for the tracking and
reporting of each individual investor's activity, which is manifested in the

system via electronic confirmation notices, online account balances,
quarterly statements, etc.

Save-Today (www.save-today.com), an online investment service based on
SaveDaily's platform, calls the above concept 'micro-investing': the ability to
regularly contribute small amounts over time to an account without worrying
about minimum investment, account size requirements or the eroding effect
of individual transaction fees. While the model can be structured to
accommodate participation by platform reps or registered financial advisors,
its leanest form is a 'self-serve' model in which the customer interacts
directly with the system via a web browser interface to invest in no-load
shares at low cost.

The various features of SaveDaily's innovative platform essentially allow any
intermediary to market an investment program with:


no minimum initial or ongoing investment



no loads or commissions



no transaction fees



unlimited transactions for one low monthly or annual fee

The result is a compelling value proposition for the low-income investor.
Importantly—as outlined later in this article—with the collection of a low
monthly/annual fee, this model is profitable on a per unit basis, regardless
of income level, account size or activity levels.
Providing Guidance
Historically, professional financial advice had been available only through a
broker or a financial planner, and then only to the relatively affluent.
Ironically, it is the underserved, low-income investor who most likely lacks
investing expertise. To address the need for guidance, SaveDaily's platform
provides an automated interface to assist customers in determining their
investor profile and goals, selecting suitable investments and managing
those investments over time. The advisory capabilities are imbedded in the
system's "assessment wizard," an online questionnaire that recommends an
appropriate account type and suitable investment allocation based on the
customer's responses to a series of interactive questions and scenarios. For
example, an investor with a six-month time horizon would be directed to a
low-risk money market option, while a more risk-tolerant investor saving
towards a distant retirement might be directed to a more aggressive
allocation. To address the unique needs of a multi-cultural audience, the
wizard can be made available in several languages.
To enable cost effective ongoing management and oversight of customer
investment accounts, SaveDaily's system provides tools for banks to deliver

and monitor specialized, goal-oriented asset allocation portfolios. Banks can
choose to design these allocations themselves or to have them designed and
managed by nationally-known investment organizations. The LiquidFinance
platform automatically rebalances and reallocates portfolios in accord with a
customer's profile and investment goals. This model allows low-income
investors to benefit from the 'high touch/low cost' service of ongoing
professional money management without the need for a costly personal
investment adviser.
One Size Does Not Fit All
SaveDaily's customizable interface allows the program to be presented to
target a particular demographic and align with any bank's brand. Color
schemes, graphics, marketing messages, language, and even financial
products can be assembled based on the target audience. For example, SBKBrooks Investment Management Corp, a Black-owned investment bank
headquartered in Cleveland, Ohio, launched the Black Wealth Network
(www.bwnonline.com) using SaveDaily's platform. It offers AfricanAmerican-managed mutual funds in a program that is truly tailored to the
African-American audience it is targeting. While not aimed at a particular
income level, the low cost/no minimum nature of the program allows lowincome investors to participate alongside more affluent investors.
CRA Eligibility
Delivering investment services to low-income customers may be the most
daunting part of an effort to offer the same caliber of retail banking services
across all income groups. SaveDaily's program can help accomplish this
goal. The Community Reinvestment Act evaluates both the range of services
offered and the degree to which those services are tailored to meet the
needs of specific geographies. Recent interest in asset accumulation among
low-income consumers underscores the need for products that will allow this
group to access higher-yield instruments beyond passbook savings accounts.
Using information that is collected at the time a customer signs up for an

investment account, such as zip code and income, an institution can track
and document the percentage of its customers that fall within the low- and
moderate-income range. Institutions that adopt programs that allow lowincome customers access to investment services can enhance their CRA
program, and thus distinguish themselves as marketing innovators.
Expanded Services Yield Expanded Profits
In addition to the responsiveness and CRA advantages of offering
investment and advisory services to the low-income demographic, these
services can significantly impact the bottom line. Because of the low cost of
servicing accounts on an electronic platform, banks only need to collect a
few dollars a month in fees to turn a profit regardless of account size. In
addition, asset-based advisory fees for managing the allocations, and
distribution payments from the mutual fund companies contribute
incremental recurring revenue over time. But perhaps most importantly,
selling a new product to an existing bank customer serves to lock in
customer loyalty and guard against defection and erosion of assets (the
average mutual fund account is held for approximately 12 years). And some
low- and moderate-income customers may likely evolve over time into that
most cherished of assets: the high net worth investor.
Conclusion
Innovative new models and technologies are creating an opportunity for
banks to extend investment service offerings to their low-income customers,
and to do so profitably. Gone are the days when financial services were
available only at banks and brokerages. The industry of financial services
has become a melange. Retailers are routinely cashing checks, affinity
groups are offering insurance products, and a week's wages can now be
stored on plastic cards that double as phone cards. Retailers and other
businesses that already cater to 'middle America' and low-income consumers
clearly recognize the potential associated with the provision of financial

services to this large, underserved market. Low-income banking customers
continue to ask for assistance with savings and investing—will banks deliver?
To learn more about SaveDaily, contact Mark Maruyama via email at:
mark.maruyama@savedaily.com or by phone at 562/795-7500.

Biography

Mark Maruyama is executive vice president of business
development for SaveDaily, Inc. (www.savedaily.com), an investment
company focused on servicing markets overlooked by traditional investment
providers. Based in Seal Beach, California, the company's electronic
investment platforms make investing attractive and affordable to
underserved markets and profitable to the intermediaries that deliver them.
Mr. Maruyama has more than 14 years of experience in the information
technology industry. In his current role with SaveDaily, Mr. Maruyama is
responsible for establishing business relationships to distribute the
company's private label financial services platform. Previously, he held a
variety of leadership positions for the IBM Corporation, focused primarily on
sales, integration services and strategic partnerships in the financial
services, education, and media/entertainment industries. He received his
bachelor's degree in economics and business from the University of
California at Los Angeles.

Community Investments Vol 15, Issue 3
Tips to Facilitate the Mortgage Approval
Process1
Author(s): Craig Nolte, Senior Community Investment Specialist, Federal
Reserve Bank of San Francisco
November 2003
Findings from workshops sponsored by the Bureau of Indian Affairs and the
Federal Reserve Bank of San Francisco
Applicant


Participate in homebuyer education



Request a credit report and discuss with homebuyer counselor



Request a Title Status Report (TSR) through either the lender or
housing authority prior to completing the loan application if possible

Lender


Request TSR at time of application, if not already requested



Provide additional incentives for loan officers serving Indian
reservations



Meet with local tribes and others to help understand the mortgage
process and distribute information on mortgage products

Bureau of Indian Affairs


Post standardized procedures and forms on a website



Routinely provide applicant with new TSR following loan funding



Encourage compliance with interagency agreement (web link to our
site)

Tribe


Adopt effective housing ordinances, such as those associated with
HUD's 184 Indian Housing Loan Guaranty Program



Adopt the "One Stop" interagency lease developed by HUD



Appoint an individual from the housing authority to be a "mortgage
counselor"



Ensure open communication between the various departments that
may be involved



Maintain information helpful to appraisers



Provide homebuyer education



Seek available savings and down payment assistance programs



Develop written mortgage lending guidelines



Develop and distribute a homebuyer checklist to tribal staff and
lenders

1

Excerpted from the article, Expediting Mortgage Processing in Indian

Country, by Craig Nolte

Community Investments Vol 15, Issue 3
Expediting Mortgage Processing in Indian
Country
Author(s): Craig Nolte, Senior Community Investment Specialist, Federal
Reserve Bank of San Francisco
November 2003
You've seen the advertisements: "fast loan approvals," "speedy processing,"
and "lock your rate today." But seldom do these offers show up in Indian
Country. While mortgage lending in the U.S. has reached record levels
during the past few years, with quicker and easier approval processing,
records are not yet being set in Indian Country.
A typical mortgage applicant in Indian Country needs to be very patient. The
lack of written procedures, checklists, or someone to provide guidance
leaves the applicant susceptible to excruciating delays and opens the door to
predatory lending. The applicant stumbles through redundant requests and
reviews of credit, employment and income information only to have the loan
documentation go stale before the application is approved. There is seldom a
realtor to provide help, and the commission-driven loan officer grows less
interested by the day. The mortgage approval partners know what each is
supposed to do, but they lack a coordinator.
It's not supposed to be this way. Tribal members should not have to endure
a more arduous mortgage processing than those purchasing homes off the
reservation. The processing procedures are always going to be more
complicated due to the varying types of land on Indian reservations and the
required involvement of the tribe and its federal partners; however, the

"First Nations" should not have to be at the back of the line when buying a
home on their own land. In the spirit of the Native American Housing and
Self-Determination Act, tribes are supposed to be able to make more of their
own decisions, manage more of their resources, and create their own
destiny. The ability to easily obtain a mortgage loan on their reservation
should also be possible.
To help speed processing times, the northwestern and western regional
offices of the Bureau of Indian Affairs and the Federal Reserve Bank of San
Francisco recently held eight workshops entitled The Bureau of Indian
Affairs: Streamlining the Mortgage Approval Process. The primary purposes
of the workshops were to uncover common reasons for loan processing
delays and develop ways participants can help avoid them. The workshop
also allowed participants the opportunity to share their experiences, obtain
responses to their concerns, and offer ideas on how lending matters could be
handled. The approximately 250 participants included representation from
over 40 Indian tribes, 15 financial institutions and several government
agencies.
Questions and concerns from participants were welcomed during
presentations from the Bureau of Indian Affairs and HUD's Office of Native
American Programs. Every step of the mortgage process was examined,
including the roles of the organizations involved and the actions they could
take to help speed the process. It was an interesting observation that some
participants reported long processing times, confusing procedures and lack
of communication from everyone concerned with the transaction, while a few
reported very positive experiences. The reasons for the disparity were
obvious; successful participants involved in mortgage transactions had
learned over time how to speed the process, while the less-experienced were
still struggling to find their way.

This article will focus on findings from the workshops and provide
recommendation for things the key players in any mortgage transaction in
Indian Country can do to streamline the application and approval process.
These key players include applicants, tribal housing authorities, lenders, and
the Bureau of Indian Affairs.
Applicants
Applicants need clear direction on how to obtain loans. Homebuyer
workshops can help them learn how to be ready to borrow and the
responsibility of homeownership, and can give them extra time to prepare
for both. Workshops can also provide instructions on how to accelerate the
mortgage approval process. Borrowers should also have access to other
resources that can help them obtain mortgage loans, such as those included
in Housing Washington's Native Communities guide.1 This guide serves as a
directory of asset-building resources, mortgage assistance programs,
mortgage approval contacts, and other helpful information for Washington
state. It can serve as a template to create a similar guide for contacts and
resources in your area.
Tribes
The tribal government can assist the process in a variety of ways. One of the
most common reasons for the lack of access to mortgages in Indian Country
is the lack of effective housing ordinances and lease agreements. The U.S.
Department of Housing and Urban Development's Office of Native American
Programs has developed a model housing ordinance for their Section 184
Indian Housing Loan Guaranty Program.2 The ordinance has been adopted
by over 100 tribes to date and has proven to be effective at creating a legal
infrastructure that helps protect the trust status of the land and make
lenders comfortable. Several other interagency and model documents, such
as a lease that is acceptable to several government agencies, are available
through HUD's One Stop Mortgage Center.3

Tribes should also consider appointing staff to provide guidance to mortgage
applicants to help ensure a smooth application processes. Individuals who
could be familiar with the approval process, including time frames,
necessary documentation and the needs of others involved in the process
and who could maintain written procedures and an applicant checklist and
periodically meet with key partners to learn about any procedural changes
that may impact the process. These same individuals could provide
homebuyer education to applicants and promote communication with other
departments within the tribe, such as economic development, water/sewer,
administration and the tribal council.
The Bureau of Indian Affairs (BIA)
The BIA has an enormous role in Indian Country. It is responsible for the
administration and management of 55.7 million acres of land held in trust by
the United States for American Indians, Indian tribes, and Alaska Natives.
Developing forestlands, leasing assets on these lands, directing agricultural
programs, protecting water and land rights, developing and maintaining
infrastructure, providing for health and human services and economic
development are all part of this agency's responsibility. For mortgage
lending, its staff ensures that title transfers are conducted appropriately and
reviews individual transactions to ensure the trust status of land is not
violated.
The BIA does not currently have an active web site, but certain documents
could be placed on other related agency or federal websites so that they
would be accessible by their constituents. The Federal Reserve Bank of San
Francisco has taken the first step towards this by posting several BIA
documents on its website in the community development section.
Lenders
Lenders need to become familiar with the mortgage processing procedures
of each tribe in their areas so that they can help expedite applications

without missing critical steps. If determined necessary, lenders should
consider providing additional incentive to commissioned loan officers so they
are motivated to work with applicants that are more complex than traditional
borrowers. Periodic meetings with tribal officials, especially tribal mortgage
coordinators, can foster communication and help avoid unexpected delays.
Conclusion
The next time you see a mortgage loan advertisement, consider whether it
would apply to Indian Country. With increased cooperation, mortgage
processing can be swifter and homeownership possibilities can become a
reality for more tribal members.
To discuss hosting or coordinating a BIA workshop in your area, contact
Craig Nolte at 206/343-3632 or via email.
1

Craig Nolte, Housing Washington's Native Communities, Federal Reserve

Bank of San Francisco: 2003
(http://www.frbsf.org/community/native/index.html)
2

http://www.codetalk.fed.us/HUD_ONAP.html

3

http://www.codetalk.fed.us/One_Stop_Mortgage_Center.htm

Community Investments Vol 15, Issue 3
Reclaiming Native American Tax Dollars
Author(s): Ana Marie Argilagos, Senior Consultant, Annie E. Casey
Foundation
November 2003

The Annie E. Casey Foundation is dedicated to building better futures for
disadvantaged children and their families. Much of the Foundation's work in
recent years has been driven by the idea that kids do well when their
families do well, and families do better when they live in supportive
communities. While this principle was derived from work in urban areas, the
Foundation recognizes that large numbers of residents in Indian Country also
struggle to meet their families' needs.
One strategy that the Foundation has found to be a valuable tool to increase
the incomes of low- and moderate-income families is the Earned Income Tax
Credit (EITC). The EITC is a refundable credit offered through the federal tax
system (and 17 states) and is the single largest federal aid program

supporting working families. It provides more dollars to working families
than any other federal program.


At $32 billion dollars, the EITC is larger than food stamps and
Temporary Aid for Needy Families (TANF) combined



Eight times the size of the Workforce Investment Act (WIA)1



Ten times the size of Community Development Block Grants (CDBG)

The maximum federal EITC refund for tax year 2004 will be $4,204 per year
a substantial sum of money for any family.2 As such, the EITC provides a
powerful work incentive and anti-poverty tool that has benefited millions of
low-income families since its inception in 1975. Unfortunately, millions of
EITC dollars go unclaimed each year. National figures estimate that between
15 and 20 percent of eligible families do not claim the EITC; for Indian
Country, the numbers are much higher since a disproportionate number of
non-filers are found in areas of concentrated poverty. And although the EITC
is perceived as a greater opportunity for large cities, in fact EITC receipt is
higher in rural areas than in cities ($7.8 billion vs. $7.7 billion). EITC receipt
tends to be particularly high in much of Indian Country. According to Alan
Berube of the Brookings Institution, there are 17 zip codes where over 70
percent of tax filers claimed the EITC in 2000; of these, nine are located in
Indian Country.3 What is not known however, is how many Native Americans
that qualify for the EITC do not claim this tax credit. The assumption is that
this could be a much larger number.
There are many reasons working families do not claim the EITC. They may
think they are not eligible, or they may simply not know about it. In
addition, some families may fear that filing for taxes will "tip off" the IRS or
other agencies looking for those who are pursued by creditors or behind in
their child support payments. A person might not have a legal liability-that
is, he/she earns below the tax liability threshold and is not legally required
to file-but by not filing forfeits the credit. Other issues such as language,

culture, lack of local tax preparers and cost of tax preparation may also
impede eligible families from filing tax returns altogether.
Nationally, 68 percent of EITC filers get their refunds through commercial
tax preparers. These companies can charge up to $200 to file a simple
return. Complicated returns cost much more and there are extra fees for
doing the EITC form and electronic filing. Many families are offered "rapid
refund" services or refund anticipation loans that further erode the money
they should be receiving through their tax refunds. Low-cost or free
preparation methods can offer a much-needed service to families while
conserving income in rural communities.
Noel Brown, manager of the Tribal Business Information Center (TBIC),
located on the Cheyenne River Sioux reservation in Eagle Butte, SD,
recognized the need for reasonably priced access to tax preparation service.
The area has one of the highest unemployment rates in the U.S. (over 70%
in Ziebach County). Most of his clients are self-employed, many in homebased, retail, service, construction, and agriculture industries. Four years
ago, individuals had no option but to drive 90 miles to reach a paid preparer.
Lower income individuals often did not have access to a car, and would have
to hire someone to get them there. They would then be charged very high
fees by a paid preparer, and if they wanted their refund right away, they
would be charged an additional fee. Several days later, they would have to
hire someone else to take them to pick up their check.
Today, Noel runs a successful Volunteer Income Tax Assistance (VITA) site
and community members can receive 100 percent of their returns by using
the services of TBIC. In 2003, his staff assisted over 600 individuals with
free income tax preparation assistance. TBIC prepared taxes for more
individuals than any other VITA site in the state (second only to the
Ellsworth Air Force Base) and helped families secure over $1,200,000 in
refunds. Noel is interested in expanding his services by linking the EITC to

financial literacy, savings, and Individual Development Accounts because
many of his clients want to acquire a home or start a home-based business.
He explains, "the EITC is an important resource for working families,
providing the extra money that many need in these tough economic times.
The EITC is also beneficial to tribal economies, financially strengthening
families throughout the community."
Last year, the Ysleta del Sur Pueblo tribe near El Paso, Texas joined the
"Strong Families, Strong Future" EITC campaign coalition in El Paso and
provided a facility on the reservation that served as an e-file tax preparation
site-one of only three in the county. Volunteers from the tribal community
and El Paso County prepared 187 tax returns (including 50 with EITC), and
collected over $149,000 in refunds. This year, the coalition plans to include
financial literacy, IDA opportunities, and representatives from financial
institutions who can connect individuals with savings accounts and other
financial resources.
Dine College, located on the Navajo Nation in Arizona, is an example of a
VITA program that operates out of a tribal college. Student volunteers are
recruited and trained to provide free tax filing assistance. In the case of Dine
College, students undergo a rigorous training developed by the Albuquerque
Technical Vocational Institute (TVI) to be certified as VITA volunteers.
Students receive college credit for their participation, and more importantly,
experience in their field.
Tribes interested in ensuring that their members are keeping the money
they are entitled to can easily include information about the EITC in existing
outreach efforts such as public service announcements, flyers and paycheck
stuffers (the IRS and the Annie E. Casey Foundation both provide free
outreach and publicity materials that can be used to launch tax campaigns).
Another idea is to build information about the EITC into existing financial

literacy curriculums or to leverage EITC by connecting it to IDAs and other
savings programs.
While many families use their EITC refunds to meet immediate needs such
as paying utilities or rent, or to make large purchases like a car or washing
machine, some families may be able to use part of their refund for savings
and asset building activities. A crucial element of a successful campaign is
connecting taxpayers to opportunities to build assets, and ultimately wealth.
There are many potential asset building opportunities to consider, including
financial literacy training, debt counseling, savings strategies, investment
clubs or IDA programs. These asset building strategies can be effective ways
to help families improve their long-term financial futures.
Tribes should work with community development financial institutions
(CDFIs), credit unions, and banks that have an interest in serving Native
American populations to establish accounts for unbanked filers to receive
direct deposit or to provide low cost check cashing services. A number of
institutions around the country have already enjoyed the success and
benefits of partnering with a tax prep site including: Legacy Bank in
Milwaukee; Shorebank in Chicago; US Bank in Sacramento; Bank One in
Dallas; Members First Credit Union in Louisville, KY and Bethex Credit Union
in New York City.
To help communities interested in launching campaigns, the Annie E. Casey
Foundation formally launched the National Tax Assistance for Working
Families Campaign.4 The campaign stresses the importance of designing
campaigns to meet the unique needs of individual neighborhoods and
locales. The first year's campaign theme was "Earn It, Keep It, Save It" — a
reminder that qualified working families not only need to claim the tax
credit, but also should avoid losing a chunk of their tax return and credit by
paying unnecessary fees or accepting refund anticipation loans (RALs).

According to a recent research study from the Brookings Institution,
Rewarding Work Through the Tax Code: The Power and Potential of the
Earned Income Tax Credit in 27 Cities and Rural Areas,5 low-income families
are losing much of their refunds to high-cost tax preparers and costly fastcash loans that charge annual percentage rates ranging from 67 to 774
percent. In 2002, those loan products cost EITC recipients across the
country an estimated $750 million.
The first year of the National Tax Assistance for Working Families Campaign
was resoundingly successful. Sites affiliated with the campaign returned
more than $55 million in EITC money to low-income families through the
preparation of more than 96,000 federal tax returns. Plans are being
finalized now for the 2004 tax year campaign, with several more urban and
rural locations joining the national group including a few that are focused on
working with American Indian families and in the US-Mexico border area.
Part of this effort includes working with First Nations Development Institute
to develop a module highlighting the benefits of EITC. This curriculum is
being designed for use as stand-alone material or can be incorporated into
the existing Building Native Communities: Financial Skills for Families6
training.
1

Enacted in 1998, the Workforce Investment Act (WIA) replaced the Job

Training Partnership Act (JPTA) as the primary source of funding local
employment and training efforts. Under WIA, all local workforce areas in the
United States (currently there are over 600 as determined by the U.S.
Department of Labor) are required to develop a "one-stop" delivery system
that is designed to make workforce development programs available at one
location , i.e. one-stop centers. Workforce Investment Boards replaced
"private industry councils (PICs) as the local decision-making body.
2

The EITC is available to households earning between $11,000 and $34,692

(depending on family size). The tax credit not only offsets the taxes that are

owed, but can also result in a refund. For a family with two children earning
$19,000 last year, the federal income tax liability would be approximately
$400. The family is eligible for an EITC of $2,763, which means that the
federal government pays them back the $400 they paid in income taxes and
gives them an additional cash refund of approximately $2,363.
3

These include areas in Rosebud, SD; Cheyenne River, SD; Omaha, NE;

Standing Rock, ND; Standing Rock, SD; Cheyenne-Arapaho, OK; Red Lake,
MN; and San Carlos, AZ.
4

For more information on the Annie E. Casey Foundation's National Tax

Assistance Campaign for Working Families, visit www.eitc.info
5

Alan Berube, "Rewarding Work Through the Tax Code: The Power and

Potential of the Earned Income Tax Credit," Brookings Institution Center on
Urban and Metropolitan Policy: Washington, D.C., 2001
(http://www.brookings.edu/es/urban/eitc/abstract.htm)
6

For more information, please call First Nations Oweesta Corporation at

605/455-1700. To receive free copies of Building Native Communities, call
800/659-7557 or download from: http://www.oweesta.org/

Biography

Ana Marie Argilagos works in the Planning, Research
and Development Unit at the Annie E. Casey Foundation in Baltimore,
Maryland. She provides strategic direction for the foundation's initiatives in
the southwest border region and in American Indian communities. Before
coming to the foundation, she served as special assistant to the Department
of Housing and Urban Development deputy secretary. While there, Ms.
Argilagos advised on a wide array of policy issues and played a central role
in shaping the President's Interagency Task Force for the Economic
Development of the Border. Ms. Argilagos holds a master's in public
administration from the Kennedy School at Harvard University.