Independent Banker - November 2024 - 28

PORTFOLIO
employers are the conduit for this
program, and why we get out there
and talk to them about how happy
people are that their employer is
offering this product. "
Safety and soundness
risk considerations
As with any type of lending,
certain risks need to be considered
when using an alternative credit
score to determine an applicant's
ability to pay back a loan. Apart
from consumer protection risk,
Emancipator says banks should use
the " typical safety and soundness
risks " of explaining your motivations
to a board of directors or examiners
who want to understand the potential
credit risks.
" The main question is, are you
going to get paid back if you use
these alternative credit scoring
models? " Emancipator points out.
" A good way to mitigate that risk is
to possibly not necessarily lend on
large-ticket items, such as mortgages
or auto loans, using alternative credit
solely or exclusively. "
In cases where alternative
credit modeling is the best option,
Emancipator adds that it may be in the
bank's best interest to extend smaller
lines of credit-say $500 versus
$20,000-and then increase that
ceiling as the customer pays back the
obligation over time. In other words,
start small to keep risk lower at the
outset and allow the customers to build
their credit and qualify for a potentially
higher loan or line of credit.
This type of lending may
require more work, time and
due diligence on the bank's part,
but the returns will be worth the
trouble, according to Gopal Swamy,
CEO at Conductiv Inc., an ICBA
ThinkTECH Accelerator graduate
that collects data and provides
3 CDFI Fund programs to explore
Community banks that want to use alternative credit modeling
for loan-making may want to explore these three different U.S.
Department of the Treasury Community Development Financial
Institutions (CDFI) Fund programs:
1. Bank Enterprise Award Program
Provides monetary awards to FDIC-insured banks for
increasing their investments in CDFIs and for expanding their
lending, investment and service activities in economically
distressed communities.
2. CDFI Program
Financial assistance and technical assistance awards for certified
and emerging CDFIs to support affordable financial services and
products, including single-family mortgage lending, in distressed
communities. Technical assistance awards are for startup or
existing CDFIs and are used to build capacity to underwrite loans
and provide other services to its target market.
3. Capital Magnet Fund
A competitive grant program for CDFIs and nonprofit housing
developers to use to support financing tools, such as loan-loss
reserves or loan guarantees. The funding can also be used to attract
private capital for affordable housing and for affordable housingrelated
community and economic development.
AI-driven insights to support existing
" When [customers]
go to their community
bank and see that these
[accommodating] loans
are being made, they're
happy to be customers
of that bank that's
doing the right thing. "
-GOPAL SWAMY, CONDUCTIV
underwriting practices.
" When word gets out that you're
making loans that other institutions
won't make, it can quickly become an
organic customer acquisition model
as everyone tells their friends, " says
Swamy, adding that such lending can
also support a bank's corporate social
responsibility commitment. " When
they go to their community bank and
see that these loans are being made,
they're happy to be customers of that
bank that's doing the right thing. "
Bridget McCrea is a writer in Florida.
28 // ICBA Independent Banker // November 2024
Independent Banker - November 2024

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