Fair Financing – Business Model Investigation of Payday Lending Alternatives

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Request for Proposals (RFP)

Overview: Momentum seeks a skilled consultant to research, design and recommend sustainable, scalable alternative payday lending products that work for people living on low incomes in Calgary. The focus of the investigation is on working with mainstream financial institutions. A preferred consultant will have an understanding of and experience in social finance.

Organization Background:

Momentum (www.momentum.org) is a charitable Community Economic Development organization in Calgary that partners with people living on low incomes to achieve prosperity by offering programming in financial literacy, skills training, micro-lending and business development support. Our vision is: “Every person can have a sustainable livelihood and contribute to their community.”

Issue Background:

Many Albertans living on lower-incomes are unable to access safe and affordable short-term credit and end up using payday loans. Payday loans are a form of short-term credit that often results in a cycle of debt. Payday loans are:

  • Expensive - interest rates of up to 600% when annualized
  • Targeted to people living on lower incomes - Most customers earn less than $30K and use loans for regular expenses
  • Responsible for creating debt traps – the average customer gets 8 loans per year
  • Growing in use - over $576 M was loaned out by payday lenders in Alberta in the previous year. Nationally $2M people access a pay day loan annually
  • Concentrated in lower-income neighbourhoods – Example: over 25 fringe financial outlets are located in the Calgary neighbourhood of Greater Forest Lawn

Mainstream financial institutions do not provide competing short-term credit at lower interest rates. A primary reason there are currently no alternatives is that financial institutions are unable to generate an adequate financial return providing small loans at affordable rates to higher risk consumers. According to interviews with senior retail bankers, financial support to reduce the risk factor is considered necessary to engage financial institutions in providing alternative lending to payday loans.

Project Background:

Over the past two years, Momentum has worked to reduce the harmful effects that payday loans have on Calgarians living on low incomes, using three primary strategies:

  1. Policy Advocacy: After Momentum’s public policy team published a policy brief on the issue, significant media attention was achieved. This contributed to increased attention from policy makers. In particular, a Notice of Motion was presented to Calgary City Council in 2014 that resulted in the city agreeing to leverage its business licensing and land use powers to curb the proliferation of payday lending locations. Additionally, Service Alberta is undertaking a review of the payday lending regulation in the Fair Trading Act. Momentum also supports a grassroots group called “Rise of the Cash Store” in Greater Forest Lawn. Momentum and the Rise of the Cash Store have worked with the Haskayne School of Business to support research and innovation on the topic. Specifically, a student case competition is currently underway.
  2. Payday Lending Alternative Product Piloting: In partnership with First Calgary Financial and a private philanthropist, Momentum is piloting Cash Crunch, a payday loan alternative product. Cash Crunch offers a loan within 48 hours of up to $1500 at 12% APR. Though demand for the loan has exceeded expectations, repayment is lower than anticipated at approximately 70% (no write-offs to date). The second phase of the pilot is planned for Q4 2015. This current model is difficult to scale because 100% of loans are secured by a private donor, yet it is yielding important information that can inform future product design and lower the risk for other partners.
  3. Financial Institution Partnership Research: In summer 2015, Momentum began to investigate other possibilities to provide alternatives to payday loans. The research confirmed that no payday lending alternatives are currently available within mainstream financial institutions. A key finding was that the large, national financial institutions are highly unlikely to provide alternative, short-term onsumers for two key reasons: 1. Low perceived profitability due to the high risk level of the type of loan portfolio 2. High levels of lending automation and centralization which would make it very difficult to launch a pilot on a regional scale. As a result of the research, further investigation on alternative lending will focus on locally-based financial institutions.

In addition to the above activity, Momentum has convened a small group of philanthropist leaders interested in the subject of fair financing. They have co-created a concept brief that details their thinking to date which can be made available to project proponents.

Project Goal:

The project goal is: to develop an affordable and scalable alternative payday loan product.
So that:                   People living on lower-incomes can prevent or exit a damaging debt cycle and begin to build assets that       lead them toward a sustainable livelihood.

In a way that:

  • Honours and leverages Momentum’s current relationships with philanthropists, financial institutions and community members
  • Leverages the tools of philanthropy as well as social and traditional finance
  • Includes built-in scalability to allow for additional collaborators as the model proves itself
  • Gives special consideration to the needs of residents in the Greater Forest Lawn area of Calgary

All work within this project should consider two possible alternative options, with 80% of activity focused on the first option described below:

  1. Mainstream Financial Institution Partnership: A partnership between Momentum, Financial Institution(s) and a possible philanthropic/government partner to provide loan loss capital, and
  2.  Social Business: A model that leverages ‘non-traditional’ financial institutions to provide short-term consumer loans. Momentum anticipates a less active role in solutions within this stream, though we may be able to act as a broker between social responsible investors and alternative lending business operators.

Momentum does not assume it will necessarily have a role to play in all potential solutions.

Design Question:
What program or product models are best able to achieve the goal above?
Project Scope:
A consultant is required to assist Momentum in answering the question above, by achieving two primary objectives.

  1. Environmental Scan and Market Feasibility (approximately 20% of project): The purpose of this objective is to investigate the existence and success of other alternative lending models, and the feasibility of the two options described above. Momentum’s current assumption that the best path forward includes a partnership with a financial institution, however it wants to ensure no other viable alternative is overlooked. Within this objective, the consultant is responsible to:
  •  Confirm current Calgary market size and income data (if available) for conventional payday lending.
  •  Conduct a high level scan of payday lending alternatives currently offered in North American cities (eg BankOn, Van City Fair & Fast Loan, New Start Canada)
  •  Provide an overview of short-term, low dollar value products and services are already in the Calgary market with a particular emphasis on activity that would be considered ‘in between’ conventional fringe lending and traditional bank offerings. Include in scope online lending and any other lending that occurs outside of financial institutions.
  •  Assess the social value created by alternate lending models such as NewStart, Blue Copper Capital and similar businesses. Identify opportunities and risks of partnership with each.
  •  Assess financial institution readiness to partner to achieve the project goal with a particular focus on credit unions and other locally-based Financial Institutions.
  •  Identify potential prospective operators of a stand-alone social business lenders.
  1. Business Model Development (approximately 80% of project): The purpose of this objective is to build out a comprehensive business model for scalable, sustainable payday loan alternatives for Calgary. Based on Momentum’s current information, it is most likely to engage as an active partner on a solution that includes a financial institution. Additionally, Momentum can only participate on activity that is considered charitable according to the Canada Revenue Agency. The solution needs to address the following questions:
  • What are recommended product offerings? Includes details on amount, term, interest rate, eligibility criteria, security or collateral if any, credit bureau reporting, application process, user interface (in person, online, mobile etc.), projected acceptance rate, etc.
  • How many loans are projected in the first 3 years of the offering? What is the projected repayment rate?
  • What is the investment required to achieve these results? Where will this investment come from and how will investors be rewarded for their risk?
  • What is the profile of the ideal client and what is the product’s market positioning? For example:
  • Is it better to have high barriers to access (eg money management education includes as part of product delivery) and a high quality loan portfolio even though this model will exclude possible good candidates? Or is broad impact preferred even at the expense of loan quality? What is the rationale for the recommended market positioning?
  • How is the risk managed and shared? How much will the financial institution require in upfront capital? What percentage (if any) of write-offs are recommended as guaranteed? What is the ideal relationship between interest charged and level of loan loss support?
  • What is the projected social and financial impact (for example, how many dollars are expected to be diverted away from interest payment)? What is the projected profitability of the model (if any)?
  • How does the proposed solution consider lessons learned from similar models implemented in the US and Canada with a particular focus on the local experience of the Cash Crunch pilot?
  • How should the solution be implemented and what is the cost of implementation?
  • What are the projected growth opportunities beyond Calgary?

Project proponents may request a copy of Momentum’s Fair Financing concept paper that outlines work done to date including detailed information about the Cash Crunch pilot project.


The following is a list of minimum required deliverables:

  1. Environmental Scan
  2. Alternative lending business model
  3. Implementation plan and 3 year budget

Submission Requirements:

The applicant(s) will submit a Proposal for this Work Assignment (no more than 5 pages) that must include the following information:


A description of the approach to be taken to the work assignment, including a proposed work plan with a summary of tasks, methodology and a phased timeline reflecting the required deliverables.

Resources, Qualifications and References:

Biographies for each individual who will be involved in the work, describing relevant qualifications and demonstrating experience in the area of program evaluation.
Two references representing similar or related work done by the applicant over the last two years, specifying the organization(s) to which the services were delivered and a reference name for each organization. References should include addresses and telephone numbers.


A quote including per diem rates and estimated time allocation for each individual involved in the work, with totals summarized.


The work is expected to span no more than 3 months and be complete by April 2015.


Proposals must be submitted by November 11 2015. The proposal should be sent to:
Carolyn Davis

Carolynd at momentum.org
Community Relations Director
#16, 2936 Radcliffe Drive SE
Calgary, AB T2A 6M8

Resource list:
Payday lending research brief: The Real Cost of Payday Lending
Municipal Options for Payday Lending Policy Change
Provincial Options for Payday Lending Strategy Change
Cash Crunch Information

Resources Available after signing confidentiality agreement:
Cash Crunch internal info
Fair Finance concept brief

SOURCE: Momentum

11 Nov 2015
Calgary  Alberta
Poverty Reduction