Sometimes, when I tell people Windmill’s clients’ success metrics – 3.4x income increases and 97% repayment rates – I’m met with suspicion.
“How do you manufacture such high success rates with such a high-risk population? What percentage of applicants do you turn away? Do you cherry pick the best and avoid all the hard cases?”
It’s a great question to pose to a charity whose long-term success is dependent on a high repayment rate from a population with poor credit scores.
You can see why cherry-picking might be tempting. Windmill could set a high bar for loan approvals and only accept the lowest risk applicants: the ones with exemplary credit histories, the shortest and easiest learning plans, the smallest borrowing requirements and the most stable, supportive families. We could select the clients who, we know from experience, repay more than 99% of the time. They would make our Loan Managers’ lives easy and their successes would make our statistics pop.
The trouble is, none of us, at Windmill, either on the staff or on our board of directors, came to Windmill just to serve those easy clients.
What motivates us most is to help the newcomers no one else will, and see them succeed. We love applicants who appear high-risk but are genuinely motivated to transform their lives. We love to meet people who have never been taught the basics of how to manage their finances, to help them develop good habits through coaching and practice with a Windmill loan, and watch them turn a vicious circle into a virtuous one that leaves their whole family better off. We aspire to lend to every qualified client whose career plan is achievable, and who stands a reasonable chance of repaying the loan.
When we turn an applicant away, we do only after a thorough internal debate. The decline is generally conveyed as a “not now”, along with an explanation of how he or she can improve his or her chances of being successful with a future application. The most common reason for a decline is financial risk. Some applicants have accumulated staggering amounts of debt before they apply, or such a chequered credit history, it is just not conceivable that they will be able to manage the burden of repayment if we add to it. It is never our goal to drive people into bankruptcy or consumer proposals, or to make their repayment burdens debilitating. We have all seen how debt can destroy lives as well as improve them.
Over the past 15 years, we have seen the number of applicants with a history of bankruptcy or debt consolidation grow—it is a worrying societal trend—but we approach most applicants with optimism borne from experience. Time after time, we are amazed at the capacity of newcomers to juggle the demands of their “survival” jobs while also studying for exams, raising a family, and repaying their loans.
Sometimes, clients need flexibility on their repayment terms, particularly if they suffer a setback with an exam, a family crisis, or a job loss, but within a few short months, they are almost always back on their feet. The percentage of our loans more than 31 days in arrears in the last fiscal year was only 1.8%. Only 1.9% of our total loan book was written off.
And what about cherry picking? In the last fiscal year we approved 93% of eligible applicants and declined 7%. In doing so, we hit our target for helping more than 1000 newcomers that year, but still have a long way to go. When our founder, Maria Eriksen, was asked back in 2005, “How many immigrants do you want to serve?” without hesitation she answered, “all of them.”
And that is Windmill’s answer to the question of cherry picking.