What is a Sustainable Lender?
There’s no question that “sustainability” has become one of the most oft-repeated phrases to populate the lexicon of forward-thinking businesses and their long-term goal statements. Housing, transportation, agriculture, economic policy: all of these macro-level interests are being conducted with an ever-greater eye to the balance between achieving developmental goals and preserving the structures and ecosystems (literally or metaphorically) on which they depend. While the term often carries an environmental connotation, it can be used to describe any business practice that aims to help customers not only through the provision of services, but also by improving or preserving conditions for all participants in the broader marketplace in which their service exists.
In that case: how would we describe a sustainable lender?
Accumulating debt, especially from multiple sources, can lead to significant personal financial pressures over time. There is an inherent paradoxical element or Catch-22 built into many loan solutions: an unsustainable model that creates a recurrent, dependent pattern of further debt pressures despite advertising itself as a way out of debt.
Many individuals have difficulty accessing credit from conventional financial institutions, or find that existing product offerings do not adequately meet their needs. Some turn to costly alternative forms of credit – including high-interest pawn and payday loans or bank account overdrafts – with effective annual interest rates frequently exceeding 300 percent.
The goal of a sustainable lender should be to guide its clients to transition back toward saving, improving their financial well-being relatively quickly rather than creating a dependent model. Borrowers need to be educated on safe and advantageous use of credit products – and those products should be designed to help consolidate and eliminate harmful debts.
Sustainability is about doing business with consideration of future growth. Removing collections pressures, consolidating debt, and designing loan products with responsible terms: these are ways that alternative lenders can focus providing a sustainable model for their clients and the lending industry.