When the Lender Extends a Helping Hand: Native CDFI Client Counseling and Loan Performance in Indian Country

Valentina Dimitrova-Grajzl, Peter Grajzl, A. Joseph Guse (), Michou Kokodoko () and Laurel Wheeler
Additional contact information
A. Joseph Guse: Washington and Lee University
Michou Kokodoko: Federal Reserve Bank of Minneapolis

Journal of Economics, Race, and Policy, 2023, vol. 6, issue 4, No 3, 258-267

Abstract: Abstract Native Community Development Financial Institutions (NCDFIs) fill credit supply gaps and promote financial inclusion in Native communities. To mitigate lending risks and aid clients, NCDFIs often rely on unconventional lending practices such as providing clients with free financial counseling. Drawing on uniquely detailed consumer loan-level data of one prominent NCDFI, we empirically model the hazard of a loan turning into bad debt. Our analysis shows that borrower exposure to NCDFI-provided financial counseling appreciably reduces the prospects of consumer loan failure when the borrower has had limited prior credit-market experience. Personalized coaching is more effective than the relatively less client-tailored, classroom-style training. Our results have implications for the lending practices of creditors serving Native communities and beyond. More broadly, our findings are indicative of the importance of the growing, but understudied, NCDFI industry for financial development of Indian Country.

Keywords: G21; G53; G11; J15; O16; P43; Native CDFIs; Consumer loans; Financial counseling; Credit history; Loan performance; Financial inclusion; Indian Country (search for similar items in EconPapers)
Date: 2023
References: Add references at CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s41996-023-00119-x Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:joerap:v:6:y:2023:i:4:d:10.1007_s41996-023-00119-x

Ordering information: This journal article can be ordered from
https://www.springer ... policy/journal/41996

DOI: 10.1007/s41996-023-00119-x

Access Statistics for this article

Journal of Economics, Race, and Policy is currently edited by Gary A. Hoover

More articles in Journal of Economics, Race, and Policy from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().