Book: The Economist - 2016-01-09

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Banking for immigrants

Far-sighted

Catering to foreign-born customers is a growing niche in finance

| NEW YORK |

Bankers will also ask to see an ID

MOST banks wouldn’t lend to Roberta. She arrived in New York from Mexico with papers but no credit history. But Neighborhood Trust Federal Credit Union, which specialises in lending to immigrants, gave her advice and a $2,000 loan. She started out selling Mexican food from a cart. She now runs a food truck, employs five people and has plans to expand.

Many immigrants, like Roberta, want to save or start a business. But they struggle to get finance. In America 23% of households headed by a non-citizen, and 35% of households where only Spanish is spoken, have no bank accounts—compared with 8% for the population as a whole. There are multiple barriers: not just low incomes, which make it hard to meet minimum-balance requirements, but also trouble with language, identification and trust.

Neighborhood Trust is trying to change that. More than half its members are Latino, largely from the Dominican Republic, and many are undocumented. Most of the staff are themselves immigrants, and know their members well: they visit borrowers’ businesses often and offer workshops on financial literacy. The hands-on approach keeps default rates low.

Other financial firms, in both America and Europe, are also finding new ways to serve immigrants. Some are like Neighborhood Trust—small and community-minded. Others are startups hoping for big profits. Oportun is a good example: the American lender has made loans of $1.9 billion since 2006, mostly to Latinos, using big data and clever algorithms to lend to those without a credit history.

These firms have several tactics in common. The first is to make it easy to open an account—a process that is often unnecessarily slow and intimidating. Monese, a startup based in London, allows European migrants to open an account by phone with just a photo of a passport and a selfie.

A second shared tactic is to make life easier for those, such as illegal immigrants, who may struggle to prove their identity. Banks can be fussy: in one survey half of unbanked Mexican immigrants in New York said a lack of documentation prevented them opening an account. But many American banks will accept taxpayer identification numbers and consular ID cards, which can be obtained irrespective of immigration status. In New York 12 financial firms, including Neighborhood Trust, accept a new card launched by the city government to help undocumented migrants access services—though no big banks do.

Third, instead of waiting for immigrants to come knocking, these firms seek them out. Oportun, for instance, has branches inside shops in Latino neighbourhoods. Mission Asset Fund, a Californian non-profit group, assists informal savings groups in immigrant communities. As members make small, regular payments into a common pot from which they take turns to borrow, they are also able to develop a formal credit history.

A final tactic is to tailor services to meet the particular needs of migrants. Extrabanca, in Italy, explicitly markets itself as a bank for immigrants. Many of its customers are from China, the Philippines and eastern Europe. It helps them deal with the red tape involved in renting a house or starting a business. Many American credit unions offer “citizenship loans” to cover the costs of naturalisation. Some offer illegal immigrants loans to pay the fees for amnesty schemes.

Larger banks can be put off, at least in part, by regulation. Many have stopped offering international transfers in response to tighter rules on money-laundering and terrorist financing. In Britain, new laws bar banks from opening accounts for illegal immigrants. But some big banks are catching on. Scotiabank, in Canada, allows Chinese migrants to start opening an account before leaving home, through a partnership with three banks in China. Deutsche Bank woos Turkish customers in Germany with a service called Bankamiz (“Our Bank”), which offers bilingual tellers, free withdrawals at ATMs in Turkey and five free transfers to Turkey each year.

Catering to immigrants can be profitable in the long run, suggests Sherief Meleis of Novantas, a consultancy. Banks can win customers who will be loyal for years to come. As Rafael Monge-Portaro, the boss of Neighborhood Trust, says of Roberta: “We trust her and she trusts us.”


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