How Is A Microloan Program In New Mexico Reshaping The Small Business Landscape?

For New Mexico’s largest credit union, small loans make sense.

Nusenda Credit Union ($4.0B, Albuquerque, NM) is reaching everyday citizens through Co-op Capital, a program that funds microloans for community organizations. By writing loans for as little as $250, Nusenda is helping set people on the right track. Sometimes that track is starting a business or developing energy independence. Other times, that track is about restoring hope for residents who don’t know where else to turn.

“In a lot of cases, we are giving entrepreneurs access to capital for the first time so they can realize a dream,” says Sara Keller, Nusenda’s vice president of community engagement.

Keller has spent a decade working in fundraising and development and the past three years supporting Co-op Capital. The program has amassed more than $4 million in capital. That’s no small feat for an organization that is five years old, but Keller and the rest of the leaders at Nusenda are more pleased with the impact the program is making on local communities.

For example, one borrower that came through the non-profit Native Women Lead started a vegan food kitchen out of her home — not the typical business model in this region, according Keller.

“Her loan helped her start a brick-and-mortar grocery store on a reservation,” Keller says. “In an area that is otherwise a food desert, she was able to not only fulfill her dream but also help her community.”

Co-op Capital offers loans at 5% APR with 120-month repayment plans. Borrows can tap as little as $250 or up to $10,000. Many borrowers relied on these smaller loans to get through the pandemic and meet needs as simple as keeping electricity on, but Keller says the average loan amount is $6,700. In the past five years, Co-op Capital has made more than 300 loans totaling more than $2 million.

Nusenda Credit Union works with community partners to identify and support borrowers shut out of traditional lending. Read more in “Small Loans Make A Big Impact In New Mexico.”

According to Keller, the idea for Co-op Capital began percolating in 2016, when the credit union was looking for a vehicle to firm up the economic stability of New Mexico. The credit union knew there was a local need for various types of non-standard loans. Organizations such as Native Renewables were helping remote, off-grid Native Americans purchase solar panels and access electricity. The University of New Mexico was trying to help students facing minor financial setbacks stay in school.

“Students were leaving school entirely because they needed a new tire,” Keller says. “It was creating financial heartache for the university.”

School officials reached out to Nusenda, but the credit union wanted to do more than simply throw money at those in need. However, it had to figure out a way to manage the risk uncollateralized loans — even small-dollar ones — present.

Co-op Capital came to fruition in 2018 when the W.K. Kellogg Foundation, the now 92-year-old charitable organization established by breakfast cereal magnate Will Kellogg, contributed more than $500,000 to the program.

“The Kellogg Foundation has made New Mexico a focus,” Keller says. “One of its strategic initiatives is to support at-risk populations.”

Kellogg’s cash infusion covers 70% of the program’s portfolio risk. Nusenda covers another 20%. The last 10% is a testament to the creative thinking behind Co-op Capital.

The program bases its lending decisions on the relationship between Nusenda’s 19 partner organizations — non-profits, community organizations, and educational institutions — and the people and communities they serve. Each of these entities have specific goals and purposes for helping their at-risk populations.

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Each partner organization generates its own loan requests — and manages the accompanying paper and legwork — and sends them to Nusenda for funding. To help ease the burden of the extra workload, Nusenda offers these organizations grants up of to $25,000.

According to Keller, it takes approximately six months from when conversations start with a partner organization to get to the point where Nusenda begins to lend money. Part of the process is developing a memorandum of understanding that outlines the responsibilities of both organizations.

Because each partner organization is different in size, scope, and possibly even geographic boundary, each agreement is different. Even charge-offs are handled differently depending on the organization. Some organizations absorb the loss if the payoff has already reached 50%. In other cases, Co-op Capital takes the loss, helped in large part to the original contribution made by the Kellogg Foundation.

“The partner organizations are the boots on the ground,” Keller says.

No credit, no collateral. It’s lending based on character.

“It’s really that simple,” Keller says.