OneMain Financial brings credit and financial security to underserved communities
Diving into the underexplored realm of social finance for consumer lending, OneMain Financial launched a social bond program to serve the financially underserved across the United States.
Environmental financing: Why did OneMain decide to launch into social finance with the issuance of its first social bond?
Micah Conrad, Chief Financial Officer of OneMain: OneMain’s decision to issue our first social bond is a continuation of the work our company has done for years to improve the financial well-being of American workers. We wanted to take the next steps in our corporate social responsibility (CSR) journey and give our investors a way to explicitly support these efforts. The social connection gives us a way to innovate in the capital markets space while simultaneously supporting the local communities we serve that need an extra helping hand.
We had previously worked in many underserved communities where access to credit is limited. The social bond is a commitment formalized by OneMain to help these customers and communities move towards a better future through our responsible and affordable lending products.
EF: How do loans under this bond differ from a normal OneMain customer loan? What are the benefits for the customer?
CM: For our customers, the loans included in our inaugural Social Bond are really no different from our standard loans, but they are exclusively focused on credit-underserved areas, as defined by the Federal Reserve Bank of New York.
In addition, we have committed to distributing 75% of the funds from this bond to borrowers who are women and/or minorities, who historically have had fewer options. This demonstrates our commitment to financial inclusion and reinforces the work we are already doing to provide underrepresented communities with access to safe and affordable credit.
Every time we make a loan, we ensure our clients go through our ability to pay analysis, which promotes affordability for each client’s unique situation.
EF: What did this bond offer investors that they couldn’t get elsewhere?
David Schulz, Senior Vice President and Treasurer of OneMain: Investors care more than ever about where their money goes and what it backs. OneMain’s Social Bond gives investors the opportunity to invest directly in underserved areas of the country and help historically underserved borrowers improve their financial lives. We are proud to have a direct investment in our CSR efforts.
EF: Is consumer credit an under-explored area of social and sustainable finance?
DS: Absolutely, this is an under-explored area, especially in the US and especially for non-prime customers. Access to credit increases economic prosperity and helps individuals build their financial security. It is particularly important for people with low incomes or for whom credit is not readily available to have access to affordable and transparent financial products.
OneMain’s mission is to improve the financial well-being of hard-working Americans by providing responsible lending products. We hope to pave the way for peers to follow in our footsteps.
EF: What is the next step for OneMain in social and sustainable finance?
CM: In early 2022, we published our Framework for Social Asset-Backed Securities (ABS). Proceeds from this bond, when issued, will support customers in rural areas, some of which will be low-income, which are historically underserved by traditional financial institutions and access to responsible credit is generally limited or non-existent. To our knowledge, a social ABS has not yet been executed by a US issuer, and like our social corporate bonds, we will continue to show leadership in this area and support our communities who have the no need for a helping hand.
We recently launched Credit Worthy by OneMain Financial, a financial education program that will be one of the cornerstones of our CSR program going forward. Credit Worthy will provide free financial education modules to high school students, with a focus on schools in low- and middle-income communities. By the end of 2022, our program will be taught in at least 1,500 schools.
EF: How do you see the market for social and sustainable finance in consumer credit evolving?
DS: OneMain is proud to have set a best practice precedent by issuing the first US high yield social bond. We hope that our example will allow others in our industry to participate and innovate in this space and to further help those who have not received the level of attention they deserve in the space of social finance.
S&P Global Ratings expects global issuance of sustainable bonds – including green, social, sustainability and sustainability-linked bonds – to exceed $1.5 trillion in 2022, so that’s a growing segment of the market.