Four for social good

Progreso Financiero has about three dozen locations.

Progreso Financiero
Headquarters: Mountain View, Calif.
Founded: 2005

About 25 percent of households in the United States either do not have bank accounts or are underbanked, forcing them to rely on costly payday loans and check-cashing outlets for their financial needs, according to a 2009 report from the Federal Deposit Insurance Corporation. Among Hispanic households, more than 40 percent are unbanked or underbanked.

In other words, those households lack access to credit to buy homes, start businesses and tap into other engines of economic development, says James Gutierrez, founder and CEO of Progreso Financiero.

Raised in a largely Hispanic community in Southern California, Gutierrez says he saw firsthand the “high moral collateral” that exists in such communities. So, while pursuing his MBA at Stanford, Gutierrez came up with a business idea to help that Hispanic community build credit and access mainstream financial services.

That idea became Progreso Financiero, a startup that provides small loans—between $500 and $2,500—with fixed payment plans and a 26 percent annual percentage rate plus fees, which adds up to about 36 percent. Annual percentage rates for payday lending services usually relied upon by the underbanked can be more than 400 percent.

Since making its first loan in early 2006, Silicon Valley–based Progreso Financiero has made about 75,000 loans. So far, its loss rate is in the single digits, Gutierrez says, though Progreso doesn’t disclose its exact numbers. Its outlets are located in department stores and ethnic supermarkets, where Spanish-speaking staff work with customers to assess their needs and repayment capacity. Progreso uses a proprietary scoring model to determine who is eligible for its loans.

The company has expanded to about 35 locations in California and Texas. To really make a dent in the population, Progreso needs to serve at least 1 million customers, Gutierrez says. That would have an effect beyond the dollar value of the loans themselves, he says—one of the company’s primary goals is to educate customers and help them establish credit, which would allow them to access more mainstream financial services, as well.

So far, Progreso is seeing double-digit growth each month, Gutierrez says. While the economic downturn has increased the need for Progreso’s loans, it’s also presented a challenge as capital has dried up. Progreso is a Treasury Department–certified community development financial institution similar to the recently merged Shorebank Pacific and OneCalifornia Bank [see “Shorebank Pacific acquired,” sustainableindustries.com, Aug. 24, 2010], so it can’t use customer deposits to make its loans and must rely on banks itself.

Gutierrez says Progreso’s experience shows that venture capital and businesses with a social mission can find common ground. Typically, venture capital, with its need for higher returns, may not have invested in social businesses, but venture capital investors understood both the value of loyal customers and the franchise potential Progreso offers, he says. In June, Progreso closed a $28 million Series D funding round, led by Madrone Capital and Greylock Partners, bringing total VC investment to more than $50 million.