Innovations for Underwriting Minority and Small Business Enterprises

FinRegLab is investigating ways to improve credit access for minority-owned companies and other underserved small businesses through the use of non-traditional data sources and mission-based lenders.

The research project is evaluating efforts by minority depository institutions, community development financial institutions, and other community-based lenders to explore ways that bank account records and other sources of cash-flow information can be used to scale their lending operations. It is also evaluating the predictiveness of different credit attributes using loan performance data from larger fintech lenders.

FinRegLab expects the project to be the first in a series of studies focusing on ways that data and technology can improve financial services for small businesses, which create two out of every three net new jobs in the U.S. and can be a critical path for wealth-building among households of color. The initial project started with a June 2024 landscape report focusing on changes in small business lending markets since the pandemic and has three main components:

Mission-Based Lenders’ Adoption

In one workstream, FinRegLab is working with Emmanuel Yimfor of Columbia University to structure studies of pilot programs by minority depository institutions, community development financial institutions, and other smaller lenders to explore the potential to scale their lending to minority business enterprises through use of automated data flows, non-traditional data sources, and partnerships with fintechs. FinRegLab published an October 2024 working paper on lessons from data and technology implementation initiatives and broader issues facing mission-based lenders as they expand their small business programs. 

Empirical Research

FinRegLab is partnering with Sabrina Howell of New York University to analyze data from fintech lenders who have been using automated sources of cash-flow data since before the COVID-19 pandemic. The analysis will compare the predictiveness of a range of metrics distilled from automated cash-flow data as well as traditional credit scores and report information to identify which data points are most useful in underwriting loans to minority business enterprises and other types of small businesses.

Stakeholder Engagement

The third workstream involves engaging market actors, policymakers, advocates, and other stakeholders to explore the implications of the research for market practices and public policy going forward. FinRegLab will use industry conferences, convenings and other outreach channels to share findings with key audiences.

The project will be structured to facilitate later empirical analysis of loans from the pilot programs as they conclude. Additional components may be added over time to assess the potential for mission-based lenders to combine “high tech” and “high touch” approaches and to increase the scale of their operations substantially through partnerships with fintechs.