Federal Reserve Governor Michelle Bowman emphasized the importance of more inclusive financing options for small businesses at the Fed's Financial Inclusion Practices and Innovation Conference in Washington, DC.
Enhancing Financial Inclusion
Bowman highlighted that expanding inclusion opportunities can enhance the financial well-being of consumers and small businesses, ultimately contributing to overall economic growth. A Fed survey revealed that many small businesses facing financial constraints often resort to personal financial resources like personal funds or loans from family or friends, indicating a need for improved access to financial resources.
Support from the Private Sector
Bowman stressed that the private sector can play a vital role in supporting financial inclusion. She cited a recent Fed report showing that 10% of adults with annual incomes below $50,000 utilize high-cost financial products like payday loans, pointing out the associated risks and costs.
Safe Small-Dollar Loans
To provide a safer alternative, Bowman suggested that banks offer small-dollar loans with terms that are more secure and cost-effective than other types of loans. By utilizing automated underwriting based on alternative data, banks can potentially reduce underwriting costs, making affordable loans more accessible to consumers.
Promoting Financial Inclusion
Bowman reiterated that achieving greater inclusiveness in the financial system is a top priority for the Fed. While progress has been made, she emphasized the need for continued efforts from both the public and private sectors to explore innovative products and services that can further promote financial inclusion.