James Gutierrez, who founded Progreso Financiero to make loans to poor immigrants with limited credit histories, said Tuesday that he has raised $16 million in private funding and has lined up $65 million in credit to help companies offer loans to similar customers.
The new firm, Insikt, will help retailers, such as furniture stores, offer installment loans of up to $10,000 to customers with weak or no credit.
The San Francisco firm provides credit-scoring software similar to that used by Progreso by combining database searches and what Gutierrez has called an “eHarmony-type questionnaire” to gauge the likelihood of repayment.
At Progreso, a borrower might repay a $1,000 loan by making two $60 payments a month for 10 months for a total of $1,200. Annual percentage rates run above 30% -- painfully high by middle-American standards but a good deal compared to payday loans and rent-to-own retail schemes that can result in many borrowers paying triple-digit interest rates.
“Personally, it pains me to read about working-class people spending $4,500 [on rent-to-buy programs] to buy a $1,500 couch because they have no other options,” Gutierrez said Tuesday.
His new company launched its loan origination system, called Lendify, earlier this year.
Insikt also handles collections, leaving its client companies -- retailers, online merchants, even banks -- to stamp their brands on the loans, presumably deepening their bonds with their own customers.
Gutierrez founded Progreso nine years ago and, through mainly rented space in Latino supermarkets, has since made more than $1 billion in small loans to Spanish-speaking immigrants.
He left Progreso in 2012 in a dispute over its strategic direction as the company, growing rapidly but not yet profitable, struggled to find funding for its burgeoning number of loans.
Progreso has since become profitable, said Gutierrez, who remains a large shareholder.
His new company aims to solve the problem of funding loans by using the strategy pioneered by “marketplace” nonbank lenders such as Prosper Funding and Lending Club.
Insikt pools the loans issued through its client businesses and uses payments on them to back securities it sells to investors. Gutierrez said prospective buyers of the bonds include private investors across the country who are tired of earning very little on their money in banks.
“Consumer loan portfolios can provide attractive, stable returns, but investing in loans is not easy and not without risk,” he said. “Insikt allows accredited investors to participate in bonds backed by distinct loan portfolios that Insikt credit-scores and processes.”
To date, he said, the company has completed three securitizations and is gearing up for a fourth this month.
These new-wave financial firms connect borrowers over the Internet with individual and institutional investors looking to lend money at rates comparable to those on credit cards and sometimes higher.
In a sign that the fledgling industry is maturing, Lending Club plans to sell stock Thursday in an initial public offering that would value the company at more than $4 billion.
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