Diving into the underexplored realm of social finance for consumer loans, OneMain Financial has started out a social bonds programme set on serving the financially underserved across the US.
Environmental Finance: Why did OneMain make the decision to move into social finance with the issue of its inaugural social bond?
Micah Conrad, OneMain's chief financial officer: OneMain's decision to issue our inaugural social bond was a continuation of the work our company has been doing for years to improve the financial well-being of hardworking Americans. 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 bond gives us a way to innovate in the capital markets space while simultaneously supporting the local communities we serve that need an extra hand.
We had already been working in many underserved communities where access to credit is limited. The social bond is a formalised commitment by OneMain to help these customers and communities progress to a better future through our responsible and affordable lending products.
EF: How do loans handed out under this bond differ to a normal customer loan from OneMain? What are the benefits to the customer?
MC: For our customers, the loans included in our inaugural social bond are really no different than 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've 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 is a testament to our commitment to financial inclusion and reinforces the work we are already doing to provide underrepresented communities with access to safe, affordable credit.
Each time we give a loan, we ensure our customers go through our ability-to-pay analysis—promoting affordability for each customer’s unique situation.
EF: What did this bond offer to investors that they couldn't get elsewhere?
Dave Schulz, senior vice president and treasurer at OneMain: Investors care where their money is going and what it supports, now more than ever. OneMain's social bond gives investors the ability to directly invest in areas of the country that are underserved and help historically underserved borrowers improve their financial lives. We are proud to have direct investment in our CSR efforts.
EF: Is consumer finance an underexplored area of social and sustainable finance?
DS: Absolutely, it is an underexplored area, especially in the US and particularly for nonprime customers. Access to credit increases economic prosperity and helps individuals build financial security. It's particularly important for those who are lower-income 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 hardworking Americans by offering responsible lending products. We hope to pave a path for peers to follow in our tracks.
EF: What's next for OneMain in social and sustainable finance?
MC: In early 2022 we published our Social Asset-Backed Securities (ABS) Framework. Proceeds from this bond, when issued, will support customers in rural areas, a portion of which will be lower-income, that are historically underserved by traditional financial institutions and access to responsible credit is typically limited or non-existent. To our knowledge, a Social ABS has not yet been executed by a US issuer, and similar to our Social corporate bonds, we will continue to show leadership in this space and support our communities who most need a hand.
We recently launched Credit Worthy by OneMain Financial, a financial education program that will be one of the cornerstones of our CSR program moving forward. Credit Worthy will provide free financial education modules for high school students, with a focus on schools in lower- and middle-income communities. By the end of 2022, our curriculum will be taught in at least 1,500 schools.
EF: How do you see the sustainable, social finance market in consumer loans developing?
DS: OneMain is proud to have set the precedent for best practices by issuing the first US social bond in high yield. We hope our example will allow others in our industry to participate and innovate in this space and further help individuals who've not received the level of attention that they deserve in the social finance space.
S&P Global Ratings expects global issuance of sustainable bonds—including green, social, sustainability and sustainability-linked bonds—will surpass $1.5 trillion in 2022, so it is a growing segment of the market.