Capital Allocation

11th June 2021 | Blogs

When I was very young as a child I was faced with a very difficult scenario in my family. It was in the evening and I was watching tv laying on the carpet in our living room. My mom and older brother were talking in the kitchen behind me. My sister was in her room down the hall singing and playing by herself. I was too young to remember the conversation they were having in kitchen, but I do recall the mood being tense and fragile. My dad was not home yet, but dinner was being made while their eyes remained on the door. I got up from the carpet and ran into the kitchen, asking for something to snack on. I didn’t get the snack I wanted so I went to check on my sister in her room. Some time later the front door opened and my dad entered the house.

Immediately my parents went outside in the backyard and an argument started. They didn’t stay out back for long, and remember my dad getting a few things from the bedroom and leaving the house. In an instant the life I knew was suddenly gone. I was 5 years old when my parents got a divorce. My mom became my only parent, and suddenly we were thrust into poverty. As a 5 year old you don’t quite understand everything. I do remember a few moments that stood out to me during this period. Most of them were not pleasant. Most were very disorientating as a child. I do remember not having a father figure overnight. I remember standing in a long line to get food stamps so we could eat. I also recall my mom working 3 jobs, and us kids staying with my grandmother quite a bit during my mother's day and nights shifts. I also remember her juggling school after working all day long. The mood was tense in our house often and to this day there are several meals I cannot eat because we ate the same thing every day for years.

Let’s flash forward to 2008. I was 2.5 years into my career as a Branch Manager for a bank in metro Atlanta. I was in my office talking to a mother of 3 kids, who happened to be bouncing off the walls in the lobby, while she and I discussed overdraft fees. Talk about deja vu. While I reviewed the transaction history I realized that the charges were for consumer staple items. Electric company payment, groceries, doctor visits, and fueling stations, all the charges were used for basic living needs. What I thought I might see were credit payments indicating excessive leverage. It wasn’t there. The forensic review presented nothing out of character for the situation in front of me. What I did see were deposits, sporadic but from different sources on different days. I asked about it - and she mentioned having several jobs for income. What wasn’t lacking was effort, what was lacking was faster recognition of income.

Between those 2 experiences in my life, something clicked and clicked hard. The financial system was missing a way to allocate capital appropriately to those who had shown they earned it quickly enough to make a meaningful difference before any potential recognition. An entirely different way to work risk analysis that could capture more potential than current risk models in the marketplace. As a banker who walked several miles in those shoes I could relate. As a child, you don’t question the system because you don’t know enough about the world. When the two realities meet, you have a choice to make. Accept it, then wait for someone else to change the world or you create a solution to solve the problem. I have chosen the later. Capital allocation in finance requires a disciplined mindset to understand risk. Risk can be utilized as an accelerator and risk as brake to manage investment. As an industry we haven’t seen real enhancement that balances risk management while creating more efficiency in capital allocation beyond the A & B credits. We need prudent risk practices in our credit administration. But we also need to understand that when a situation like my childhood unfolds, as a creditor who has a relationship with the customer, a different lane to work in can make all the difference in the world to understanding favorable risk potential. CRA is an operating mandate that attempts to make a stab in the right direction, but it hasn’t been updated significantly since inception in the 1970s.

CLIMB was created to help identify those who have fallen through the cracks in the financial system. We accomplish this by identifying new ways to analyze risk, allowing us to provide access to value and insights that can give equitable financial experiences for all. Its design has encapsulated ways to better identify others who have similar humble beginnings like my own, but also unlocks value to recognize those who have been able to advance themselves in life by working for it day in and day out through tangible milestones and achievement much faster. This technology allows for a multi purpose platform that lenders and consumers alike can yield new insights for responsible utilization of credit allocation and financial education. Poverty impacts everyone. This isn’t a siloed issue only to the immediate affected. The community suffers, families suffer, children suffer, and the financial ecosystem is seen as inadequate. Poverty can also happen very fast, within 24 hours in my case. But others experience poverty more dramatically with an aggressive fall in stability. We deserve better. That’s why we built a new risk model to raise and recognize those who need it most. Welcome to CLIMB.

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