Defeating Global Poverty

Kiva, a pioneer in making microlending participation possible for almost anyone in the USA at $25 at a time, has focused to date on lending to microbusinesses in developing/low-resource countries. Many of these loans were a few $100's with the largest around $1,000 per individual business.

Recently has begun facilitating loans to low-income self-employed entrepreneurs in the USA. Note that these loans are really not "microloans" with the current loan sizes of $1,000 to $10,000 with median around $5,000-$6,000. These appear to be instead unsecured loans to businesses which have no access to credit.

Here are a couple of examples:

Anibal is raising $4,500 for his decorative painting business


See details on his loan request

Carl is raising $4,000 for his window washing business


See details on his loan request

I think this is going to be an interesting experiment. Clearly there are challenges for many USA small businesses getting access to capital which has only be exasperated with the current financial credit crunch. It will be interesting to see what the repayment rates are going to be on these loans.

Does the higher capital requirement result in a lower social impact?

One things about microfinance pointed out by A Billion Bootstraps book is that lending a $100 goes a LOT further in terms of number of lives impacted in a low-resource country than in a developing country where the capital needs appear to be on the order of 10x higher.

Small services businesses often need capital for purchasing equipment

Still, I think that this is an innovation for financial services worth watching. As many of you know, I recently launched a new website for helping homeowners find recommended local plumbers, home cleaners, painters, locksmiths, handymen and much more called HelpHive.com. Our marketplace is attracting a range of services businesses from the national chains all the way down to the smallest window washers, lawn care specialists and pressure washing specialists. These smaller business are often single person businesses sometimes hiring a helper or two. Many of them have needs to purchase equipment which they could easily afford through earnings if they had access to financing. Kiva might be their answer ... much better than the payday loan vultures or the loan sharks!

Here is a list of current Kiva USA entrepreneurs seeking small business loans.

What do you think about the opportunities or challenges for microcredit in the USA?

Labels: microcredit, microfinance, usa

Grameen Trust, the Bangladesh-based charitable arm of the Grameen Bank, is starting up a microfinance business in the USA called Grameen America. [I couldn't find a web site for this yet although there is a job posting for a CEO.] Grameen Bank has been a pioneer in microfinance and recently was awarded the Nobel Peace Prize along with its founder Muhammad Yunus.

Here are some of the highlights from a business plan overview I have seen:

• It will be a for-profit social enterprise business setup as a joint venture between Grameen Trust and a large financial institution [likely to be H&R Block] with Grameen Trust having a controlling interest. They expect positive cash flow in 4-5 years.
  
• A long-term Grameen executive, Prof. H. I. Latifee [see his recent whitepaper], the managing director of Grameen Trust will head up the initial "build, operate and transfer" team to setup and then hand-off operations to a USA team. The thinking is to transfer the know-how and DNA of Grameen Bank to seed this organization.
  
• The business plan references the Association for Enterprise Opportunity which estimates that there are more than 750 existing microfinance organizations/programs in the USA. Most of them are characterized as "social welfare programs" and none are financially self-sustaining [without donors] with the best running at only 70% cost recovery.
• Their initial focus will be on recent immigrants who have an entrepreneurial spirit. Micro-business loans will start at $500 and grow from there based on a positive repayment history. The borrowers will support one another in groups although they won't guarantee each others loans.
• It sounds like the focus is going to be on urban areas with the first test market of New York City. They are planning to take advantage of credit cards to simplify credit access and lower transaction processing costs (for borrower and themselves).
  
• They expect to later offer a number of membership benefits including networking, member discounts, visa and citizen information, credit establishment and more.
• They are hoping to ultimately create a lot of grief for the credit services for the working poor offered in the form of payday loans, loan sharks and other unscrupulous bottom feeders who prey on the vulnerable.
  

I am a big fan of introducing more competition and reasonable credit choices for the working poor in the USA. Grameen America has a lot of the right thinking on this including starting with a business (=sustainable) mindset, establishing a beach head with a likely-to-succeed client segment, partnering with a deep pocketed financial services company and taking advantage of technology to enable scale and cost containment. I think that the challenges of business licensing, regulations and tax reporting will likely require more of an incubator-type structure, but this is something that can evolve over time.

What do you think?

Reference: previous post on Microfinance in the USA

Update: Here is Grameen America's web site.

Labels: grameen, grameen america, microfinance, poverty, usa

Most of microfinance is focused on providing small microcredit loans to very low-income micro-business entrepreneurs in developing countries. The model has proven to be very effective in helping people help themselves to earn their way out of extreme poverty.

The New York Times profiled some microlenders experimenting in the USA. They note that in 2003 that there were 246 known microlenders most of which were non-profits. These lenders are providing an interesting service in providing credit to very small businesses which generally sit below the level that the federal Small Business Administration is optimized for. These microlenders are able to move more quickly and provide more flexible products which are often critical for entrepreneurs who are often very time sensitive in their needs. Accion USA, a pioneer of microcredit in Latin America, is one of the leaders in this new experiment with average loan sizes of about $5,600.

While it is encouraging that pioneering efforts to help low-income American residents are underway, this article does not point out that none of these microcredit programs are operationally sustainable and I'm not aware of any of them which even have a plan to get to sustainability. Please let me know if anyone is aware of a program which has developed a model in USA or Canada which is on route to sustainability.

Labels: microfinance, poverty, usa