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Microlending shows up stateside

Alisa Roth Jun 24, 2008

Microlending shows up stateside

Alisa Roth Jun 24, 2008


Bob Moon: You may recall that back in 2006, the Nobel Peace Prize was shared by a bank.

Grameen Bank is a Bangladeshi institution that’s practically synonymous with microlending. It provides small loans to launch businesses and help people lift themselves out of poverty.

The bank’s been operating throughout the developing world for decades, and this year it opened up shop in America.

But financing a business in the U.S. costs a lot more than financing one in, say, Bangladesh. Marketplace’s Alisa Roth has been looking into whether the model can really succeed here.

Alisa Roth: Amparo Catano’s living room is filled with cartons overflowing with undergarments. They’re on wire shelves that line the walls and piled chest high on the floor.

She’s been selling underwear and other products door to door and in flea markets for years. But a few months ago, she decided to go into business for herself, importing stuff directly from her native Colombia. She applied for a loan from Grameen and got $3,000.

Grameen America is trying to replicate here what it does abroad, requiring lenders to borrow as part of a small support group. And so it is that a dozen or so Latina women are squeezed into Amparo’s living room turned stockroom, making their weekly loan payments.

To recreate its model here, Grameen’s found the developing world in New York: most of its 250 or so borrowers here are immigrant women living below the poverty line in Queens.

But unlike, say Bangladesh or Bolivia, money doesn’t go very far in New York.

Ritu Chattree is vice president of Grameen America.

Ritu Chattree: Number one is some of the businesses are home-based.

So they’re not dealing with overhead costs like rent or electricity.

Chattree: And the second point is this is the first loan cycle. They know that they can have increasing amounts of money in each successive loan cycle.

Grameen will lend more to borrowers if they repay the way they’re supposed to.

The organization is often credited with starting the microfinance revolution in the developing world, but it’s a latecomer to microfinance in the U.S., which has evolved in a very different way.

One organization that’s reinvented itself in the U.S. is Accion. Its been here for decades and long ago tweaked its original model to fit the needs of borrowers here.

One of the things it realized is that microloans don’t have to be start-up money. Their average loan is now around $8,000, probably not enough to get a business off the ground At least not in New York City.

Gina Harmon: What it enables a business person to do is remain stable.

That’s Gina Harmon, CEO of Accion New York and New Jersey.

Harmon: It pays for an awning on a bodega, an additional machine in a bakery, it can pay for an accountant to buy computers, sometimes it provides the funding for an individual attorney who wants to start up his or her own practice.

Microloans are helping thousands of small entrepreneurs like Amparo, but the lenders are having a harder time. Just about all of them still depend on at least some support from foundations and other donors.

Jonathan Morduch: The big challenge in America has been getting to scale.

Jonathan Morduch studies microlending at NYU.

Morduch: The microfinance institutions that have started up have managed to reach hundred of borrowers — some thousands, but those are exceptions — but far from the scale we see that created this revolution, this explosion of microfinance overseas.

Morduch says lenders in the developing world make money by charging high interest rates. That doesn’t fly here. He thinks microlending works best in the informal economy. That sector’s relatively small in the U.S. The biggest problem, though, is there aren’t as many borrowers, because it’s much harder to be an entrepreneur here.

Morduch: There’s regulation, there’s marketing, there’s all sorts of barriers that business owners need to overcome and opportunities to seize that are not so simple.

Grameen America’s Chattree doesn’t disagree, but along with its lending model, Grameen’s brought its trademark idealism to the American scene. Chattree’s convinced Grameen can change the way business works here, one tiny loan at a time.

In New York, I’m Alisa Roth for Marketplace.

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