US Microfinance: Then, Now, and Next
What are the challenges domestic microfinance faces in these crucial economic times, and how can we move forward? On Monday night, the ACCION USA Microfinance Council started a conversation on this topic with a stimulating panel discussion at the New School. Advocacy Committee Chair Madeleine Gordillo moderated, asking timely questions of ACCION USA President Gina Harman, Lisa Servon, Dean of the New School for Management and Urban Policy, and Jonathan Morduch, Professor of Public Policy and Economics at NYU and Managing Director of the Financial Access Initiative. The panelists agreed that microfinance has achieved impressive scale, but there is still more to learn in meeting the most urgent needs of low-income communities.
One of the areas that stood out most vividly was the demand for smaller non-business-related loans. Gina Harman spoke of the payday lending and check cashing industries that serve the needs of low-income borrowers without bank accounts. At the same time, these industries remain profitable by charging high interest rates and encouraging a dangerous cycle of debt. It may be easy to think we are better off putting these types of predatory practices out of business, but consider the myriad of products they offer: a check casher may offer 27 different products – remittances and rent check writing, for example – that are vital to their clients. The success of these industries proves that there is a deep need for their services – so perhaps lawmakers should focus on aiding service providers to meet these needs profitably and justly, rather than on eradicating the businesses altogether.
How can domestic microfinance providers meet these needs while remaining profitable? Though economic times are tough, one advantage of the current environment is that the government has dedicated new funding to regulated CDFIs like ACCION USA and other institutions that promote the creation of small businesses and, therefore, jobs. Organizations can use these funds to develop innovative products that meet the needs of their customers without having to charge exorbitant rates. In the coming years, domestic microfinance will hopefully be able to provide more of these needed services, enabling low-income communities to take ownership of their financial future.
The ACCION USA Microfinance Council plans to continue to host similar events to get the word out about domestic microfinance. If you are interested in raising awareness for domestic microfinance or becoming involved in one of the many exciting consulting projects the Council organizes, visit their webpage.
By Microfinance Council member Elise Tosun
Tags: microfinance, Microfinance Council
Banks Not Looking So Peachy in Georgia
A down real estate market has hurt many Georgia banks.
A post from Veronica Tong in the ACCION USA Georgia office:
With yet another local bank failure over the weekend in the state of Georgia, things are not looking peachy in the Peach State. Of the 64 banks that have failed this year, 16 of them are from Georgia. In fact, Georgia has the highest number of failed banks in the entire country. As if the stats don’t speak for themselves, Georgia was even dubbed the unflattering title “Chernobyl of Banking” by a banking expert in the Wall Street Journal. And this is not the worst of it. According to the WSJ, there are 30 local banks currently at risk and more are expected to fail.
How did Georgia get here? As a metro-Atlanta resident, I have always marveled at how quickly new chic condos, shiny new office buildings, and new trendy strip malls boasting rows and rows of parking spots seem to pop up overnight. With Atlanta being the fastest growing city in the nation from 2000 and 2007, metro Atlanta’s robust growth stimulated enormous suburban commercial real estate development, but it also brought in a rush of new community banks hoping to capitalize on the boom right before the economy collapsed.
So who suffers? Small businesses who rely on their banking relationships with smaller community banks to help them surpass steep collateral requirements and other hurdles typical at larger financial institutions. As a Georgia resident, I would rather brag about our peaches, our state’s largest aquarium in the world, our Atlanta Braves, our state song made popular by Ray Charles, and even about the stellar ratings of Real Housewives of Atlanta before I get to the dismal bank failure statistics. But these numbers are a reflection of reality – the reality that small business owners need guidance and financing to keep their businesses afloat now more than ever before.
Though it may be a tough time to be in lending, it’s a proud time to be in microfinance, which may be Georgia’s best hope for getting affected small business owners back on their feet. Not only can microloans alleviate the current lack of supply in credit, successful microenterprises will also create jobs and fuel business growth, which are the keys to economic recovery. With small business owners’ and micro-entrepreneurs’ increasing unmet demand for credit, I believe there is no better time than now for ACCION USA in Atlanta, and in the rest of the country, to step up and help displaced small business owners by filling the void of failed banks.
Getting our Goats
Just in from guest blogger Sophie Brion of the Women’s Fund of Miami-Dade County:
In the global south, a seemingly simple gift of a goat to an impoverished woman and her family can spur radical change in her economic outlook. Almost instantly she is able to provide some basic necessities for her family, and earn increased income. One fantastic, incredible, catalytic goat. The introduction of this goat impacts the entire trajectory of the family for generations; sending children to school, building local infrastructure and providing ballast for the entire family to weather life’s inevitable ups and downs. However, in urban Miami we knew that a goat wouldn’t cut it as a strategy to improve women’s economic security. Notwithstanding regular local sightings of El Chupa Cabra (a.k.a. the goat sucker – from Mexican folklore) we knew that goat herding was not a practical source of income for Miamians. So we began to wonder - what is the goat here in Miami?
- One fantastic, incredible, catalytic goat.
Earlier this year, my organization, the Women’s Fund of Miami-Dade (Women’s Fund), released a report on women’s economic security in Greater Miami. We wanted to identify strategies that would work well for women in Miami, were strategic and affordable investments and showed promise for lasting improvement to the economic outlook of women and their families. Goats, if you will. In researching the report we identified several strategies such as financial education, matched savings programs, better wages and more subsidized/affordable childcare that offered pieces of the economic security puzzle. As we reached out to community partners and spoke to women throughout Miami we found that the strategy that seemed to offer the most significant change in women’s lives was small business ownership. Small business ownership offers women better wages, the ability to build assets and more flexibility to manage the often competing demands of care taking for children or elderly family members and work. How then to increase the opportunities for women to become successful small business owners?
For women, the biggest obstacle to developing a successful business is likely the ability to access the capital they need to start or improve a small business. From preparing a well considered business plan, obtaining affordable loans and navigating common business pitfalls, owning your own business is certainly not easy. Yet when a woman entrepreneur has access to affordable loans and support through the development of her business the likelihood of her success is increased tremendously. At the Women’s Fund, we believe that microloans along with financial education are a highly effective strategy for helping women move out of poverty and reach a stable level of economic security. ACCION USA is just such a place where women entrepreneurs can get the support and affordable loans they need to be successful. From assisting women with their loan packages to ongoing support when fledgling businesses encounter rough spots, ACCION USA helps women entrepreneurs achieve their dreams and improve the economic outlook of their entire families. In other words, we believe that ACCION USA’s microloans are the proverbial goat, and we are not alone.
Over the next four years Women’s Fund of Miami-Dade and several of our sister funds will invest in women’s entrepreneurship through ACCION USA. Leveraging the $250,000 in funding we have received from the Women’s Self-Worth Foundation to support ACCION USA microlending to women in Miami-Dade, we are buying a lot of goats.
– Sophie Brion, Women’s Advocacy Project Director, Women’s Fund of Miami-Dade County
Tags: women
We’re on CNN and Univision!
In the last 24 hours, segments featuring ACCION USA clients ran on two major television outlets, CNN and Univision. Our phone lines and website stand ready to take inquiries from underserved microentrepreneurs who are hearing about ACCION USA for the first time, thanks to this great national coverage!
Here are links to the online videos:
- Univision’s “Primer Impacto” covered Oscar and Elizabeth Amador, who used an ACCION USA microloan to build their Miami-based small business, On-time Delivery Service, Inc.
- CNN’s “American Morning” profiled ACCION USA client Lucy Valena, owner of Boston’s Voltage Coffee. Lucy is one of the first recipients of a loan through our program with the Boston Beer Co., Samuel Adams Brewing the American Dream.
Between today’s coverage, last month’s widespread reporting on ACCION USA’s new partnership with Kiva.org, and scores of newspaper stories about microentrepreneurs, we are clearly breaking new ground in the mainstream media’s awareness of U.S. microfinance. That can only be good news for microentrepreneurs across the country in need of a loan.
Meet Microfinance Borrowers at 7/27 Event
I’ve always said that the best tellers of the ACCION USA story and the impact of microfinance in the United States are actual ACCION USA borrowers—the women and men who are putting their loan capital to work towards positive change.
That’s why, if you’re located in New York or fancy a trip here soon, I highly recommend popping into the next ACCION USA Microfinance Council event – a lively panel discussion on the challenges surrounding the domestic microfinance industry and the small business community in New York.
You’ll hear testimonial from an ACCION USA borrower whose family used their loan to realize their dream of owning their own Italian restaurant, Desy’s Clam Bar in Williamsburg, Brooklyn. I can guarantee that their success story is as inspiring as their cannolis are delicious (I ate nearly two at a recent visit, and haven’t stopped thinking about them since.)
The event will also include insights from top ACCION USA staff, including president and CEO Gina Harman and microfinance industry experts.
When? Monday July 27, 2009 at 6:30 p.m.
Where? The New School, 66 West 12th Street, 5th Floor, Wollman Hall, New York, NY
RSVP? Yes please, to rsvp.any@gmail.com
See you there!
The Neighborhoodie Awards
From left to right: Robert W. Walsh, Commissioner, NYC Small Business Services; Mayor Michael Bloomberg; ACCION USA President and CEO Gina Harman; Kevin Burke, CEO, Con Edison; Eileen Auld, New York State Community Relations Director, Citi
Last week, the NYC Department of Small Business Services hosted its seventh annual Neighborhood Achievement Awards at Gracie Mansion, the vacant mayor’s estate. (If you’ve ever seen Mayor Bloomberg’s extravagant, Upper East Side residence, you understand why he doesn’t live there.) Every year, the Neighborhood Achievement Awards, or the “hoodie” awards for those of you fluent in the local urban vernacular, honor NYC’s most dedicated community development organizations and inspiring small businesses. As one of twelve proud recipients, ACCION USA was recognized for our work serving the minority and women small business community, taking home the Minority and Women Business Enterprise (M/WBE) Advocate of the Year Award. Currently, ACCION USA’s NY portfolio consists of 96% minority and women clients. This comes as no surprise given that both of these populations continue to be disproportionally affected by the lack of access to business credit in the U.S.
It wasn’t until I attended the ceremony last Monday that I realized just how big of a deal these awards are within the city’s small business community. I guess mention of the Mayor as the event’s emcee in the invite was not an obvious hint for me. I figured these awards were your standard media-powered vehicle for showcasing the city government’s dollars at work. And, as an NYC taxpayer, I felt a catered evening at Gracie Mansion was deserved, seeing as how I pay one eight millionth of the rent. As it turns out, fancy cocktails and photos ops aside, my assumptions and cynicism were unfounded.
The Neighborhood Achievement Awards were a refreshing look at the organizations and entrepreneurs who are creating real change in our local communities, whether it be economic, social, or aesthetic. More importantly, it was a celebration of the close-knit network of neighborhoods that create the city’s five boroughs and make NYC, arguably, the city with the strongest sense of community. Especially at a time when gloomy economic news floods the headlines, positive reinforcement is a worthy reminder to us small business folks that we continue to play significant part in revitalizing our local economies and communities. I know I can speak for ACCION USA in saying we view our award as added motivation to advance our critical mission into our twentieth year serving the individuals who are the backbone of the NYC economy.
A Microentrepreneur Walks Into a Community Lending Organization…
This could sound like the start of a bad microfinance industry joke, but in all seriousness, I have a question to ask. A small business owner is in need of a loan. Let’s say it’s the owner of a childcare business that’s located in a house on the outskirts of town. The business, the sole source of income for the owner and her husband, recently unemployed, is in peril of shutting down. She needs just enough money to repair her toilet, so that the childcare center can meet basic health codes. The business is the woman’s life, and provides her with so much pride.
The business is located in Pakistan. Would you lend $25 to this woman?
The business is located in Lawrence, Massachusetts. Would you lend $25 to this woman?
Regardless of your decision in each scenario, my point should be clear: the face of microenterprise in the United States is not remarkably different from microfinance abroad. While microfinance organizations (MFIs) like ACCION USA may make larger loans than its international counterparts and operates in a formal economy, our common mission is to empower people through access to capital at a fair price, provide the tools needed to build a sustainable business and therefore employment, income, pride of ownership and of community.
So why, then, should U.S. and international MFI’s not be united under a common platform such as Kiva? Lack of financial education and consistent employment opportunities in low income communities are primary reasons that people cannot break out of poverty. Microfinance has effectively addressed these issues in the U.S. by educating borrowers and supporting businesses that provide self-employment opportunity, family income and much-needed jobs.
At ACCION USA, we support Kiva’s work in the United States— where poverty is a real, measurable problem. Millions of families nationwide are marginalized, without access to adequate health, educational, and financial resources. Likewise, millions of business owners cannot access traditional or fairly priced credit. Thanks to Kiva, many more entrepreneurs will become aware of MFIs and their life-changing loans . Kiva represents a huge step in reaching scale in the U.S.
Tags: kiva
Thank You, Unhappy Kiva Lenders
One of my all-time favorite pieces of wisdom is that you can please some of the people some of the time, but you can’t please all of the people all of the time. I’ve never found this statement to be truer recently, as a healthy debate regarding whether Kiva has any business providing loans to microentrepreneurs in the U.S. has picked up speed.
An online poll shows that Kiva has pleased exactly 48 percent of the people by giving U.S. entrepreneurs the opportunity to raise loan funds on their site—leaving 52 percent unsure or unsupportive of the move. Comments criticizing the U.S. loans range from good (Lenders aren’t being forced to lend to U.S.-based businesses) to bad (U.S. loans displace loans from the poorest nations) to downright ugly (“Why can’t U.S. business owners can just go to a bank?”).
Regardless of your stance on U.S. microfinance, the facts presented in Kiva’s most recent Community Call highlight the positive effect that the domestic launch has had on microfinance and microentrepreneurs worldwide:
- The U.S. pilot contributed to an 18 percent increase in new money on the site, distributed to small business owners worldwide—increasing the money available to the poorest nations that Kiva works in.
- U.S. focused lenders also made loans to entrepreneurs in developing countries—disproving a popular belief that featuring U.S. entrepreneurs would siphon money away from those most in need.
- U.S. loans are in the top third in terms of funding rates, and all have funded within 18 days—proving that there is enough support to sustain the U.S. lending operation, with room for growth.
To those still unconvinced that lending to U.S. entrepreneurs is a worthy $25 investment, I encourage you to become educated on U.S. microfinance before making your decision. And to those “Unhappy Kiva Lenders”—thanks for getting involved in the debate. Your passion is driving a conversation that is bringing unprecedented attention to the U.S. side of microfinance—perhaps some local entrepreneurs will gain access to capital because of it.
Tags: kiva, unhappy kiva lenders
ACCION Europe? Sign me up.
This just in from Jesse Hilenski in the Atlanta office:
If I kept a monthly journal (which I don’t), my entry for June 2009 would probably swallow up half of my space for July. My employer, ACCION USA, announced an industry-changing partnership with a highly respected member of the microfinance community, Kiva; my baseball team, the Atlanta Braves, made an ignominious swan dive into the sea of mediocrity; and my idol, the King of Pop Michael Jackson, passed away under the most curious of circumstances, further tarnishing the legacy of one of the most entertaining human beings to ever walk on this planet. All of these things, however, would fill less space than the two-week, lightening-tour of Europe I took with my girlfriend to celebrate her graduation from Emory University. From June 7th to the 20th, she and I went to eight different countries, took close to 1,000 pictures, and burned probably 1 million priceless memories into our brains that will stay with us for the rest of our lives.
Even in the midst of all this European bliss, however, my mind could not stray far from the subject of microfinance and its exciting future. Over the past 20 years, microfinance has proven it can succeed in developed economies like that of the United States. ACCION USA alone has disbursed close to $117 million in loans since 1991, with an over 90% repayment rate. Success like that drove Kiva to expand its unique online lending program into the U.S. market in conjunction with ACCION USA. So if microfinance can work in both the developing and developed worlds, what’s the next step in its evolution?
While I was in Europe, going from place to place, I wondered how the countless small businesses we encountered along the way, selling water and t-shirts and panini on old town squares, were financed. As it turns out, more and more small businesses in Europe are turning to microfinance institutions (MFIs) for their funding than ever before. According to the European Microfinance Network, MFIs across the EU disbursed 42,750 loans in 2007, a 14% increase from 2006. In fact, microfinance appears to be growing fastest in Western Europe, the region Jess and I were traveling through most. In 2007, the two European countries which saw the biggest increases in microloans disbursed were France and Germany, with 24% and 31% increases, respectively.
Despite these astonishing increases in output, it seems as though microfinance in Europe (and the developed world as a whole) is still just barely scratching the surface of its potential. There are around 25 million small businesses in the EU, 91.5% of which are microenterprises with less than 9 employees, according to Evers-Jung, a German Bank Consultancy and Research Company. To compare, there are 22 million microenterprises in the United States, and the Aspen Institute claims that over half of these lack adequate financing and/or training.
Given such a large market to lend to, it appears entirely possible that the growth witnessed in 2007 across the European and American microfinance sectors could be maintained or increased. While the global financial meltdown makes such a prospect harder to believe in 2009, global microfinance has proven over the past four decades to be in it for the long haul. And count me in.
Can a podcast make you hungry? You tell me…
Ok, so there was an instant affinity for this client when I heard that she served up some really good Peruvian ceviche (full disclosure: I’m part Peruvian). But as I sat down with Marcela Mezones to hear about how she came to the US five years ago and scrimped and saved to start her own small business, I remembered why I work in US microfinance—our clients’ grit are true inspiration. Watch Marcela’s video podcast to get a real sense of what it took to open “Sol del Cuzco” Restaurant. And, if you happen to live in Miami–spread the word about the awesome food.
Tags: marcela mezones, sol de cuzco, video podcast