How Today’s 20-somethings Will Revolutionize Microfinance
I’m a 20-something and to put it frankly, I am incredibly proud to be one. However, if you had the opportunity to read the recent New York Times article on 20-somethings, you would think that I am of the flaky, meandering, and average variety. I’m currently working at a unpaid internship (at ACCION USA), getting my masters degree, working a side job, and still getting help from my parents on a few (VERY few) of my bills.
So why am I so proud to be a 20-something? Because I am from a generation that has a voice. We are socially active, we care, and we want change. Think I’m wrong? If the most recent presidential elections showed one thing, it was that when 20-somethings want change, we speak LOUDLY and the world takes notice.
So what do 20-somethings have to do with microfinance? I’ll say it again: 20-somethings care. While the author from the Times argues that unpaid internships, the Peace Corps and Teach for America are ways 20-somethings are avoiding adulthood what they ignore is young people fighting to improve their communities, fighting to give every person in the world an equal chance to succeed, fighting for a cause. I’m not putting myself in debt up to my eyeballs and working jobs where I don’t get paid for nothing. I want to make a change.
I support, promote and—dare I say it—love microfinance for the opportunities it provides those who are unable to access loans through the commercial banks. We can argue about my choice of career path (my family worries I’ll end up working for free forever), about the need for microfinance in the United States (how many struggling small businesses do you know?) but you will lose any argument that says that microfinance does not work and that 20-somethings don’t care about it.
ACCION USA Microfinance Council -group of 20-something professionals advocating for domestic microfinance and the growth economic opportunity in their community-is a perfect example. The microfinance revolution will be continued by groups like the Microfinance Council and other like minded 20-somethings and I argue it will become one of our great triumphs under the banner of economic equality. Why? Because we understand what it means to lack financial opportunity and to have potential but have a whole society daring us to fail. We share the struggles of microfinance clients and that reason fuels passion for the cause. And right now we are the ones in the field breaking down economic barriers …. one unpaid internship at a time.
The Land of Opportunity
This week we celebrated the Fourth of July. Hot dogs, swimming pools, fireworks – how better to ring in this annual occasion and take a few days to remember our country’s history? As I sat along Boston’s Charles River banks this Sunday evening, I couldn’t help but reflect on our country’s core principles of freedom, opportunity, and equality.
Moreover, my thoughts centered on those who come to the U.S. every day to realize the “American dream.” But we all know that U.S. soil doesn’t guarantee a life free of struggle.
Imagine two scenarios. In one, a Venezuelan women moves to Miami with her husband. She has limited English fluency and little personal savings, as her husband handles their finances. But she wants to begin a small sewing business to keep herself busy and contribute to the household income. In the second scenario, a young man comes to the United States from Ecuador. He has his Masters degree, nearly twenty years of business experience, perfect English fluency, and a hefty savings. He hopes to open a leather importing business in Boston.
Despite their many differences, these two individuals have two things in common: their lack of credit history and knowledge of the U.S. financial system. And because of these key similarities, neither can get an affordable loan.
These descriptions detail the experiences of two ACCION USA clients. Lack of credit history is only one of many challenges immigrants face when trying to access financing. Language barriers are also great, as detailed by the U.S. Government Accountability Office’s recent report, entitled Factors Affecting the Financial Literacy of Individuals with Limited English Proficiency. The report explains that language barriers can prevent individuals from understanding financial products’ terms, disputing charges or fees, managing accounts, and simply accessing financial education opportunities. Furthermore, many immigrants carry a negative correlation with financial institutions, due to prior experiences or institutional fraud and instability in their countries.
ACCION USA has many programs and services in place to address these challenges. For example, our small credit builder loans are specifically designed to help individuals with no credit history begin to build one. Our financial education workshops help immigrants understand not only how to build credit but also why building credit is important in the United States. And we continue to work closely with groups such as the Massachusetts Refugee Enterprise Achievement Program to establish ACCION USA as a trusted and reliable name among immigrant communities.
Through these programs and relationships, ACCION USA continues to help immigrants achieve the full “American dream.”
Tags: accion usa, english, Financial Education, fourth of july, immigrant, literacy, massachusetts, miami, report
The Issue of the 21st Century
“If you don’t know better, you cannot do better.”
On Monday, businessman, author, and social entrepreneur John Hope Bryant used this statement to support a Huffington Post op-ed in which he boldly asserts that financial literacy is not simply a goal for which all must strive, but is moreover, a universal right of every human being. Bryant notes that the struggle for civil rights characterized the 20th century; and he believes the challenge of achieving universal financial literacy will characterize the 21st.
But is financial literacy a “right,” equivalent to civil rights? I personally have to say no. We must use caution in characterizing anything as unequivocally endowed upon birth. What I do believe, though, is in the importance of education. I will always be an advocate for knowledge and believe in its power to generate progress, growth, and development – on both the micro and macro levels.
A year and a half ago, this core belief in education was the foundation for my support of financial literacy efforts. That was prior to the economic wake-up call of 2008 and prior to my time with ACCION USA. Now, my support is grounded in my everyday work, where I continually see the detriments of financial illiteracy.
My colleagues have spent hours working with clients to dispute credit report errors, resolve stolen identities, and create payment plans for collections accounts. After months of work, many of these individuals continue their struggles in resolving these issues.
Furthermore, payday loans, high-fee credit cards, check cashers, and other predatory services populate the financial world in which many of ACCION USA’s clients exist. For many, this is reality – and the only one they have ever known. And with the FDIC’s recent white paper reporting that 25% of the U.S. population lacks a relationship with a financial institution, financial illiteracy is quickly becoming an issue that permeates socio-economic borders.
Whether mismanagement, misunderstanding, or mistrust lie at the root of these situations, they all share a common solution and, more importantly, prevention: financial literacy.
It is our hope that ACCION USA’s financial education program may meaningfully address the growing issue of financial illiteracy. With each workshop, each counseling session, each webinar, and each article, we are helping people “know better”…and with that, as Bryant says, we can empower them to “do better.”
If financial literacy empowerment is the issue of the 21st century, ACCION USA certainly has a hand in the game.
Tags: accion usa, financial literacy, huffington post, illiteracy, john hope bryant, predatory lenders, right
Growth in Microfinance Field Spurs Debate: Microfinance Council Guest Post
Recently, ACCION USA’s Microfinance Council authored a guest post on the Woodstock Institute Blog. In it, the microfinance volunteer and advocacy group explored the ongoing debate between interest rates and sustainability:
“The popular debate about microfinance ignores the most important ideological challenge confronting the industry: how to balance the tradeoff between interest rates and sustainability. The cost of providing microfinance products is extremely high. Large banks benefit from scale and from borrowers’ strong credit histories and collateral in case of default; a MFI generally has none of these advantages, making it more difficult and costly to determine whether the loan will be repaid.”
Read the full Woodstock institute guest post.
Mission, Not Profit, Drives Interest Rates in the U.S.: Response to “Banks Making Big Profits from Tiny Loans”
Readers of “Banks Making Big Profits From Tiny Loans” (The New York Times, April 14, 2010) should note that the lending practices described are not consistent with the practice of microfinance in the United States, where the strategy is also alive and well.
The U.S. ACCION Network has distributed over $260 million in loans to micro-businesses across the US. We have done so with interest rates that reflect our primary mission: to put reasonably priced credit in the hands of those who are locked out of the traditional financial mainstream, and to do so in a manner that assists the business owner in increasing, not depleting his/her assets. Though it would be easy to say thresholds are set by law, the primary driver is creating an environment in which hardworking people have an opportunity to succeed.
Typical U.S. microloan interest rates are set so that the loan recipients profit, not the lender.
Our rates range by program and by state but are well below the rates cited as endemic in the microfinance world, below credit card interest rates, and are accurately stated on the Kiva website. On loans that average $10,000, there isn’t much income generated for ACCION once we have covered our capital costs and the risk we take per loan. As a result, while we continue to drive improvements, we are not sustainable without the support of foundations, individual donors and government. That is a fact that has limited how much of the market we can serve and our ability to go to scale.
Following a rigorous due diligence process, ACCION USA was chosen by Kiva to be one of two microfinance partner organizations working with US-based businesses. The relationship serves each of our missions well: to facilitate access to the capital required to start or grow a business. Kiva’s ability to harness the good will and interest of millions of people in investing to directly affect the lives of individual business owners enables ACCION USA to lend more to more businesses. That’s not the material of criticism; it is a positive outcome born of innovation, common mission and a dedication to doing what is right for the people we serve.
CARD Act Gives Consumers a Break
I want you to think back to the very first time you opened your mail to find that golden ticket: a pre-approved credit card offer. Was it been everything you hoped it would be? Or did you fall for some of the oldest tricks in the book…
Were you the college freshman who now realizes that the free pizza, Frisbee, and bottle opener at the credit card company’s fall expo booth might have actually cost you more than you thought (cough, 70” flat screen TV with 24% APR, cough)? Did you find out the hard way that “due on March 17th” actually meant “due by 9:00am on March 17th, so it actually needs to be here on March 16th… which conveniently falls on a Sunday, so let’s have it here by close of business on Friday the 14th”? Or maybe it just took a little too long to realize that consistent $30 monthly payments on your $800 couch would make your payment plan longer than your sofa’s life.
Every year, a new crop of credit card users finds themselves in these types of predicaments. Fortunately, the new Credit Card Responsibility and Disclosure (CARD) Act now makes each of these situations much less likely to occur.
The legislation is complex, but the highlights include limits on interest rate hikes, broader definitions of “on time” payments, new rules for pre-existing balances, and requirements on disclosures and extending credit to young adults. No more pre-5:00pm deadlines. No more interest rate hikes without 45 days of notice. No more credit card reps hiding in wooden horses allowed within 1,000 feet of college campuses.
The CARD Act’s transparency requirements may be particularly beneficial to small business owners in offering them an opportunity to strengthen their personal credit histories, further allowing them the opportunity to finance new employees, purchase inventory, or open a storefront. As an organization, ACCION USA’s goal is not only to provide small business owners with a transparent financing alternative to credit cards but also to teach them the necessity of managing credit card debt. The underlying message is simple: spending and paying responsibly keeps money in your business. And money in small businesses means economic recovery for our country.
Let’s hope that the CARD Act’s transparency requirements will mean the same thing.
Tags: accion usa, CARD Act, credit card, Financial Education, interest rates, legislation, microfinance, money management, new law, small business
The Incredible, Shrinking Tax Refund!
ACCION USA provides taxpayers with the financial education and resources they need to make smart, informed decisions about RALs.
And so it begins. Tax season. The time of year when tax prep software commercials sandwich prime time TV shows and your friends in the tax prep industry sleep on office couches. For many like myself, it’s another opportunity to procrastinate for four months and then spend my entire refund on priority mail.
Unfortunately, this time of year is also notorious for coercion and scheming, and the latest trend is in refund anticipation loans (RALs). A tax preparer may advertise these loans as “instant loans” or “instant refunds” – in reality, the only instant thing about them is the speed with which your real refund will shrink.
Here’s how it works: your tax preparer offers you a RAL; you accept the offer and sign a document, which is essentially a loan agreement authorizing the preparer to use your refund as a guarantee, with interest rates as high as 50-500% a year; the loan is (instantly!) approved; you walk away with fast cash but actually receive a significantly smaller refund; and the tax preparer makes one hefty profit.
Certainly, the tax prep industry provides a highly-demanded service for many, many people. But according to the Woodstock Institute, 8.67 million taxpayers received RALs in 2007. A RAL may very well have been an appropriate solution for some of these individuals, but I will venture to guess that they comprise only a small portion of that 8.67 million. What about the millions who are essentially handing over their hard-earned money? I believe the answer lies in education and empowerment.
ACCION USA’s financial education team is on top of this. We have already distributed an article addressing RALs, and we are featuring RALs in our online tip of the month. In addition to educating clients on the implications of refund anticipation loans, we also provide them with valuable resources, including smart alternatives to RALs, lists of free tax preparation locations (including our Miami, FL office), and helpful websites. These resources not only have the power to produce more informed taxpayers; but they also have the potential to mold a new generation of educated, responsible, and empowered consumers.
This type of generational change may not be instant – but in terms of the return, the investment is surely worth the wait.
Tags: accion, accion usa, anticipation, education, eitc, financial, Financial Education, literacy, loan, microfinance, prep, preparation, RAL, refund, tax, tax season
Microfinance, But Only For Some?
I felt inspired yesterday by reading a blog about university students trying to make microfinance accessible to refugees in their community. Professor Jude Fernando’s microfinance students are applying principles learned in the classroom to serve the need that is being expressed in their community. As Professor Fernando said in the article
Worcester is a microcosm of the world, We don’t have to fly 1,000 miles away looking for the Third World. There is one right across the street.
Refugees like Oulimate have proven to be successful small business owners in the United States
I nodded as I thought, yes, indeed. Microfinance is a great tool for displaced refugees trying to build a new life in the United States. In fact it is said that the majority of microentrepreneurs in the U.S. are first and second generation immigrants.
You can imagine that a refugee from Burma, who doesn’t speak English, will find most success creating and selling their native handicrafts, since it’s unlikely that big-box employers like Walmart would hire them. As I read Priyanka Dayal’s article, I was mentally praising the students at Clark University for the important cause they are supporting.
Then I scrolled down to read my favorite part of web based journalism, the comments—here, both encouraging and discouraging. Some disagreed entirely with the work of the professor and his students at Clark, arguing that refugees are undeserving of microcredit because there are other “local” business owners who ought to be first in line. Or the comment that basically refugees don’t know the rules here, so they should be able to play the game, so to speak.
Indeed there are barriers to entry in the United States that are much greater than in developing countries, that why most microfinance institution offer financial education and technical assistance resources to assist entrepreneurs in meeting these requirements. It’s in our interest to see that micro entrepreneurs formalize there businesses and learn the rules. And most importantly we believe that all individuals no matter their country of origin, or road to entreprenuership are equally deserving of credit– capital that is needed to support a healthy family and a healthy community.
Read the excellent article written by Priyanka Dayal, and chime into the comments. I’ll add this one…
But far be it for me to point out the obvious. Okay fine… I will! It is integration of all aspects of our society that creates prosperity. Giving refugees a pragmatic tool like microcredit to empower their success, is a success that we all share. After all there are many who consider microcredit a human right.
Aftershocks for Miami’s Little Haiti for Many Months to Come
ACCION USA's Little Haiti, Miami-based clients are among those mobilizing to help Haiti recover.
From loan consultant Joann Milord in Miami.
It is more than one week later and the images on the TV have not changed. Haiti is still in chaos and people continue to die daily. I turn on CNN every chance I get to watch the latest news, the most recent rescue, or the updated death toll. I’ve never experienced anything close to such a traumatic event and cannot even imagine what the people of Haiti are experiencing. Speak to anyone in Haiti now and they tell you what you see on TV is not even close to the reality of the amount of suffering.
Every Haitian has been affected by this earthquake, no matter where you live in the world. I see it here up close in Miami’s Little Haiti—home to the largest Haitian immigrant community in the nation. Our families have either lost members, friends, colleagues, businesses or homes. We are all victims and heroes as we scatter to collect water, food, clothing and medical supplies. Those that can, add names of the missing to list on the Internet or send messages on Facebook. What about those who can’t or don’t know how? How are they able to find out about their families without access to electronic communication? They turn to fellow Haitians for assistance.
One thing is evident in Miami, Haitian organizations, government officials, and individuals are working hard to provide support to their homeland. Whether it is done collaboratively or independently, it is done with great momentum, love and dedication. Everyone has the same goal of progress for Haiti. After these immediate needs are met, then the process of rebuilding livelihoods is the next step. Hopefully this passion will continue and drive efforts to build a better Haiti in the near future.
Reverse Remittances and U.S. Microfinance
When I interview ACCION USA clients to gather information for their Kiva profiles, they nearly always mention having a family member in another country relying on them to send small portions of their income, or “remittances,” back home. That’s why this week’s New York Times article on “reverse remittances” struck a chord with me. The article explains how families abroad are now having to send monetary support to their family members in the U.S. While immigrants originally came here to search for better economic opportunities, nowadays they are finding the opposite.
Is returning to their home countries an option? For some, it is – but it’s not that easy. It may take immense effort and sacrifice to scrape together the thousands of dollars needed to move to a new country. Many immigrants who come to the U.S. give up their homes and possessions in their native country and trade them in for an entirely new life. They may have married and had children who would be disrupted by a move to another country they barely know.
Immigrants are a vital part of our economy – in New York, for example, over the last decade, immigrant-dominated neighborhoods such as Washington Heights and Sunset Park have seen increases in new firms at rates close to 50%, and job growth of 30% (compared to overall city job growth of 7%).1 Entrepreneurship is an engine of employment, as small businesses provide self-employment for the business owner and are responsible for 75% of net new job creation in the U.S.2
Now, more than ever, small business ownership is a way for immigrants to take control of their economic future and take the initiative to provide employment opportunities for themselves and others in their communities. As unemployment grows in the U.S., ACCION USA’s mission to support these entrepreneurs and, by extension, the economic development of their communities, gains more urgency.
1A World of Opportunity, Center for an Urban Future. February 2007.
2MicroTest Outcomes 2008. The Aspen Institute – FIELD Program