microfinance - who's who; why's why, where's where

Grameen America Launch

Branche opened in Queens April 08

Npr radio interview broadcast 15 May 08 http://www.npr.org/templates/story/story.php?storyId=90465530

posted by ... @ 12:01 AM 0 comments

http://www.guardian.co.uk/world/2008/may/12/usa

The world thinks of microfinance as a tool to lift its poorest from grinding poverty. But in an age of pricey fuel and shrinking credit, the entrepreneurial movement that began in Bangladesh is taking off in the richest country of all.
Nobel prize winner Muhammad Yunus opened branches of his Grameen Bank in New York City this spring, more than 30 years after he revolutionised foreign aid by delivering the first microloan to a group of rural Asian villagers.
If Yunus is the father of microfinance, his US offspring already are maturing quite nicely. The spectre of recession, combined with a diverse array of lending models, is sparking a new demand in America for small loans and business counselling.
"Our vendors report a dramatic increase in microloan applications over the past year," Amy McKenna Luz, who represents nearly 500 microfinanciers as president of the Association for Enterprise Opportunity, said. "They say it's a direct result of the banking crisis."
Luz sees her member groups as rescue workers for small businesses, nurturing economic growth and revival even in the direst circumstances. When the owner of Tomas Trucking in New York needed to ship more products to absorb the cost of diesel, a bank could not provide the cash infusion needed to buy a new vehicle and save the company. Microfinance saved the day.
Why has the spotlight shone so brightly on Grameen and not on its industrialised cousins? The answer may be culture.
Almost anyone can send a few dollars to Asia that can feed a family for weeks, thanks to Kiva and other groups that turn ordinary Americans into microlenders. But sending a few thousand dollars to a rural Pennsylvania craftsman is more difficult.
Micro Business Development Corporation, led by Denver lender Kersten Hostetter, has created thousands of jobs and boosted the local economy by more than $15m. Still, Hostetter is so keen for more investment that she has written a unique job ad seeking a celebrity spokesman for US microfinance.
"We're the bridge between poverty alleviation and economic development, the guardians of the middle class," Hostetter said. "We didn't brand ourselves initially because there wasn't a need for it."
Now the need has arisen, partly due to the arrival of Grameen America. Thanks to its Nobel, the bank does not have to rely on Natalie Portman - Hollywood spokeswoman for the international microlender Finca - to create universal appeal.
For its pilot programme, Grameen has targeted immigrant enclaves. There, the "peer lending" model of requiring clients to attend weekly meetings and monitor each other's repayments is most likely to succeed.
In more traditional communities, however, microlenders like Galen Gondolfi have had to perform a more complex version of the Bengali approach.
One client came to Gondolfi, a senior loan counsellor at Justine Petersen in St Louis, was persuaded to pull equity out of her home to expand her business during flush economic times. As global markets fell, her mortgage interest rate went from 6% to 14%, new contracts dried up, and she left stacks of bills unpaid.
Gondolfi performed "a triage of sorts", he recalled, "stopping the bleeding" on her mortgage by negotiating a new rate with her subprime lender while using the house as collateral for an infusion of cash to her company.
Microfinance is not just for the developing world, Gondolfi said: "It's also for the post-developed world. I'm talking about rust belt cities, about urban neighbourhoods I work with that are essentially post-apocalyptic."
Microfinance is also not just for the political right or left. Conservatives have embraced it as an alternative to direct foreign aid that can resemble a handout, while Hillary Clinton helped her husband bring Yunus's ideas to Arkansas in the 1980s.
The failure of the Clintons' microlending effort, called the Good Faith Fund, has tempered the enthusiasm for a similar grassroots push during the current economic slowdown. The conventional wisdom says Good Faith proved that microfinance could not work in America.
Richard Taub, a sociology professor at the University of Chicago who helped with the Arkansas programme, called it "kind of a bummer".
"The cost of the administrative work was very, very high," he said. "We used to joke that it cost $10,000 to make an $8,000 loan."
Taub was also sceptical of marketing microfinance to immigrants who already lend in small amounts to one another, likening Grameen America to "selling coal to Newcastle".
In fact, New York already has a microfinance powerhouse. The local outlet of US-based Accion, headed by Gina Harman, has generated 11,000 new businesses and given $77m in loans since its founding in 1991.
Harman sees plenty of room for Accion and Grameen to work together in broadening the scope of US microlending. Her only worry is that the entire movement could be judged on the success or failure of Yunus's new banks.
"Unfortunately, we're not microfinance rock stars," Harman said. "Right now we're doing a lot of parrying to try and defend an established track record. It works."
The way it works is usually with interest rates of about 12%, higher than bank loans but far lower than the average US credit card. The third alternative for struggling small businessmen are so-called "payday lenders", who charge up to 600% interest and are barred from operating in several states.
Harman said Accion is also encountering more new clients who are desperately fleeing a debt to loan sharks. "It's a very frightening circumstance," she added.
With the economic outlook keeping large banks on the defensive, the number of struggling Americans not getting help is likely to only increase. Demand is already too high for some established microlenders to serve everyone.
"The outsourcing of components of a company, downsizing, the loss of middle-class jobs - all of those are push factors" forcing clients into the industry, Elaine Edgcomb, director of microenterprise research at the Aspen Institute think-tank, said.
Other "pull factors" luring clients also are on the rise, chiefly the stunning growth of immigration in the US.
Given such challenges, microfinanciers are not waiting for their Angelina Jolie to emerge from the wings. McKenna Luz's group will host microlenders from around the country at a summit in California later this month.
Governor Arnold Schwarzenegger and his wife Maria Shriver are slated to attend, and she is hoping that Nobel winner Yunus can speak as well. "It's like Tony Blair trying to make an appearance," McKenna Luz said.

posted by ... @ 12:19 AM 0 comments

pdp philidelphia story 14 may http://www.citypaper.net/articles/2008/05/15/lost-in-translation

It was once believed that people in poverty couldn't be given loans — and has made people think hard about the meaning of charity. Yunus believes that a loan provides the borrower with more than money: By successfully paying one off, a borrower gains not only capital and improved credit, but pride, strength and confidence in her abilities. It also makes the lending program self-sustaining: The Grameen Bank hasn't accepted donor money since 1995.
And yet, PDP, which was founded in 1989, hasn't embraced the Grameen model — only 20 percent of the nonprofit's clients end up choosing to take a loan. Instead, PDP invests in development services — technical assistance, computer space, accounting, — which it provided to 400 clients last year. And it is almost completely reliant on donors. It's a classic charity.
Not that it's alone among microfinance institutions (MFIs). PDP Executive Director Leslie Benoliel estimates that there are 500-600 such outfits throughout the United States. How many turn a profit? "Here in the U.S.? None," she says, her tone suggesting there may be something ridiculous about the question.
Is this of necessity? When asked if Grameen-style microfinance could work in a place like Philadelphia, Yunus has expressed optimism, telling City Paper in February: "You would have to tailor your program to those who you want to help ... [but] if it makes sense to you, and it makes sense to me, why not?"
Keith Weigelt, Wharton professor and microfinance expert, takes a softer line. "It's possible," he says, "but I'm not sure that that is the direction that microfinance wants to go." He thinks that the for-profit model probably can work in Philadelphia, but wouldn't be as good for borrowers as in the Third World.
For one thing, starting a business in Bangladesh and starting one in Philadelphia are not similar propositions. In Bangladesh, you can buy a fishing net and start a fish store. Here, a would-be entrepreneur can't just sell fish out of the Schuylkill; he has to deal with tax codes and registration requirements.
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What's more, Weigelt says, the interest rates that MFIs would need to charge to turn a profit in the U.S. would be extremely high. Even in the ideal situation — an entrepreneur requests a small amount of money to pursue a well-thought-out endeavor — the lender has to review her application, approve the request and make sure the individual receives and pays back her loan. This makes the cost of delivering the loan greater than the loan itself, and, indeed, those nonprofits that have tried to be self-sufficient have ended up charging 80 percent to 100 percent interest rates on small loans. This not only means that someone would be paying back $1,000 on $500 they took out to buy supplies for, say, a cleaning business; it means, as Weigelt says, that it would be hard for the lender to remain "more focused on social justice than making money."
Years ago, Sean Mitchell Caldwell heard a local hip-hop group that he was sure would be big. He pressed 1,000 CDs of their music and went to Columbus, Ohio, to sell them. Several months later he returned with his tail between his legs, having sold a total of three.
PDP may not end up lending Caldwell money, but it's working to make sure he has a viable business plan before he drives to Ohio again. And while PDP's version isn't the "microfinance" most people know — the form used by Yunus — that doesn't mean it's not helpful. It's just that, for once, the American version of something is a little softer, a little less profit-driven than the foreign model. And, frankly, though organizations like PDP have strayed from Yunus' original vision, there is an important theme of his work they continue to reflect. "You can have another orientation" besides the profit motive, he said in that February interview: "How to do good."

posted by ... @ 12:25 AM 0 comments

On the online auction giant's new MicroPlace site, investors can lend as little as $50 to would-be small business owners around the globe

by Catherine Holahan

Turner's outsized ambitions are backed by an equally formidable player. Internet commerce giant eBay (EBAY) acquired the company in June, 2006, for a small, undisclosed, sum when it was little more than Turner and her business plan. MicroPlace benefits from the lessons eBay has learned working with the millions of small business owners and consumers who buy and sell on its family of sites. PayPal, eBay's online payment service, will process the loans free of charge. "There are a billion people in the world who are self-employed, hard-working, and poor, and we are hoping to scale the industry to at least a billion," Turner says.

Principal Plus Interest

EBay is no stranger to microlending. The company's founder, Pierre Omidyar, and his wife, Pam, have devoted hundreds of millions of dollars to microlending through their foundation, the Omidyar Network. The network is the lead investor in Unitus Equity Fund, an $8.5 million microfinance venture investor that finances projects in Asia and Latin America. Pierre Omidyar also gave a $1.4 million grant for the development of software that helps microfinance institutions collect and organize data. "Microlending is just a good fit for eBay," says eBay spokeswoman Catherine England. "It really leverages eBay's areas of expertise to address what we see as an emerging market." Omidyar is also an investor in Kiva, a microlending site run by former TiVo (TIVO) executive Matt Flannery and former PayPal executive Premal Shah.

The key to microlending, says Turner, is that it fosters self-reliance and, eventually, sustainable economic growth in a way that charity does not. What's more, lenders stand to receive small financial benefits in the form of interest, which should encourage them to keep investing in other projects. The minimum investment for someone to get started on MicroPlace is $100, though subsequent investments can be as low as $50. Interest rates vary between 1% and 4%, depending on the amount and nature of the investment, says Turner. Investors receive a "You've Got Cash" message on the site when they see returns. "The intention is that you get your principal back with your rate of return," Turner says. "The goal is to reach the everyday investor."

MicroPlace cannot guarantee that lenders will make back their principal, much less the interest, but microlending experts say recipients of microloans have a solid track record on repayment. And MicroPlace is working with organizations on the ground in impoverished areas to identify loan candidates who have the potential to start businesses capable of changing family fortunes and creating new employment opportunities in their communities. The site works with the Calvert Foundation, a nonproft that has worked in community investment for 10 years, and microfinancier Oikocredit, which funds nearly 500 projects, ranging from a cassava processing plant in Ghana to small loans to entreprenuers in Bolivia. As the site grows, it plans to expand its partners.

posted by ... @ 6:05 AM 0 comments