Isabel Maxwell's presentaion on Grameen America hit close to home, since as I mentioned in class I worked in microfinance in NYC for 2 years before Anderson. I was somewhat surprised at what she called the "failure" of microfinance institutions in the U.S. Admittedly, MFIs have struggled to figure out where exactly they fit in the U.S. lending spectrum and how they can be sustainable. However, ACCION New York is over 15 years old; is currently 70% self-sufficient and lends about $1 million/month. That sounds like impact to me. (Loans under $30K are considered micro.)
The organization is by no means perfect - interest rates could be lower (10.99-17.99%) plus fees with some special programs offering lower rates. After class I asked Maxwell whether they had looked into any best practices in the U.S. and to my surprise Grameen had not. I'm also curious to see how the group loan scenario, which has been wildly successful abroad, will play out in the U.S. Interestly enough, most of my clients were very reluctant to get anyone else involved in their loan (even though a co-signer was often required). ACCION New York used to do some group loans but pretty much phased them.
Finally, we spent a lot of time discussing the 98% repayment of Grameen borrowers to date. At ACCION, delinquency was about 6%, which was considered at the lower end. Anyway, if you're interested in learning more about U.S. microfinance, definitely check out www.accionnewyork.org and feel free to get in touch as I'm always happy to chat. And just to confirm one last thing: there is definitely no shortage of Dominican-owned salons in Jackson Heights.
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Given the caveat that I am probably less educated on the topic of microfinance than some others in the class, it was interesting to hear about the potential transition of the Grameen business model from mostly third-world countries to the US. It seemed that while the motivation was great, the majority of the class was very suspect of the potential value Grameen can achieve.
Building on Janna's experience, I believe there are some critical differences between the US market and those of the third world. First, is the culture factor, which Janna mentioned in that many of her clients were hesitant to a group loan. Grameen must have also sensed this given they are initially focusing on immigrant populations and not those who have been living in poverty in the US for generations. Secondly, the amount of capital required to initiate a new venture in the US is much greater than one abroad. While Janna gave a good example of a woman institutionalizing a baby-sitting business as a low-cost option, even starting a hair salon will have relatively high capital costs and not yield the opportunity for loan recepients to re-pay within the first three months of receiving the loan. Further, even a small venture in the US will require a basic level of business knowledge...knowledge many loan recepients don't possess.
This got me thinking about how to best leverage the micro loans. In the third world, the economic institutions are often broken and young woman need to become entrepreneurs to gain sustainable living status. However, the US has working institutions and those stricken with poverty simply can't enter the system due to lack of skills, resources, and network connections. However, the micro loan might be able to provide the necessary level of assistance to enable woman to attend educational classes, buy a business suit, gain access to transportation to a job, etc, that may allow them to enter the system.
Some may argue that the purpose of microfinance is to empower the loan recepients, but I would argue that being able to have a stable job with reasonable pay is equally empowering to starting a new venture, which in the US will most likely not succeed in the long run (even MBA students have low entrepreneurial success rates).
Which ties back to Amanda's point on the effectiveness metrics of success. It is important to begin to track the impact and difference being made. As Isabel stated, microfinance is not the end-all of poverty, just a useful tool. It is important to look at the positive impact on individual's lives and not those for whom the program wasn't able to support. I'm sure Grameen received the same skepticism in Bangledesh as they are experiencing now in the US. But what are the benefits, and how can microfinance potentially partner with other initiatives to create an even bigger impact?
Janna and Ryan have already articulated many of the thoughts/impressions I left class with on Monday.
I wanted to add two comments. First, the most frequent use of micro business loans (and here I mean less than $2,000) in NYC that I've seen is to fund side jobs/businesses (Janna and Clodagh alluded to the same thing in class). Someone (usually a woman) will work during the week and use a loan to run a hair salon or catering business out of the home on the weekend. These low risk, low capital ventures often act as a supplement to the person's income.
Secondly, I agree with Ryan that Grameen's focus on recent immigrants is not inconsequential. Studies have shown that recent immigrants to the US are usually hard working, ambitious and very engaged in their community. Once they become citizens, they also tend to have very high voting rates. So, I'm not surprised that Grameen hasn't had trouble forming peer lending groups within this target group. However, a girlfriend of mine once mentioned that Project Enterprise in NYC had some trouble with its peer lending system because they found it difficult to recruit New Yorkers comfortable trusting each other. I have to imagine that building a sense of community in NYC is far more difficult than in in a rural setting. (Note: http://projectenterprise.org/ describes the organization and has a directory of P.E. business owners. Check out the type of businesses people get loans for....)
While I understand why Grameen is focusing on immigrants, I am very curious as to why Grameen chose an urban setting for their pilot program. I can't help but wonder if their group lending program wouldn't work better in a more rural area where people know each other better and the social pressure to pay up is potentially stronger.
Finally, a word about building credit... When I left NYC (almost 3 years ago now!), they were talking about forming an "alternative" credit reporting bureau that would allow people to build credit for activities such as paying rent, cell phone or utility bills. I dont' know what happened to it, but it seemed like a good start towards breaking a bit of the no-credit barrier some low-income people face. Of course, I doubt the major credit bureaus will see it that way....
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