Microcredit, as a financial product, doesn’t get nearly the same attention at times that credit cards, payday loans and other loans do. That said, there is a large network of microcredit and microfinance organizations in the U.S.
Fighting Third World poverty
As a financial product, microcredit, also called microloans or microfinance, isn’t incredibly flashy. There is no “American Express Microcredit Black” for celebrities. Microlenders usually don’t have IPOs business news outlets can write voluminous propaganda about.
Microcredit is pretty simple. Small loans are lent, usually at high interest, to people in poverty-stricken regions to start small businesses. In most countries where microfinance companies are active, most loans are lent to women.
Heavyweights of the field, such as Kiva Microfinance and microfinance pioneer Grameen Bank do most of their work in Third World countries, where access to credit for people who could really use the help are limited. However, it has a growing foothold in the United States.
There have been pockets of microcredit throughout the United States for sometime. For instance, according to Reuters, former president Bill Clinton aided a microfinance organization while governor of Arkansas in the 1980s.
For instance, ACCION International, an international microfinance organization, launched ACCION USA in 1991, according to ACCION USA’s website and was active in 48 states as of 2009, according to Techcrunch. ACCION USA also, according to FastCompany.com, started a joint venture with Jim Koch and the Boston Beer Company, the brewery that makes Sam Adams, called Brewing the American Dream Program, to provide start-up capital to hospitality, food and beverage businesses getting off the ground.
Grameen, according to Reuters, has several branches in the United States. The first opened in 2008, according to Time magazine, but it’s been growing.
There are also pockets of community-based organizations around the country, such as the Washington Community Alliance for Self-Help or CASH, profiled in 2009 by the Seattle Times. There are also crowd-sourcing and peer-to-peer lending organizations like KickStart, Prosper and LendingClub, which generate capital from member-investors. Kiva works in a similar fashion; entrepreneurs ask for a loan with a business idea in mind and people choose to invest.
Great opportunity for small businesses
Just like their international counterparts, many American microfinance outfits provide the funding but also some training and assistance in learning to run a business. People dreaming of starting a small business may do well to look into it.
The interest rates can be steep. According to Time magazine, interest on loans from Grameen America can be 50 percent or more. There’s a reason that the model has been in existence for so long, which is that it works. Grameen reports collection rates of more than 99 percent.
Kiva, according to ABC, has lent almost $300 million to people in 61 countries since it was founded in 2005, with a collection rate of 98.91 percent. Kiva is also entirely charitable; the interest rate is 0.
Seattle Times: http://blog.seattletimes.nwsource.com/philanthropy/2009/01/16/can_microfinance_work_in_the_u.html
ACCION USA: http://www.accionusa.org/home/support-u.s.-microfinance/about-accion-usa/who-we-are.aspx