Can MicroFinance Make It In America?

Time Magazine asks: Can MicroFinance Make It In America?

World wide, micro finance is lifting many people from poverty to at least a level of self-sufficiency. These small loans have created a wave of home based businesses across the globe. These business loans provide funds for people working at home to sell simple things – eggs, milk, to weave, to sell prepared foods, to run small grocery stores, etc.

Can they make it in America? The founder, Muhammed Yunus thinks so.

Yunus believes that in just a few years Grameen America will be so successful that it turns a profit, thanks to 9 million U.S. households untouched by mainstream banks and another 21 million using the likes of payday loans and pawnshops for financing. Profit has long eluded U.S. microfinanciers. “If it’s not profitable, it’s not microlending — it’s charity,” Yunus said on a recent trip to the U.S. The question, then, is whether there is a role for a Third World lender in the world’s largest economy.

Now operating in New York and – believe it or not – Omaha Nebraski, Grameen America links identifies groups of borrowers and extends credit to groups who usually cannot get credit elsewhere.  As a group, these entrepreneurs meet weekly and pay their share of the loan. If one small business defaults, the credit line is frozen until the group is caught up. That’s a form of “group entrepreneurship” that’s new to the American scene in some ways. Traditionally, US entrepreneurs are considered rugged individualists not part of a group. That doesn’t mean it can’ t work here. But it will work with people able to make that leap or – as Grameen’s work in New York shows – with people who are more likely to sense a bond – immigrants facing a new culture together.

Interestingly they even loan to network marketers – if they represent a plan that emphasizes profit through retailing and selling to end users, not signing everyone up as distributor for “internal consumption”.

Here’s an interesting quote as well that may spell it’s biggest challenge:

The working microfinance equation consists of borrowing funds cheaply and keeping loan defaults and overhead expenses sufficiently low. Microlenders overseas, including Grameen, do that by charging hefty interest rates — as high as 60% or 70%. (Yes, that’s a colossal rate but one that’s necessary to compensate for the risk and to attract bank funding.) But in the U.S., loans at rates much above Grameen America’s standard 15% would most likely be attacked as usurious.

In America, we have laws that protect people from “Usury”. Credit card companies reside their headquarters in areas like South Dakota with lax or non-existent usury laws. What Grameen’s doing is bound to be more productive long term for entrepreneurs than “Pay Day” loans, “Title Loans” and other forms of lending, but such high interest rates are shocking to mainstream America.

High rates of interest seem to be the trade off though for serving those who otherwise could not start a business. At such high rates of interest, Citibank sees more people to “serve”. Hopefully the kinds of debt taken on by Grameen customers are not the kind that signal a hopeless debt compulsion but, instead, the solution to it.

Read more: Can MicroFinance Make It In America

Related Link: “How To Get Started Online”