Nourishing New Shoots of Growth
When the economy took a nose dive in the fall of 2008, Lyn-Genet Recitas, like many small business owners, found herself on shaky financial ground. Recitas had relied in part on a bank credit to finance her business - Neighborhood Holistic, a wellness center in New York City's Harlem neighborhood - and the bank informed her in December that it was hiking the annual percentage rate (APR) on her loan to 20% from 9%.
Recitas, who has built Neighborhood Holistic into what she describes as a "bridge between new and old Harlem," couldn't afford the higher interest payments. And without the bank loan Recitas feared she'd have to trim or eliminate scholarships and subsidized programs Neighborhood Holistic had developed for the local community.
"I thought that I would have to cut my low-cost programs, which are so important to the goals of my business," she said.
Then Recitas contacted ACCION USA, one of a growing army of microfinance institutions (MFIs) specializing in credit and other financial services for folks left behind by mainstream financial institutions. ACCION had lent Recitas start-up capital when she opened Neighborhood Holistic in 2006, so she called to see if they could help again. She learned she qualified for a $12,500 loan at a much more favorable rate that she used to pay off her now unaffordable bank loan.
Micro-lending is a relatively new
area of financial services. MFIs had their start in the 1980s, in Bangladesh, and have since spread throughout the developing and developed world. These specialty banks lend to entrepreneurs who lack access to capital (primarily women), and they provide support services, like savings accounts and financial literacy training.
MFIs can be credit unions, credit cooperatives, non-profit organizations or scaled-down commercial banks. The World Bank estimates there are more than 7,000 MFIs serving 16 million poor people in developing countries, where loans for amounts as small as $50-$100 can mean the difference between prosperity and a life of poverty.
Many MFIs work in concert with Web sites that aggregate funds earmarked by individual lenders for specific borrowers. One of the most popular of these, Kiva (www.kiva.org), recently began working with ACCION and other MFIs that lend to entrepreneurs here in the U.S.
In most cases, the loan amounts sought by these "micro-entrepreneurs" are considered too small for traditional banks to bother with. Other times insufficient credit histories create bottlenecks - traditional banks don't seem to like to be the first to assume the risk that a new borrower will turn out to be a deadbeat.
Micro-lending American Style
FIELD, a micro-enterprise think tank based in Washington, estimates there are 10 million micro-entrepreneurs in America today who can't access capital through traditional means. MFIs bridge the gap between these businesspeople and traditional banking models.
Category: Payday loans