July 8, 2010 | 7:14 AM
This summer I’m working for Grameen America, a non-profit microfinance institution based in the United States. Grameen America provides small loans to low-income entrepreneurs (mostly women) to operate small businesses with the goal of helping them lift themselves out of poverty. Grameen provides loans to the people banks won’t lend to, either because they don’t have collateral or because they are “uncreditworthy” from the bank’s perspective. Yet, our 3,500 borrowers have proven their creditworthiness, with an average repayment rate of over 97% since our founding (significantly higher than traditional bank repayment rates).
Our model is based on that of our sister organization, the Grameen Bank. The Grameen Bank was started in the 1970s by Professor Muhammad Yunus in Bangladesh. After seeing villagers perpetually indebted to local moneylenders, Yunus lent them $27 from his own pocket. Thirty years later, with an astonishing repayment rate of 97%, Yunus has demonstrated that the poor, when given the opportunity, do pay back. For his efforts to combat global poverty, Yunus was awarded the Nobel Peace Prize in 2006.
While New York City is not Bangladesh, it is still ripe for microfinance. As in Bangladesh, there are poor people with no job opportunities and no access to credit, especially given the economic climate. The local moneylenders of Bangladesh have been replaced by check cashers, payday lenders, and pawn shops. So far, with 3,500 borrowers and ever-increasing demand, we’re just getting started.
In my capacity, I am helping Grameen America in its statewide expansion. While many developing countries implementing microfinance programs have very vague or informal banking regulations, each state/territory has its own idiosyncratic regulations to comply with. So, how we can start lending in D.C., for example, if D.C. requires special lending licenses and surety bonds? Or, how do we deal with usury laws? Each state has usury laws designed to prevent lenders from charging excessive interest rates and preying on borrowers. However, our organization needs to charge 15% to achieve sustainability and cover its costs. This is because it’s a lot more expensive to administer one-hundred $1,500 loans than a single $150,000 loan, which is generally why banks don’t provide these kinds of loans. So, I have to address these issues, looking at the nuances of state banking law.
Not entirely legally-related, I found that my video-editing skills from my past life have served me well. If you’re interested in learning more about our borrowers, see our YouTube page where I’ve posted some borrower interviews. My favorite project thus far has been creating a video birthday card for Professor Yunus, who recently turned 70.
Last week, Grameen America held a borrowers market in TriBeCa where dozens of our borrowers showed up to sell their wares to the community. Borrowers sold everything from empanadas to jewelry. It’s really impressive what some of these borrowers have done with $1,500 loans. One borrower, Nicole Gates, started Soul Sister Quisine, a catering business specializing in soul food and really tasty red velvet cupcakes. She used her $1,500 Grameen loan to purchase equipment for a cart so she could sell her food at street fairs. Currently, she’s doing extremely well, having fully repaid her last loan, and is now using a second loan to expand her business.