November 29, 2006

And the Nobel Prize Goes to...Microlending!

I first caught wind of the microlending concept early this year while reading Fast Company's Social Capitalist issue. Several microlenders were mentioned, including Accion and Grameen (whose founder, Muhammad Yunus, has won this year's Nobel Peace Prize), and I was startled by their premise: that poor women make the best loan recipients.

Microlenders loan small amounts of money on what amounts to an honor system to the most impoverished recipients, who in turn use the money as capital for starting businesses. The idea is that these bootstrap loans help stimulate a local economy and reduce poverty, all on the locals' own terms.

And now that my curiosity's been piqued, I seem to be running into the idea everywhere I go. First I catch Yunus making an appearance on the Daily Show with John Stewart a couple of weeks ago, and then I stumble across an interesting summary of his bank's method posted just days earlier. Could this idea be about to explode stateside?

Microlending does have its detractors. Because its success (loan repayment) relies heavily on the ability of the recipient to succeed over the long term, it demands a lot of support and training from the lending institution. After all, recipients are often uneducated, inexperienced in business and disenfranchised at even a local level. If that support's not there, or if any number of other detrimental factors are there, the recipient might easily default or sink deeper in debt.

So will microlending work in the United States? Well, some real challenges will need to be met before Smells Fargo and Crank of America start handing out checks to inner city and rural poor. One of the biggest hindrances is the current availability of "support" in the form of welfare programs and such. Microlending relies on loan recipients being committed to the real risk of having no economic support system to speak of, as this is a determining factor for their business success (see
Using Microenterprise Programs in the Rural United States for a more scholarly explanation).

But perhaps there are similar options. Credit unions come close: they also offer localized loan opportunities, often at better rates and terms than conventional bank loans. Although you typically need to be a member, credit unions are growing exponentially in the U.S. and are now much more accessible than they once were.

Financial self-sufficiency is a fundamental element of modern sustainability: individuals must be able to support themselves financially in order for their local communities to survive, let alone thrive. Credit unions are a strong start, offering great opportunity. But the most successful microlending programs, along with proper training and support systems, might offer a more in-depth solution to a problem that runs deep whether you live in Kansas or Compton.

If you need a loan or other financial services, try looking up your local credit union or visit Accion USA.

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