Microlending is no small deal
At a time when many banks are reeling from the hit they took on subprime mortgages, one New York institution has no problem collecting on its loans. Joel Rose reports on tiny bank loans making a big impact.
Loan application (iStockphoto)
TEXT OF STORY
Tess Vigeland: Had enough talk about the banks? Well we're not finished quite yet. But at least this time we've got one that, so far, has had no problem collecting on its loans. By Wall Street standards, those loans are tiny. Roughly $2,000 each. But the founders of Grameen America say the money can make a huge difference in the lives of its borrowers. Joel Rose reports.
Joel Rose: Until the fall of 2006, Muhammad Yunus was an obscure economics professor from Bangladesh. Then he won the Nobel Peace Prize. A month later, Yunus was on the Daily Show, explaining the concept of microlending to Jon Stewart.
Muhammad Yunus: It's a trust-based banking. It works. We give to the extremely poor people. Even to the beggars. We lend money to the beggars, and we get paid back.
Stewart: Sorry, I thought for a second -- and, again there's a language differential here -- but I believe you said trust-based banking.
Yunus: That's it. That's what I said.
For nearly 30 years Grameen Bank has been working in the developing world, making lots of small loans to low-income people to help build small businesses. Even after the Nobel Prize, there were skeptics who said Yunus's idea would never fly in the United States because the loans are just too small to make a difference. But that hasn't stopped him from trying.
In January of 2008, Grameen America opened its first field office in the Queens neighborhood of Jackson Heights. It's not a full-service bank. Picture one cramped room full of desks and chairs. The five people who've come to sign for their loans this morning can barely fit around the only table. Teresa Procel is one of those borrowers.
Teresa Procel [translation]: Other banks have long lines and lots of paperwork. Here's it's different. They see you right away -- especially if you don't have much money.
Procel arrived in the U.S. three years ago from Ecuador. She plans to use the loan to get more supplies so she can expand her home beauty salon. The paperwork takes about 20 minutes. And then Grameen general manager Shaw Newat hands Procel a check.
Shaw Newat: One thousand, five hundred dollars.
Procel: Thank you!
Newat: So, have a nice business, and enjoy your center meeting regularly.
Procel: Thank you!
Newat has made that speech hundreds of times now. Grameen America has lent out more than a million dollars to over 400 people.
Newat: Mostly they are immigrants. But they have been living here about 10 years, 15 years, 20 years. They have some small businesses. And they need some capital. What they don't have is access to conventional banks, because they don't have collateral or good credit.
Ana Maria Chivera has already repaid one loan at Grameen America to expand her home business selling Avon products. She's here to take out a second.
Without Grameen, Chivera says, her only option would have been informal moneylenders, who charge much higher interest rates.
The name "Grameen" comes from the Bengali word for "village," and it's a metaphor for the bank's unconventional lending model. Borrowers are required to meet once a week with a representative from Grameen and a group of fellow borrowers, too. If everyone makes the payments on time, every member of the group gets a bonus equal to 5 percent of the loan.
Grameen's Joanna Avila says the meetings are also a chance for the borrowers to learn from each other's experiences.
Joanna Avila: We do the collection. They do the payment. But also it's a time for all those women to talk. Talk about families, if they have any problem. Or talk about the situation, how is the economy and stuff like that. It's a really good time for us.
This sense of shared responsibility might explain why Grameen America has a 99.5 percent repayment rate so far.
Francine LeFrak: Tell that to Bank of America. Tell that to Capital One. Tell it to all these banks.
Francine LeFrak is a television producer in Manhattan who's given thousands of dollars to Grameen America. She says the Grameen approach encourages borrowers to take responsibility for themselves and their metaphorical village.
LeFrak: It's about people investing in each other, but in the real way, you know? It's not about lawyers. It's not about signing contracts. It's about trust and that human contact.
Grameen America is planning to open a second field office in Brooklyn later this year. It's also considering moves into North Carolina, New Jersey, Louisiana and elsewhere as the recession deepens.
In New York, I'm Joel Rose for Marketplace Money.
Comments
Comment | Refresh
From St. albans, NY, 03/15/2009
Dear sir or madam it's about time you break that begotry from europeens banks in NY they don't trust you as an immigrant an your skin color everthing for them and their people nothing for us, myself I'm struggling with a business no body want to help me because I can from a wrong country, I got a bad nationality, I'm glad you're here for us may God or Hallah, singh and bhuddist bless you guy soon I will be looking for you to open an account with your branch you deserve it to the fullest, I like the good job you're doing, I wish I could help you lift that heavy duty task but even myself I need help I onw and operated a small business name big hair beauty supply and .99cent back in the day I used to make $1000 a day since september after the stock market plunged to the lowers in his time myself I do lost some money from my 401k portfolio but now I'm struggling to pay my bill nobody including big banks wants to help me now I only get $300.00 a day you see the situation I must work my head off to pay some suppliers event I don't have much credit, that's why I'm still in the game.
From Brooklyn, NY, 03/01/2009
This story makes it seem as if Grameen America is the first organization to bring microlending to the United States. It seems that because of Muhamed Yunus' fame, the media constantly overlooks other microlenders in the U.S. not affiliated with Grameen. ACCION USA a subsidiary of ACCION International, a microlending umbrella organization operating throughout the world for the last 30 years, has been lending in New York for nearly 18 years and has made over 11,000 loans totaling over 80 million dollars in New York Alone in that time! Before suggesting that microlending is a new addition to the U.S banking landscape, your show should do its homework and realize that other organizations have been doing great work in the field for a long time!
Post a Comment: Please be civil, brief and relevant.
Email addresses are never displayed, but they are required to confirm your comments. All comments are moderated. Marketplace reserves the right to edit any comments on this site and to read them on the air if they are extra-interesting. Please read the Comment Guidelines before posting.
You must be 13 or over to submit information to American Public Media. The information entered into this form will not be used to send unsolicited email and will not be sold to a third party. For more information see Terms and Conditions and Privacy Policy.