 Micro Loans Make A Powerful Impact—By Mara Math Published: January, 2007  Farhana Huq, founder and CEO of C.E.O. Women, is pioneering ways to use innovative technology and media to teach entrepreneurship and English to immigrant women. If you ask Delia Suarez what she thinks she would be doing if she had not connected with micro-lender Anew America — which awarded her their Entrepreneur of the Year award for 2006 — her first answer is succinct: "Probably not much," she says. "My financial situation would not be as good, the same would be true of my emotional situation." An explosion of micro-lending in the Bay Area is proving that a small loan can make a big difference. "Micro-lending" is the term applied to the small loans typically given out to first-time or small-business entrepreneurs who could not otherwise get credit — a large percentage of them women. Along with the emotional and financial support, Suarez praises the importance of the economic education she received. "From Anew America I learned how important asset building is, and the importance of getting insurance for my business," she says. "And I didn't want to be older and receiving financial assistance." The Evolution of the Micro-Loan Although micro-lending has burgeoned tremendously in the last decade, it has its roots in The Community Reinvestment Act (CRA) of 1977. CRA is intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods. Searching for a better vehicle by which to comply, in 1993 banks collaborated to create the organization that became Lender for Community Development (LCD). "It would not have been prudent business practice for the banks to include in their regular operations the time on assessment and training that our customers need, " explains Liz Givens, LCD's Director of Development and Policy. "It's expensive to make a $1,000 loan." Instead, the banks effectively subcontract this time-intensive work out to organizations like LCD, and together with foundations, the banks provide the capital for LCD's revolving loan fund. While most banks rely heavily on credit scores — the majority, for instance, typically will only make loans of less than $50,000 to clients who have a high credit rating and at least two years of business experience — taking greater risks is part of the micro-lending mission, as is providing individualized attention. "We do not rely on solely credit scores," Givens says. "We sit down with our clients and evaluate what their dreams are, what their goals are, whether $1,000 can be the ticket for them to become self-sufficient." LCD serves only low- and moderate-income clients and, according to Givens, the goal is for clients to one day not be low-income. In addition to loan capital, LCD provides credit through its subsidiary, The Bay Area Microfinance Fund (BAMF), and matches savings accounts where LCD puts in two dollars for every dollar that a participant saves. Givens explains that LCD partners with many local organizations, including Urban Solutions, the Renaissance Entrepreneurship Center and CEO Women. These partnering organizations do not make loans themselves. Instead they "package loans" — helping an entrepreneur put together a loan application and providing relevant training and education application, and then referring them LCD and other direct financers, who write the check. | ||
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