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Micro-Credit Boosting Fortunes Of Poorest Entrepreneurs at Home and Abroad

Kenneth Sanders was working two jobs and saving whatever he could to open his own business. But it wasn’t going to happen without help.

All he needed was $25,000 to purchase the buffers, extractors, vacuum cleaners and used van for his commercial cleaning business.

But Sanders discovered banks don’t lend to new businesses.

“I had no collateral or credit history,” he said. “Everywhere I went they said, ‘no.’ ”

Despite rejection, Sanders kept knocking on doors.

A loan officer at a commercial finance company finally referred Sanders to Accion San Diego, a nonprofit that provides loans to “micro-entrepreneurs” unable to qualify for credit from traditional sources.

In 2003, Sanders obtained a $2,000 loan to launch his business. After repaying half, he obtained another loan.

This year, he obtained a third, all the while paying off his earlier borrowings.


New Employees

Today, Sanders’ Quality Care Cleaning Service Inc. is so busy he’s had to hire employees. In addition to the cleaning business, he provides courier services to major tire chain retailers to stores in the area. He moves new tires and rims from storehouse to store outlets.

Sanders’ story is similar to many clients, says Patti Mason, Accion’s chief executive officer.

The average loan is $6,000, but loans can range from $300 to $35,000, she said.

While borrowers work hard, and have workable ideas for new businesses, they lack paperwork to obtain loans, or have blemishes on their credit histories.

“Our goal is to provide economic opportunities to low- and moderate-income entrepreneurs who lack access to loans from traditional sources,” said Mason.

Traditional sources means banks, which, in many cases, furnish Accion with new clients.


Client Referrals

“The banks give us many of our client referrals, and we also get a lot of funding from banks that are doing this to satisfy their CRA (Community Reinvestment Act) requirements.”

But banks aren’t lending small amounts, and generally don’t make loans to businesses that don’t have at least a three-year track record, she said.

“The time intensity (for the loan application process) , the banks don’t want to deal with it,” Mason said.

As of September, Accion had 345 borrowers and a portfolio of $1.7 million. Since 1994, it’s made 2,000 loans worth $9.4 million.

The practice of micro-credit got a huge boost last month when a Bangladesh economist, Muhammad Yunas, was awarded a Nobel Peace Prize for his work in making loans to the poor to launch businesses.

Deborah Lindholm, founder and executive director of the San Diego-based Foundation for Women, which operates a micro-lending program, has met Yunas.

She said the recognition is well deserved.


Dignity Of Impoverished People

“For 30 years, he’s believed in the dignity of impoverished people, and made it his life’s work to give them access to financing that most people here take for granted,” Lindholm said.

Yunas’ strategy provided not just loans to the poorest of the poor, but a support system that organized the borrowers into groups of five. All five members had to repay the loans for any one member to continue to receive further credit, Lindholm said.

In San Diego, most active clients are women refugees from Africa and Asia. The initial loans are for $250 for a 25-week term, and groups meet once a week.

Each borrower has to bring $16. Ten dollars pays the principal, $1 pays the service charge, and $5 goes into savings, Lindholm said.

The foundation makes loans, which come in three amounts, $250, $500 and $1,000, only to women. If clients need a larger loan, Lindholm refers them to Accion.

Lindholm makes no bones about lending money only to women. “Women pay back the money and men don’t,” she said.

That’s because most women the foundation helps are mothers living in desperate poverty who want to improve the lives of their families, she said. Men are more apt to be thinking of themselves and their businesses.

Lindholm said Yunas’ micro-loan model has been replicated in dozens of countries with amazing results.

People who are improving their economic standing are less inclined to become terrorists and wage war, she said.

“There’s never going to be peace on this planet as long as there’s extreme poverty,” she said.


San Diego Connection

Yet another micro-loan program that’s been operating for 35 years has a local connection because it’s headed by Chris Crane, former chief executive of a San Diego real estate database listing service.

Opportunity International, based in Oak Brook, Ill., makes loans ranging from $50 to $5,000, but the average is only $144.

“It’s enough to buy a used sewing machine or buy some fruits and vegetables to open up a stall,” Crane said. “They may start with a $50 to $100 loan but they often keep growing their business, and we’ll stick with them.”

The most active regions for the program are Africa, Asia, Latin America and Eastern Europe.

The portfolio totals $300 million, and counts 900,000 active borrowers, Crane said.

Opportunity International doesn’t exclude males, but the ratio of female borrowers to males is 8-to-1.

“We see terrific transformations when we lend to women,” Crane said. “The kids tend to stay in school, they get fed, and the families stay together. The group method (of repaying the loans) seems to work better with women.”

Like most micro-lending programs, Opportunity International requires clients to attend educational sessions on methods to better run their businesses.

In the case of Accion, services include a small business development center, where clients can seek the advice of business owners or seek the help of community organizations that can provide such support as child care or tax preparation.


Creating Credit Histories

The goal for most Accion clients is to create a credit history so that they eventually can obtain a business loan from a bank, but for others, that isn’t as important, Mason said.

The changes being arranged through Opportunity International efforts are even more radical, Crane said.

Many of the poorest people in Africa and Asia aren’t even allowed into banks, never mind getting a loan, he said.

To address this, the program has started opening chartered micro-finance banks. It’s launched 12 such banks in some of the poorest nations in the world.

At one bank in Malawi, between Tanzania and Zambia, the average opening account is $7.

The ability to save money and access credit is revolutionary to these cultures, but once it’s established, exciting things begin to occur, Crane said.

“If you bring the poor into the financial system, they don’t ever think about terrorism.”

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