It's Payback Time

Article excerpt

Byline: Rana Foroohar; With Jessica Ramirez In New York

How a Bangladeshi bank is growing in the U.S. by making tiny loans to groups of poor women with entrepreneurial dreams.

Laura Falcon, an Ecuadoran immigrant working as a babysitter in New York, became an entrepreneur by accident. About a year ago, when her uncle back in Ecuador was having hip problems, Falcon sent him some vitamins that seemed to help. She began to think there could be a broader market for the products, which are not widely available in her home country. But she needed a loan to buy them in bulk, and as a person with no credit history she couldn't get one from any local bank.

An agent at a local immigration center pointed her to Grameen America, the U.S. offshoot of the Bangladeshi micro-lending operation. If she put together a group of five entrepreneurial friends and relatives, Grameen officials told her, they could each take a $1,500 loan, to be paid back in weekly $30 installments (plus $3 in interest). If one person in the group defaulted, all would be responsible. Falcon quickly organized a cadre of women who now run businesses, including an ice-cream stand, a cupcake-catering operation, and a fruit stall. Every Monday at 7 a.m. sharp, they meet in a brownstone in Brooklyn to make their payment to a Grameen center manager, and talk about the challenges of running their businesses. Then it's off to their regular day jobs. Falcon herself is now doing a brisk export business and is well on her way to saving the $4,000 she needs to renovate part of her home and open a child-care center.

Three years ago, no one could have predicted that one of the few financial institutions to be expanding in America would be a Bangladeshi bank specializing in tiny loans to people below the poverty line (most of them women). But microcredit has become a bright spot in the global financial system, with governments and the private sector looking to it as a way to create prosperity in the most vulnerable populations. Micro-lending has been popular in the developing world for decades, but is gaining steam in rich countries now too. Grameen, founded by Muhammad Yunus, who won the 2006 Nobel Peace Prize, has operated in the U.S. since 2007. It has branches in New York and Omaha, and is expanding to San Francisco. It joins other microlenders like the Latin American Accion, which offers larger loans to more affluent borrowers.

For some aspiring entrepreneurs, Grameen's growth hasn't come fast enough. Two years after the near collapse of the U.S. banking system, credit to the small businesspeople who create the majority of the country's jobs is tighter than ever, and for those at the bottom of the pyramid, loans are almost nonexistent. The Federal Deposit Insurance Corporation says that nearly 8 percent of the U.S. population has no access to credit, and 18 percent has very little. This is the population that Grameen aims to serve, fueled by loans from institutions like Wells Fargo and Capital One that, in addition to basking in the glow of good PR, have realized they are more likely to get their money back from African-American hairdressers or Latina food-cart operators than middle-class whites with maxed-out credit cards. The payback rate among Grameen borrowers is 98 percent, compared with the U.S. commercial-banking average of about 90 percent. …