Recession spurs demand in U.S. for Third World-type loans
Eileen Alt Powell
NEW YORK — When Amy Sokoloff and John Powell were trying to start their art restoration business in New York City, they needed some working capital. But banks weren't willing to take a chance on them.
"We didn't own anything - no houses, no cars, we had no collateral," Sokoloff said. Powell added, "No one wanted to talk to us. They were not interested, and they were not nice about it."
Sokoloff and Powell ended up on the doorstep of ACCION USA, a not-for-profit group patterned after the Third World microfinance institutions best known for providing money to Moroccan farmers for breeding chickens or to Bangladeshi women for weaving supplies.
The $15,000 loan they got in 2005- which they paid back in two years - got them the sunlit studio where their Chelsea Restoration Associates brings aged, damaged oil paintings back to life. Last fall, after the U.S. downturn began to cut into their business, they went back to ACCION USA for a $25,000 loan, "a tremendous help for cash flow" with an affordable 10.9 percent interest rate, Sokoloff said.
Sokoloff and Powell are among thousands of Americans using microcredit, a financing system originated in the Third World, to help open small businesses or get through rough spots. While the dollar amounts are much bigger in the U.S. than the tiny loans in developing countries - some for less than $10 - the principle is the same: a financial stake that lets people in need better their lives.
Now, with the recession deepening, U.S.-based microlenders say they are seeing an increase in inquiries from would-be borrowers, including startup entrepreneurs seen as too risky by banks and other traditional lenders.
And the still-small U.S. microcredit sector hopes for a boost from the new administration of President Barack Obama.
Obama's secretary of state, Hillary Clinton, is a big supporter of microfinance, praising it during her confirmation hearing for its ability to "raise standards of living and transform local economies" overseas. Obama also has a personal link to the industry because his late mother, Ann Dunham, was involved in microfinance in Indonesia.
These connections gave raised hopes among microloan advocates that some money from the administration's $789 billion economic rescue package will filter into their programs. U.S. microlenders already get support from the Small Business Administration and a special Treasury community development fund.
"We're hoping for more funding" from the government, said Wendy K. Baumann, vice chairman of the Association for Enterprise Opportunity, an advocacy group for microfinance based in Arlington, Va.
Microloans have been made in developing countries for more than 30 years. Bangladeshi economist Mohammed Yunis made the first one of about $27 from his own pocket to 42 women who needed to buy bamboo to make furniture. He later formed the Grameen Bank, which is now one of the world's largest microlenders and shared the 2006 Nobel Peace Prize with the founder.
In 2007, microloans went to some 154 million people worldwide, according to the Microcredit Summit Campaign. Estimates vary, but there are believed to be some $25 billion to $30 billion in small business loans outstanding globally.
In the United States, by contrast, an estimated $100 million in microloans were provided to 13,000 clients by some 250 microlenders in 2007, according Elaine L. Edgcomb, director of an Aspen Institute project on the small loan movement. The average for these loans is about $8,000 in the U.S., she said.
Microlending groups estimated that defaults were a manageable 6 percent to 8 percent before the economy fell into recession but have grown since.
Gina Harman, president of New York-based ACCION USA, the largest of the microlenders in the United States, said that nonprofit groups like hers were "very hands on" with borrowers and admitted "we're working harder these days to keep people current."
Harman said that in addition to the unemployed and the underemployed, a big market for microloans in the United States is the immigrant community.
"Self-employment rises in importance for recent immigrants because their alternatives for jobs are limited," Harman said. Many don't know English and lack business connections, but come from cultures with strong entrepreneurial skills, she added.
Still, the growth of microfinance in the U.S. has been slow.
Jonathan Morduch, a professor of public policy and economics at New York University's Wagner Graduate School of Public Service, says one reason is that it's hard being an entrepreneur in America.
"It's a lot easier to go to work for someone else, get health benefits and collect a salary," Morduch said. "And starting a business can be especially hard in the United States because there's a lot of regulation you don't have in other places."
Microfinance experts like Alex Counts, president and chief executive of the Grameen Foundation, a Washington, D.C.-based microfinance support group, believe more could be done in America if more money was provided by foundations, wealthy donors and government agencies.
And many entrepreneurs need help getting started, he added.
"In a country like Bangladesh, the key constraint in capital," Counts said. "In the United States, capital is also a constraint. But there's also licensing and regulation ... and exposing people to business contacts who can buy their products, sell for them."
As a result, many of the most effective microfinance programs in America have a training component, he said.
"If you support people in developing networks and skills, say in going through the licensing process ... then loans in the range of $1,000 to $3,000 are often enough to jump start a small business," Counts said.
He said, for example, that such loans could help a woman laid off from a restaurant start a home-catering business, or a fired daycare worker start a home-based care service.
Baumann of the Association for Enterprise Opportunity believes more money will become available for microloans.
"Credit is tightening, and more people are coming to us," she said, adding that this should prompt banks and other big financial institutions "to wake up and figure out how we can partner with them" to support small businesses.
Baumann, who heads the Wisconsin Women's Business Initiative Corp. in Milwaukee, Wisconsin, said that about 70 percent of the group's microloans are for startup businesses, with the rest going to small businesses that are expanding or facing cash-flow problems. Despite its name, about a quarter of borrowers are men.
"We fund a lot of service companies - child care, food-related businesses, restaurants," she said. But there also are manufacturing and construction companies and community-based residential facilities for the elderly.
One recent borrower was Vasyl Lemberskyy, who immigrated to the U.S. from the Ukraine about seven years ago. He lost his first restaurant when the landlord sold the building it was in; a second restaurant failed.
Last year, he and his partners went to Baumann's group and got a $57,000 loan to open the Transfer Pizzeria Cafe, which relies on local products for its 50-some varieties of pizza.
He was happy dealing with a microlender because he was treated so well.
"They care about new business coming to this city, they care about making a better business environment in Milwaukee, they care about you," Lemberskyy said.
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DawnM (anonymous) says...
I don't think this is the time to start a business.
March 1, 2009 at 12:19 a.m. ( permalink | suggest removal )
lameduck (anonymous) says...
I guess in 20 yrs the US will end up in the third world.
March 1, 2009 at 2:02 a.m. ( permalink | suggest removal )
lowcountrymouth (anonymous) says...
lameduck:
It won't take that long. Obama Hussein seems bent on making us an impoverished 3rd world country in less than a year by spending 3 trillion dollars (that works out to $300,000 for every family in America).
March 1, 2009 at 7:55 a.m. ( permalink | suggest removal )
Get_seriousHELP (anonymous) says...
We will be reduced to 3rd world status by the end of obama's first year in office. Hell, most inner cities within democrat held states and cities are 3rd world now.
March 1, 2009 at 8:29 a.m. ( permalink | suggest removal )
yird (anonymous) says...
Don't be so hard on Obama, he just wants to level the playing field so everyone (well, almost everyone) will be at the same level as his brothers in sub Saharan Africa.
It's high time we started utilizing third world practices.
After all, who do we think we are, Americans?
March 1, 2009 at 9:23 a.m. ( permalink | suggest removal )
flinsc (anonymous) says...
When are we going to stop talking and start doing something?
Don't Tread on Me
March 1, 2009 at 9:43 a.m. ( permalink | suggest removal )
agastah (anonymous) says...
Get_seriousHELP, why don't you move to a different country if you hate this one so much. Your comments and negativity are pathetic, it seems as if you want this country to fail.
March 1, 2009 at 11:09 a.m. ( permalink | suggest removal )
Aristotle_384 (anonymous) says...
'The best political community is formed by citizens of the middle class."
Aristotle, Politics
March 1, 2009 at 11:11 a.m. ( permalink | suggest removal )
yird (anonymous) says...
agastah,I don't think Get_SeriousHELP wants this country to fail and neither do I.
What we and many others want is Obama to fail at his capitalist destroying schemes.
His actions area a recipe for disaster to the American way of life.
March 1, 2009 at 11:54 a.m. ( permalink | suggest removal )
Get_seriousHELP (anonymous) says...
agastah - I love this country, and dont want it to fail. But the path that was started with bailouts under Bush and now this pork-us-all bill and yet another spending bill, is going to end in ruin.
After serving 22 years in the military, I dont plan on leaving MY country. I would rather the marxists in the democrat party leave. I here Cuba is needing some help.
We do not have the money. We have to borrow it from China.
Here is yet another dumbarse move by this current administration;
Brown woos Obama on global deal
GORDON BROWN hopes to forge a partnership with President Barack Obama in Washington this week, to call for a "global new deal" to lift the world out of recession.
As he prepares for his first White House visit since the president's inauguration, the prime minister has hinted that he is ready to make further tax cuts to boost the UK economy.
Many US politicians believe economic policy should put America first, and have shown little interest in concerted global action. Brown will argue for a renewal of the transatlantic relationship, with the two powers working together to solve global economic problems.
http://www.timesonline.co.uk/tol/news...
March 1, 2009 at 12:52 p.m. ( permalink | suggest removal )
Get_seriousHELP (anonymous) says...
Opps, before the elite spelling squads attack -
I *hear* Cuba is needing some help.
March 1, 2009 at 12:54 p.m. ( permalink | suggest removal )
lowcountrymouth (anonymous) says...
Our forefathers had it right when they took up arms against a tyrant who tried to tax our country into poverty.
March 1, 2009 at 1:09 p.m. ( permalink | suggest removal )
yird (anonymous) says...
With Obama as Trickster in Chief we will be just another third world nation if conservatives don't take the country back from this fool and his minions.
blue_eyes aka Jim I Slander everything and everyone, when will you ever learn?
You've already *gone down* in more ways than one and none of us normal folks care to lower ourselves to your degenerate level.
March 1, 2009 at 2:01 p.m. ( permalink | suggest removal )
lowcountrymouth (anonymous) says...
blue_eyes:
True patriots will rise up and take this country back from foreign tyrants like George Washington took this country from King George of England. Obama Hussein isn't even constitutionally eligible for the Presidency since he was born in Kenya (his Kenyan grandmother was very open about the fact that she watched him being born over there). If he had been born here, he would have produced the actual birth certificate instead of threatening any lawyer who challenges his eligibility in court.
March 1, 2009 at 3:07 p.m. ( permalink | suggest removal )
yird (anonymous) says...
I've got a few extra dollars that are not doing as well as I'd like where they are at presently. Wonder if I could start my own microfinance institution?
Looks to me a bit like loan sharking, 10.9% interest rate is a darn sight better than municipal bonds!
blue_eyes aka Jim I Slander everyone and everything, there you go again blowing, oops, giving away you identity by using one of your favorite little labels for your betters.
knuckledraggers! Good job Jim.
March 1, 2009 at 3:56 p.m. ( permalink | suggest removal )
green123 (anonymous) says...
With Obama as Trickster in Chief we will be just another third world nation if conservatives don't take the country back from this fool and his minions.
Yrid, can't you blame the conservatives for the mess we are in now? Wasn't it the conservative Bush who and the likes of the Republican party who spent for eight years. I mean all of this negative talk is ridiculous. Why would anybody want the President, no matter who it is, to fail? We all need to step up and start taking part in government, beside voting. I write Henry Brown and Lindsay Graham and Jim Demint often. The only way this country can make it, is if we are part of the political mess in Washington. The president isn't the problem. I truly support Obama, but Congress is where the problem is. Our elected representatives and senators don't put the interest of their constituents first. The play with all the lobbyists to pass policy. I say that during the midterm election, every incumbent should go. Congress has failed this country for too long, and we need to all change that. Another point, lets try to start getting some average Americans in Washington instead of all these multi millionaires. One more point, NO MORE BAILOUTS. The first round didn't seem to work, so why do it again? I say let BofA and Citi fall, they pretty much already have, that way other banks could takeover the financial sector. They obviously, all of Wall St., are greedy bastards, who don't deserve my tax dollars.
March 1, 2009 at 4:48 p.m. ( permalink | suggest removal )
yird (anonymous) says...
green123, I don't blame conservatives. Bush was not a conservative and with a same party congress unwilling to oppose him he spent like a drunken sailor.
Barak Obama is ultra liberal or progressive as he and his supporters prefer to be called.
He has a long history of left wing activity and the people he has selected for his cabinet etc. are similarly disposed.
Just a while ago attorney general Holder said that they are going to bring back the "assault"weapons ban.
Joe Biden was one of the major architects of the original ban.
Holder said it will only affect a "few" guns and it's not to be considered as a gun grabbing effort. This is being done ostensibly to stem the flow of these weapons to Mexico and use by the drug cartel.
That's a bunch of lying crap. He himself was an anti 2nd amendment proponent when he was deputy AG under mad dog Reno.
You bet your bottom dollar I want Obama to fail. He has a congress that will be in lock step with every leftist idea he comes up with and visa versa.
I just hope the constitution and the country survive the damage inflicted by this administration.
I will agree with you totally about getting rid of every last one of the present members of both houses of congress.
Term limits would be a step in the right direction, we don't need career politicians.
March 1, 2009 at 5:33 p.m. ( permalink | suggest removal )
agastah (anonymous) says...
"The Bush administration has raised the ceiling on the national debt from $5.95 trillion in 2001 to $9.62 trillion in 2006, an increase of over 60 percent in five years. All this debt must eventually be repaid by taxing us, our children and our grandchildren.
Equally important, investors, including the Chinese government, are financing the war in Iraq by buying Treasury bonds. Foreign investors are not buying bonds because they agree with American foreign policy; they buy bonds as a good investment that will be repaid with interest -- by taxes on Americans for decades to come"
How is this Obamas fault again?
March 1, 2009 at 6:15 p.m. ( permalink | suggest removal )
greyman (anonymous) says...
We will see. I think it is obvious this plan of Obama Hussein will fail. Its like someone with too much debt, and too many credit cards trying to fix there problem by going out and getting more credit cards. The guy is a good talker ,but that is about it. He is going to really screw up this country. Also he is going to try and take the guns away in America watch. Then only criminals will have them. They can make money selling illegal guns as well. I guess if you are a criminal its good for business. I guess this is part of Obama's stimulis plan. Maybe he will give them a tax break too.
March 1, 2009 at 7:09 p.m. ( permalink | suggest removal )
Get_seriousHELP (anonymous) says...
agastah, does JONATHAN COOPERSMITH (Who will pay for Iraq and when?) know you stole his opinion piece? LMAO
You and JONATHAN, seem to forget that democrats voted to fund the war on terror and they continue to do so.
Did you miss this part of his one-sided opinion;
"For their part, Democrats have not tried to pay for the war by raising taxes for fear the Republicans would call them "tax-and-spend" liberals. Although this is a far more responsible policy than being a "borrow-and-spend" conservative, a platform of fiscal frugality will not win elections in today's polarized political climate. Nor, afraid of being accused of not supporting the troops, have Democrats attempted to challenge funding for the war.
Both the Congress and the president deserve blame for not fulfilling their constitutional duty to find the funding for the Iraq war."
http://www.signonsandiego.com/uniontr...
Bush cant raise the ceiling on the national debt, only congress can.
Here is what the left (democrats) have given us;
"Total federal and state spending on welfare programs was $434 billion in FY 2000. Of that total, $313 billion (72 percent) came from federal funding and $121 billion (28 percent) came from state or local funds. (See Chart 1.)
Welfare spending is so large it is difficult to comprehend. On average, the annual cost of the welfare system amounts to around $5,600 in taxes from each household that paid federal income tax in 2000. Adjusting for inflation, the amount taxpayers now spend on welfare each year is greater than the value of the entire U.S. Gross National Product at the beginning of the 20th century.' (Office of Management and Budget, Budget of the United States Government: Fiscal Year 2001)
http://www.heritage.org/Research/Welf...
blu_I_jim
LMAO @ abcblogs with an old clintonite Stephanopoulos!
Please, cantor and other RINOs can go jump on the idiocy bandwagon.
Conservatism is not dead, if it does die, so does America.
Obama is yet another leftist president trying to screw his country.
What a joke.
March 1, 2009 at 7:31 p.m. ( permalink | suggest removal )
greyman (anonymous) says...
I hope you are right about the guns. I don't even own one ,but I hate the notion of the government telling me I can't have one.
March 1, 2009 at 7:31 p.m. ( permalink | suggest removal )
Get_seriousHELP (anonymous) says...
blue_eyes "Greyman your new president is not going to take away your guns! The people buying guns now are people like me..."
OMG. I am LMFAO! You are such a clown. Leftist windbags like you dont have the nuts to defend themselves against a rabid kitty cat!
LOL, man you are a joke.
Posted by dhshjh - "But I'd really like to hear your answer to Get_seriousHELP about the good Reverend Jeremiah Wright. Why are you ignoring this? Do you not have an answer?"
No he has no answer that he can print(or he will be deleted yet again). Deep inside, his hate filled heart is as racist as Wright's.
March 1, 2009 at 7:34 p.m. ( permalink | suggest removal )
Mabilene (anonymous) says...
blue_eyes, you are *getting some attention* with that one:
"Greyman your new president is not going to take away your guns! The people buying guns now are people like me..."
You don't need a gun! "We" will come to your aid when it comes right down to it. Step Away From The Gun.
March 1, 2009 at 7:48 p.m. ( permalink | suggest removal )
Get_seriousHELP (anonymous) says...
agastah - think about this;
"If Congress approves the FY2008 war requests, the Congressional Research Service (CRS) estimates that total funding for Iraq and the Global War on Terror would reach about $758 billion, including about $567 billion for Iraq, $157 billion for Afghanistan, $29 billion for enhanced security, and $5 billion unallocated. According to the
Congressional Budget Office (CBO), the Defense Department is currently obligating an average of almost $11 billion a month for expenses related to its operations in Iraq and Afghanistan and for other activities related to the war on terrorism. Most of that sum (more than $9 billion per month) is related to Iraq."
http://www.csis.org/media/csis/pubs/0...
"What is the future of welfare? In the past 40 years, the United States spent at least $8.9 trillion (in constant 2003 dollars) on the "war on poverty." It is time that policy-makers admit we cannot spend our way out of this problem."
https://www.cato.org/pub_display.php?...
About Cato
https://www.cato.org/about.php
Now, you may think spending TRILLIONs of $$$ to end poverty is a good idea, but it is a proven failure. We have not suffered 1 terrorist attack since 9-11-2001, I think that is money well spent. Not to mention the blood of thousands of miltary members in sacrifice totheir nation.
Blame Bush for spending, sure, but dont forget that he spent that money with the blessings of the democrats.
His biggest mistake, besides trusting hold over Clinton FBI/CIA clowns, was signing the bailouts before he left office - BUT - the domecrats were in the majority.
March 1, 2009 at 7:50 p.m. ( permalink | suggest removal )
Get_seriousHELP (anonymous) says...
Cato Scholar Comments on Obama's Plan for Iraq Withdrawal
Americans who elected Barack Obama believing that he was likely to end the unpopular Iraq war can't be pleased to learn that the bulk of troop withdrawals will not begin until 2010, and that as many as 50,000 U.S. military personnel will remain in Iraq through the end of 2011.
Democrats in Congress were unable to force George W. Bush to end the war, and they seem unlikely to challenge a president from their own party.
http://www.cato.org/pressroom.php?dis...
March 1, 2009 at 8:08 p.m. ( permalink | suggest removal )
yird (anonymous) says...
Right wing think tanks are right.
Left (commie) wing think tanks don't exist, commies just swallow the Utopian pap they are fed and "hope" for a nice "change".
Fools!
March 1, 2009 at 11:19 p.m. ( permalink | suggest removal )
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