Too small to fail: domestic microfinance offers real help for small businesses and the economy

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KALW News
By: Eric Weaver
May 19, 2010

In recent years, Americans have become increasingly aware of microfinance as a tool for helping poor people in developing countries to help themselves. While microfinance has actually been around since the 1970's (and arguably, longer), it has been rocketed to prominence of late by Muhammad Yunus' Nobel Prize in'06 and the phenomenon that is Kiva.org.

Meanwhile, as our country's Great Recession grinds on, domestic political discourse remains stubbornly focused on worries about unemployment. We know small businesses are our best job creators, but meaningful help from the financial sector, especially for the smallest enterprises, has been slow.

These two actualities--our newfound love for microfinance and our deep-seated worry about unemployment here at home--need to be linked together. The fact is that microfinance can, and does, work when practiced here in the U.S, The loan sizes are larger than in the developing world--in the thousands of dollars rather than the hundreds. The businesses financed are different--think in-home day care provider in Oakland or independent truck driver in New York instead of basket seller in India.

But the impact on people's lives, and on the local economy, is very real. For people like William Ortiz Cartagena and his 12 employees, microfinance is a lifeline for survival - and growth. William started Gentle Parking, a San Francisco-based business, to support his family of five. William needed a loan to expand but, like many of our clients, he was turned down by a number of traditional lenders. William then turned to Opportunity Fund and received a $10,000 loan, along with personalized business coaching and finance training. Since then, he has hired six more employees and is paying back his loan. As William says, $10,000 to create and preserve twelve jobs is a pretty good ROI.

At Opportunity Fund, we have been making small loans to San Francisco Bay Area entrepreneurs like William since 1995. Our small business success rate is twice the national average. We just commissioned an independent study of the economic impact of the first $10 million we have lent out, and the results are in: every new dollar invested by Opportunity Fund into local small businesses has a financial return of at least 2 to 1, as it flows through the regional economy spurring new wages, new spending, and new tax revenues.

We'll be discussing these results - and critical issues such as community investment, economic recovery and scaling microfinance in the US - at Microfinance USA, the premiere national conference to bring together the key players moving this strategy forward. The conference is in San Francisco on May 20th and 21st; portions will be webcast at Chronicle of Philanthropy.

Join us in person or log on to learn more about how U.S. microfinance creates jobs and boosts the economy. We'll also introduce you to ways that savings and financial education offer even more opportunities for microfinance clients to build sustainable financial futures and lift up their communities.

The Microfinance USA: National Conference will take place in San Francisco on May 20th. Visit the live webcast and live chat on Chronicle of Philanthropy.

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This page contains a single entry by CFED published on May 21, 2010 3:12 PM.

Big money flows into microloans was the previous entry in this blog.

Helping the poor avoid predatory lenders and a cycle of debt is the next entry in this blog.

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