By: Gina Harman
October 19, 2010
While economists, public opinion and the media go back and forth on the recession's status, recent poverty figures in the U.S. remind us of how severely it has already taken its toll. The poverty rate for Hispanics and African-Americans nationally has climbed to more than 25 percent -- approaching levels more characteristic of the developing world than the U.S. As we look to recovery and growth, we need to ensure continuous awareness of, and support for, measures and activities that plant the seeds of an economy of greater equality.
The Small Business Jobs and Credit Act of 2010, signed into law a few weeks ago, is a good first step. Self-employment and small business entrepreneurship are critical ways for individuals and families to rise above poverty, as well as to create jobs and fuel lasting changes in their lives and their communities.
But while that law can help long-suffering small-business owners find credit and create jobs, micro-entrepreneurs -- those employing five or fewer workers -- and people who want to be self-employed will still likely have difficulty in finding and qualifying for affordable business loans.
Roughly 21 million -- or 18 percent -- of all households in the U.S. are "underbanked," meaning they have limited or sporadic access to mainstream financial services, according to recent research from the Federal Deposit Insurance Corp., or FDIC. Minorities are affected at a much higher rate than whites.
The same research found that 31.6 percent of blacks and 24 percent of Hispanics are underbanked, versus 14.9 percent of whites. Many non-English-language speakers also often face the additional challenge of feeling uncomfortable dealing with traditional financial institutions due to cultural issues, language barriers or simple fear of rejection.
Access to adequate financing is the single most critical need for anyone seeking to launch or maintain a small business. Microfinance, perhaps best known as a means of helping small business owners in developing countries move out of poverty, is a source of loans available throughout local communities in the U.S.
Microfinance organizations make small loans and other financial services available to low- and moderate-income businesses. It's important to note that microlending is neither just for the poor, nor a direct path out of poverty. But it should be considered one of several tools we use to spur positive change and empowerment in the lives of more individuals and families.
Sponsored Links Each individual loan goes further to yield a multiplier effect in the community. Our research has found that across the ACCION network, one small business loan helps to create 2.4 jobs, in addition to providing income to the business owner. These micro-entrepreneurs also provide wages that are, on average, 25 percent higher than minimum wage.
Credit options do exist beyond traditional financial institutions and disreputable lenders charging usurious interest rates. From the self-employed hairdresser who needs to replace old equipment and buy insurance, to the convenience store owner looking to expand and build business relationships with local community producers, microlending can be a sensible small-business solution.
This country's hardworking small-business owners and micro-entrepreneurs have long served as an engine of our economy. The fruit of their labor is income and employment for themselves, their families and others in our communities. They will be important seeds -- perhaps the seeds -- of renewed economic stability and strength.
Whatever traditional, legislative or more creative approaches it will take, we should continuously work to nurture the vitality of small businesses at all levels of the socioeconomic ladder.
Gina Harman is president and CEO of ACCION USA.