Word: grameen
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...Imported talent helped Grameen rival Acción, a big player in Latin American microfinance, establish a presence in the U.S. in the early 1990s. And yet even after years of making loans to small and upstart businesses, Acción still isn't profitable - an example of the challenge Grameen faces if it thinks it won't have to depend on donations for funding...
...working microfinance equation consists of borrowing funds cheaply and keeping loan defaults and overhead expenses sufficiently low. Microlenders overseas, including Grameen, do that by charging hefty interest rates - as high as 60% or 70%. (Yes, that's a colossal rate but one that's necessary to compensate for the risk and to attract bank funding.) But in the U.S., loans at rates much above Grameen America's standard 15% would most likely be attacked as usurious. (See 10 ways your job will change...
...Grameen's approach is different, since unlike most U.S. microfinanciers, it uses the group-lending model. Costs are kept down by having borrowers vet one another, tying together their financial fates and eliminating expensive loan officers entirely. Whether that setup will eventually allow Grameen to stand on its own two legs is a huge question mark...
...even if it can, it is still important to keep in mind exactly what a $1,500 loan can do. The ultimate promise of Grameen - and of microfinance more broadly - is to use business lending as a way for people to lift themselves out of poverty...
...Grameen America provides a fascinating lens through which to view that ideal. More often than not, the borrowers Grameen finds in the U.S. already have jobs (as factory workers or home health aides, for example) as well as side businesses - selling toys or Amway products, cleaning houses or giving haircuts. The loans from Grameen, by and large, provide a steadier source of funding, but they don't create businesses out of nothing...