Banking on Women

From Dhaka, Bangladesh, to La Paz, Bolivia, to Frogtown in St. Paul, a new model of economic development is evolving -- one that stresses entrepreneurship more than income, individual initiative more than aid and women more than men.

Called microcredit, microlending or microfinance, the model involves lending tiny amounts of money -- sometimes as little as $25 -- mostly to female entrepreneurs who produce goods or services at a profit.

An estimated 13 million entrepreneurs in the United States have received microloans, while in the developing world the figure is about 16 million. Given the world's hundreds of millions of poor, even the movement's biggest advocates acknowledge that microlending alone cannot solve the plague of poverty. But in stressing enterprise more than charity, proponents argue that wealth is being created in poorer communities, not merely redistributed from wealthier ones.

Although the programs vary from country to country and from lender to lender; the spirit behind most is similar:

  • Make loans that must be repaid.

  • Teach business skills that can last a lifetime.

  • Take risks, but small ones.

  • Work with those most likely to succeed.

    The formula has worked for hundreds of small-business owners in Minnesota and millions more around the world. Some of them have agreed to share their stories for this Star Tribune report.

    Third World origins

    Not quite 30 years old, the concept of microlending sprang up independently in several places in the Third World -- notably Bangladesh, where the Grameen Bank first began making tiny loans to village women, and in Latin America, where two U.S.-based nonprofits -- ACCION International and Opportunity International -- also began lending to the poor.

    Over the years, these lenders began to notice that, although they had not focused exclusively on women, their female borrowers seemed to have the most success. Men are "too impatient" said Muhammad Yunus, founder of the Grameen Bank. Besides, Yunus said, women tend to spend relatively more money on the welfare of their entire household while men tend to spend relatively more money for their own recreation.

    After 24 years of experience there can be no doubt that women are good credit risks -- Grameen's repayment rate is 98 percent and 95 percent of its customers are women. Grameen's female/male borrower ratio is extreme among microlenders. Many U.S. lenders, for example, have a more equal split. But the success of Grameen and other developing world microlenders has strongly linked the microlending movement with the financial empowerment of women.

    Since the early 1990s, microlenders in Minnesota have been bringing capital and business expertise -- one loan at a time -- into some of the state's poorest communities. WomenVenture of St. Paul was among the first microlenders in the United States, beginning in 1992. Mihailo (Mike) Temali, executive director of the Neighborhood Development Center (NDC), started the nonprofit in St. Paul's Frogtown neighborhood seven years ago in conjunction with Western Bank. In preparation for starting the center, Temali studied microenterprise in Thailand and Indonesia. In 1999, he won a Bush Fellowship to study microlending in Boston, Peru and Bolivia.

    While it seems strange that a community lender from St. Paul would travel to the poorest regions of Asia and Latin America in order to discover new ways to make loans in Frogtown, Temali's journey underscores how far his clients are from Western banking's traditional standards of creditworthiness.

    Without personal assets to put up as collateral, without a record of positive cash flow, without a formal business plan containing pro forma projections, most U.S. bankers won't seriously consider making a business loan.

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