There's no doubt that the continued freeze on credit has made things excruciatingly difficult for domestic borrowers...
However, lack of available credit — coupled with the urgent need for credit — has actually helped bolster support for microfinance in the United States.
In fact Stephen Vogel, CEO of microfinance powerhouse Grameem America, has noted that demand is exceeding the company's level to lend. While traditional banks are praying for more bailouts, the microfinance industry is actively trying to keep up with increasing levels of demand. And for the most part, they seem to be succeeding.
The fact is that by lending to “would be” clients of traditional banks, microfinance institutions have complemented efforts to stimulate the economy by maintaining a liquid supply of capital — something that traditional banks are not as willing to do.
In this sense, the microfinance sector has seized opportunity after opportunity throughout the recession to expand its market share.
In addition to facilitating liquidity within the capital markets, microfinance companies are also proving to be sources for job creation.
Although estimating the direct impact on employment is difficult, a number of studies illustrate that microfinance has a significant effect on economic activity and employment.
For example, a study by the Romney Institute of Public Management, “Assessing the Community Economic Impact of Microfinance Institutions,” argues that microfinance companies have direct and indirect benefits.
The financial capital that microfinance companies lend not only allows small businesses the ability to engage in profit-building activities that stimulate the economy; but also provides them with the resources to hire sufficient employees.
Cumulatively, the ripple effects of microfinance reverberate well beyond the initial business-to-business transaction. For this reason, microfinance is touted as an invaluable tool for economic recovery because it fuels private enterprise, the backbone of the United States economy.
The bottom line: Surging demand coupled with a profitable niche in a hurting market has allowed microfinance companies to expand at a time when most are grasping at straws just to stay in one place.
Consider two prominent examples:
-
Grameen Bank America is opening up a new branch in San Francisco, California. With $5 million in loans, Grameen America expects a repayment of 99% of all loans.
-
Accion, the largest and most profitable microfinance organization in the U.S., has been approved as a Small Business Administration (SBA) Microlender. This will allow Accion to lend larger sums of capital to a more diverse consumer base.
The microfinance industry is still relatively young, and it's still going through the obligatory growing pains.
But if these organizations can help Americans progress and succeed in a free market, than certainly we cannot ignore them.
What do you think?
Does microfinance have a serious role to play domestically?
Or is this really more of an emerging markets opportunity?
Subscribe to
The experience that impoverished communities have had with microfinance seems to suggest that it catalyzes growth instead of merely supplementing it. If we look to very poor communities in Africa where microfinance was expanded, we can see massive improvements and the development of small businesses, ranging from an independent mother weaving clothes on her own to a man selling food on the side of a street.
In that sense, I completely agree that it promotes pockets of growth in regions. I would just make a broader claim that microfinance can help enhance poor economies by providing opportunity (capital) to individuals that are willing to use and invest it.
What types of top down approaches are you thinking of?