The small scale microlending once associated with the developing world is taking off in America.
According to a story from the NY Times, the economic downturn and tight credit at U.S. banks have forced many small businesses to explore non-traditional options.
Kiva.org, one of the best known microlenders, has just begun a pilot program in the U.S. The NYT spotlights Amanda Keppert, the owner of a hot dog stand in San Jose, California.
After being rejected by a number of local banks Ms. Keppert was able to get a $6,500 loan with a 6% interest rate through the Opportunity Fund, a local microlender that has teamed up with Kiva.
The story notes that most U.S. banks consider any loan smaller than $50,000 not worth the risk. Microlenders, by contrast, often lend $35,000 or less.
The interest rates at microlenders are typically higher than at traditional banks. But the values are also different. Many microlenders are non-profits with the mission of eradicating poverty, which allows them to take on less credit worthy clients.
Muhammad Yunus won the Nobel Peace Prize for his work with small scale loans. His Bangladesh based Grameen Bank has plans to open four new American branches this year to meet the increasing demand for microlending in the states.
“People are compelled to do something in their backyard,” said Gina Harman, president and chief executive of Accion USA, a microlender and partner in Kiva’s American pilot program. “Suddenly, giving $1 to someone in Ghana isn’t as important as giving to someone here.”
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