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About Portland observer. (Portland, Or.) 1970-current | View Entire Issue (Oct. 4, 2000)
October 4, 2000 (Elje 'Jïorthmfc ©bseruer Microcredit: An Economic Solution to Poverty B\ D r . D onna M. H l iv il in for T he P o r t i and O bserver M icrocredit is acom m ercial devel opm ent m odel that reduces poverty and develops com m unities. Y et, it does n ot eject the current residents from their hom es or require a govern m ent program . It is the loaning o f sm all am ounts, som e as low as $20 in a developing country o r $500 in the U .S., to borrow ers w ho do not have traditional creditor collateral, the way so m any “econom ic developm ent” program s do. It is not charity. O rga nizations called m icro finance institu tions offer m icrocredit throughout the world. T ypically, non-profits charge interest rates approxim ating com mercial interest rates. These rates allow the institution to m eet a large portion o f its expenses. Worldwide, over90ofall microcredit borrowers are women. The loans are typically made to groups o f women (usually five) called solidarity circles. Each group m em ber is jointly respon sib le fo r the repaym ent o f each m em ber’s loan. No one in the group can take out another loan until each group m em ber repays his or her loan. Borrowers are usually required to save 5 p ercent o f their loans. T his peer lending processes encourage bor row ers to w ork together in planning their businesses. T hey also often find w ays to network their businesses so they can offer a m ore expanded product or service then they could alone. Repaym ent rates have consis tently exceeded 95 percent w orld wide. T h e v a s t m a jo r ity o f th e m icrolending program s are in the developing w orld. But, the same model works well in countries like the U.S. The difference is that in this country, the loans need to be larger startingatabout$500. T hedeliveryof more technical assistance also is re quired because business is more com plex, given the laws, rules, and regula tions o f the industrialized countries. Often the borrowers use the loan to start a small business on the side to supplem ent their low-paying jobs. However, as in the developing coun tries, the process o f receiving loans, making business plans, managing cash flow, repaying loans, and saving money helps to develop management and lead ership skills and self-esteem. N um erous studies on the results ofm icrocredit show improvements in the status o f the family and im prove m ents in the com m unity in num erous ways. Typically, microcredit borrow ers support each other in order to expand business opportunities for everyone. The availability o f prod ucts and services in the com m unity is increased. U sually, borrow ers estab lish credit w ithin 3 years, and then can qualify for traditional loans. Jobs are created: the borrow ers em ploy them selves and grow to em ploy oth ers. Business networking takes place, individual and family domestic wealth grows, and the savings required by the program generate pools o f funds that are used to create m ore m icro loans. So the cycle expands. A fter the businesses are solvent, loans are often taken out to im prove the fam ily’s housing, and the bor rowers w ork together tow ards the developm ent o f their community. In the solidarity circle, they have learned leadership skills, toplan, follow through and work together. They translate these skills to improving their commu nity. Dr. M uhammad Yunus began giv ing sm all lo a n s to th e p o o r in Bangladeshin 1976. In 1983 he estab lis h e d th e G ra m e e n B a n k , a m icrofinance institution. The suc cesses o f this process have been w ell docum ented and have show n over w helm ing results as an econom ic solution to poverty. Studies show that m icrocredit borrow ers are m ore likely to have larger enterprises com pared to non-borrow ers; have an in crease in th eir p ersonal incom e. National Minority Business Week sense o f em pow erm ent and higher self-esteem. Studies o f the G ram een Bank show that during an 8-year pe riod, only 4 percent o f the poor in Bangladesh pulled themselves above the poverty line. C onversely, am ong the poor with credit from the Grameen Bank, more than 48 percent rose above the poverty line. The W orld Bank uses four criteria in evaluating urban upgrading p ro grams. M icrocredit receives high marks in all four areas. T hey are: Im proving health, environ mental, social, and econom ic condi tions in the com m unity; E nsuring that the original residents are benefiting and are not ejected after the area is im proved; E ncouraging residents to improve their houses and prom ote the expansion o f sm all businesses; and A ffordable to both govern ment and the co m m u n ity , M icrocredit does not require a governm ent program . T he delivery o f m icrocredit has traditionally been done through non-profit organiza tions, funded by donations. Socially responsible loans are used to increase the institution’s loan capital. These are loans at interest rates o f 2 and 3 percent. In the U nited States, som e banks are providing the loan ta p i tai in response to the C om m unity R ein vestm ent Act. T he A ct (P.L. 95-128) requires financial institutions to dem onstrate their deposit facilities serve the convenience and need for credit services o f the com m unity in w hich they are chartered to do business, including low- and m oderate-incom e neighborhoods. In response to this Act, som e banks are providing loan capital to m icrocredit institutions at a zero interest rate for a num ber o f years. F o r e x a m p le , C o lo ra d o Microcredit has received a total o f $200,000 in loan capital from several banks at zero interest for five years. The com m unity benefits in all ways. The borrow ers becom e self- sufficient, gain self-esteem , and ex pand the com m unity’s products and m arketplace. They invest in improv ing the health o f their families, im proving their hom es, and expanding their businesses. T hey also actively participate in their com m unity’s gov ernance, making sure that their priori ties are heard. P‘eeCI3 Making Loans to “Unbankable” Businesses C a s c a d ia R e v o lv in g F u n d is a p r iv a te , n o n - p ro f it co m m u n ity d e v e lo p m e n t fin an c ial in stitu tio n th a t p ro v id e s lo a n s an d te c h n i c a l a s s is ta n c e to u n b a n k a b le sm a ll b u s in e s s e s in O re g o n and W a s h in g to n . T h e y p rim a rily le n d to b u s i n e s se s o w n e d b y lo w -in c o m e in d iv id u a ls , m in o ritie s , o r w om en th a t h a v e b e e n u n a b le to a c ce ss c re d it fro m tr a d itio n a l so u rc e s, su c h as b an k s. B u s in e s s e s lo c a te d in e c o n o m ic a lly d is tre s s e d u rb a n an d ru ra l c o m m u n itie s , o r th a t h av e s ig n ific a n t p o te n tia l fo r jo b c r e a tio n , o r a c t to p re s e rv e o r r e s t o r e th e e n v i r o n m e n t a l s o q u a lify to a p p ly fo r lo a n s from C a s c a d ia , a s d o c o m m u n ity - b a s e d n o n -p ro fit o rg a n iz a tio n s . T h e g o al o f C a s c a d ia is to h elp e n tre p re n e u r s g ro w s u c c e s s fu l b u s in e s s e s , w h ic h in tu rn le a d s to jo b c r e a tio n an d e c o n o m ic p r o s p e r ity in o u r c o m m u n itie s. In 1 9 9 9 ,6 0 % o f C a s c a d ia ’s lo a n s b e n e fite d lo w -in c o m e p eo p le. In its f ifte e n -y e a r h is to ry , C a sc a d ia has len t n early $ 12 m illio n to m ore th a n 2 1 0 b u s in e s s e s , h e lp in g to c r e a te o r p r e s e r v e 9 5 0 jo b s . A b o u t 8 0 % o f C a s c a d ia ’s b o r ro w e rs are still in b u sin e ss an d o v e r 9 9 % o f m o n e y lo a n ed has b e e n re p a id . C a s c a d ia ’s in v e s to r s h a v e n e v e r lo s t m o n e y th ro u g h a C a sc a d ia in v e stm e n t. C a sc a d ia is fu n d ed b y b o th d o n a tio n s an d in v e stm e n ts from th e p h ila n th ro p ic c o m m u n ity . C a sc a d ia p ro v id e s a u n iq u e o p p o rtu n ity fo r in d iv id u a ls to m ak e h ig h -im p a c t, so c ially resp o n sib le in v e stm e n ts. 80% o f th e m o re th a n 2 0 0 in v e s to rs in C a sc a d ia are in d iv id u a ls, w h ile the re m a in d e r in c lu d e s b an k s, n o n -p ro fit o r g a n iz a tio n s , c h a rita b le fo u n d a tio n s, re lig io u s o rg a n iz a tio n s and o n e g o v e rn m e n t a g e n c y . C a s c a d ia ’s s u c c e s s f u l tr a c k re c o rd h as b e e n b u ilt on o ffe rin g a c o n tin u u m o f c r e d it an d o n g o ing su p p o rt. T h e te c h n ic a l a s s is ta n c e C a s c a d ia p ro v id e s to its b o rro w e rs is an in te g ra l p a r t o f th e ir se rv ic e . C a s c a d ia ’s lo an o f fic e r s a n d b u s in e s s c o n s u lta n ts p r o v id e h a n d s-o n m e n to rin g an d c o u n se lin g fo r th e life o f a b o r r o w e r ’s lo an . M u ch o f th is a s s is ta n c e is fo cu se d on im p ro v in g a b o r ro w e r ’s fin a n c ia l a c c o u n tin g an d re p o rtin g . T he c o m b in a tio n o f c a p ita l an d a s sista n c e is th e k ey to h e lp in g h ig h -risk , u n b a n k a b le b u sin e sse s s u c c e e d . F o u n d e d in 1 9 8 5 , C a s c a d ia ’s m a in o ffic e is in S e a ttle . T h e o rg a n iz a tio n o p e n e d an O re g o n o ffic e , w h ic h is lo c a t e d in P o r t l a n d ’ s C e n t r a l E a stsid e In d u s tria l D is tric t, in A p ril o f 1999. C a s c a d ia h as fu n d ed m o re th a n $ 5 0 0 ,0 0 0 in lo an s sin c e o p e n in g th e O re g o n o ffic e , in c lu d in g lo a n s to: • G la s s A lc h e m y , a m a n u fa c tu re r o f sp e c ia l “ h a rd ” g la ss fo r th e a rt in d u s try , is a w o m an - ow n ed c o m p an y lo cated in N o rth ea st P o r tla n d ’s C o lu m b ia C o r r i d o r; • F e a th e rL ite E n te rp ris e s , a d is trib u to r o f sh o e s a n d g lo v e s fo r th e w o rk p la c e , is o w n e d b y an A fric a n -A m e ric a n an d is lo c a te d on N E M a rtin L u th e r K in g Jr. B lvd.; • P io n e e r E x e c u tiv e T o w n c a r, p ro v id e r o f h ig h - q u a l ity tra n s p o r ta tio n to a n d fro m th e airp o rt and aro u n d to w n , is o w n ed b y an A fric a n -A m e ric a n a n d is lo c a te d in S o u th e a s t P o rtla n d . F o r m o re in fo rm a tio n a b o u t b o rro w in g fro m o r in v e s tin g in C ascad ia R e v o lv in g F u n d , c a ll the o ffic e in P o rtla n d at ( 5 0 3 ) 2 3 5 - 9 6 3 5 o r v is it th e ir w e b s ite at w w w .c a s c a d ia fu n d .o rg . City of Obtaining A Small Business Loan Just Got Easier. With Albina Community Bank’s Fresh-Start Revolving Loan Fund™, obtaining a small business loan between $5,000 and $50,000 has never been easier. With flexible underwriting criteria, the Fresh- Start Revolving Loan Fund™ is your chance to start that small business you’ve dreamed of, or expand the business you’ve worked hard at establishing. $1,000,000 in Small Business Loans With a goal to create a $1,000,000 revolving loan fund for small businesses in north/northeast Portland, in particular minority and women- owned businesses, make the Fresh-Start Revolving Loan Fund™ your first choice in business financing. Call us today fo r your chance at a Fresh Start! PORTLAND, OREGON OFFICE OF PUBLIC UTILITIES The City of Portland is working with minority, women and emerging small business entrepre neurs to enhance employment opportunities. We join in the celebration of Minority Business Development Week, an opportunity to acknowl edge the successes that provide role models for our youth. We are committed to the availability of training as well as the use of the purchasing power of the City. & ALBINA COMMUNITY BANK 2002 N.E. M arlin Lulhcr King Jr. Blvd. Portland, OR 97212 “ Providing all of your banking needs” Jim F ran cesco n i 1221 S. W. Fourth Avenue P o rtlan d , O reg o n 97204 for more information call Ted Ries (503) 288-7298 MEMBER FDIC A CERTIFIED CDFI IS I (5 0 3 ) 8 2 3 -3 0 0 8 (5 0 3 ) 8 2 3 -3 0 1 7 - F A X
