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 .
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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
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IS I
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