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DEVELOPMENT: Microcredit Not Just For “Poor” Countries

Enrique Gili

SAN DIEGO, California, Nov 8 2006 (IPS) - In a conservative industry focused on the bottom line, Patti Mason doesn’t sound like your ordinary bank president. The former airline accountant turned banker is animated while discussing the merits of commerce as a form of economic empowerment.

Reviewing the narrow range of options available to creditors and lenders, she sees a clear need for combining business acumen with a social conscience.

“We’re mixing business with compassion,” she told IPS.

Mason heads Accion San Diego, a non-profit organisation in the U.S. state of California dedicated to providing micro-loans to small businesses and entrepreneurs, who are often on the margins of the business community.

Accion is a licensee of Accion International, founded in 1961 to lift denizens of Brazil’s slums out of poverty. Accion International currently operates in Latin America, the Caribbean, Asia and parts of sub-Saharan Africa, with eight affiliated offices in the United States.

Peering across a desk crowded with paper, Mason says her job is not much different from her colleagues in more traditional settings. Day-to-day she supervises a staff of eight loan officers and assistants who administer to a steady stream of paperwork from people seeking bank loans.


Accion also provides technical assistance to 350 clients throughout San Diego, Orange and Riverside counties, who would be otherwise cut off from the lending process.

Mason readily admits that in order to be effective, Accion examines each loan carefully. However, rather than turn people away, her staff reviews applications taking a number of factors into consideration beyond the balance sheet, often basing lending decisions on a combination of commercial instincts and business experience.

Mason is analytical without being hard-hearted. “We have 1.7 million dollars on the street,” she said. The money isn’t charity – Accion expects to be repaid, Mason insists.

In the past decade, Accion partners have disbursed 9.4 billion dollars in loans to nearly four million borrowers in Latin America, Asia and Sub-Saharan Africa, with an impressive repayment rate of 97 percent.

The San Diego affiliate has achieved similar results, with a delinquency and default rate of just five percent. It has received a four-star rating from Charity Navigator, a national watchdog organisation that evaluates non-profits, for sound fiscal management.

Accion is often the bank of last resort for entrepreneurs who have been denied loans for a variety of reasons elsewhere. Some have a poor or non-existent credit history. Others are simply low-income households, minorities and recent immigrants with no or prior bad experiences with poorly regulated banks in developing countries.

Many banks simply can’t be bothered with the types of loans these borrowers require. The overhead needed to service micro-loans and the profits to be made from them do not make economic sense.

Accion has a cap of 35,000 dollars but many loans are for much smaller amounts, often in the low thousands. The idea is to help turn an idea into a business or spur the growth of existing ones. Much of the money goes to service-oriented businesses with low overhead.

Loans are often made to highly motivated entrepreneurs, like house cleaners, landscapers, seamstresses and shop owners who are simply trying to support their families. Accion approves 90 percent of these loans, said Mason.

One client is the husband and wife team of Jesse and Tess Brown. In order to get a fresh start, the long-term New York residents relocated to San Diego. Balking at the low-wage jobs available in San Diego’s food and hospitality industry, the experienced restaurant professionals started a catering business from their apartment. A subsequent bad restaurant deal proved to be fiasco.

They faced a predicament common to most start-ups. Without an established track record or tangible assets, the Browns struggled to secure financing that would enable them to expand their business beyond the kitchen table. In need of capital, they turned to Accion after other banks denied their loan applications.

Although the bid to salvage the restaurant failed, their catering service continues to do well. They also opened a high-end chocolate shop that serves double duty as a meeting place for new catering clients and for walk-in customers with a sweet tooth.

Jesse Brown admits he’ll have to make a lot of chocolate before the ritzy retail space turns a profit. But he doesn’t regret the decision to become self-employed. “For myself, I’d go to almost any length to continue doing it,” he said.

The goal at Accion is to put businesses like the Browns’ on the path towards viability. Instead of treating cash-strapped entrepreneurs like credit pariahs, Accion envisions business ventures with employees and assets.

“We’re looking to build a long-term relationship with Accion,” said Brown. So far they’ve borrowed 10,000 dollars and have partially repaid the loans that enabled them to cover their expenses.

Still, it’s a small amount compared to what they need to expand their enterprise. Brown points in frustration to his two stirring machines. “People have approached me with orders in the magnitude of the tens of thousands, [but] our business has nowhere near that capacity,” he said.

Designed to combat poverty in developing countries, micro-lending is gaining greater awareness in the United States, especially among high-tech mandarins willing to do something altruistic with their wealth in a manner that favours giving a hand-up rather than a handout.

For example, the Bill and Melinda Gates foundation recently awarded 5.8 million dollars to Accion International for projects in India and Africa, the largest such grant in Accion’s 45-year history.

On Nov. 12, 2,000 delegates from 100 countries will gather in Halifax, Canada to discuss the future of micro-financing in the developing world, with the stated goal of lifting 175 million of the world’s poorest families out of grinding poverty by 2015.

This year, Muhammad Yunus and his Grameen Bank were awarded the Nobel Peace Prize for pioneering micro-lending programmes that have been emulated worldwide.

Translating those achievements to U.S. markets is like “comparing apples to oranges”, said Mason. But she acknowledges there is something universal in their goals: “We’re making a difference for people who don’t have money.”

 
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