Micro-loans, in which poor people are provided small loans so that they can jump-start or grow an enterprise, are often associated with least developed countries, but, according to a new study, this model has proved highly effective when applied to poor American women over the last decade.
The Grameen Bank model was pioneered in Bangladesh during the 1970s and 80s, and aimed to reduce poverty through the provision of loans, financial training, and peer support to those unable to access traditional credit mechanisms. It turned out a that small amount of funds enabling the purchase of such basics as tools, seeds, and livestock enabled many to lift themselves out of the most desperate kinds of poverty.
Grameen brought this concept to the U.S. in 2008, providing the estimated 16 million poor American women with access to funds so that they can build their own enterprises. The Grameen America lending model requires that women create a group of five in order to be eligible. This approach strengthens loan meeting attendance and repayment rates, and provides an environment of encouragement, support and motivation. Overall, the organization has invested over one billion dollars in micro-finance loans to 110,000 women across 14 U.S. cities, and has achieved a 99 percent loan repayment rate. Last year, PW featured an interview “Growing Women’s Financial Power: Microfinance as a Feminist Strategy” with David Gough, Grameen America CFO and Vice President.
Grameen and MDRC (a nonprofit, nonpartisan research, training and policy organization dedicated to evaluating and improving programs and policies that impact the poor) have now released a preliminary report assessing the program. Entitled Microfinance in the United States: Early Impacts of the Grameen America Program, and funded by the Robin Hood Foundation (a New York-based anti-poverty group) and Citi Community Development, the report represents a first-of-its-kind random assignment study and examined 1,492 women (in 300 loan groups) who applied in groups of five to the Grameen America program in Union City, New Jersey.
Applicant groups were randomly assigned to two groups: those eligible to receive Grameen America loans (the program group) and those not eligible (the control group). The outcomes of the two groups were compared over time.
MDRC Microfinance in the United States study notes the following:
- More than 94 percent of Grameen America members reported that their financial situation is better than it was the previous year, 13-percentage points higher than the control group average.
- The Grameen America program produced significant increases in participant credit scores.
- Grameen America members were 13 percentage points more likely than their control group counterparts to report that they could afford to buy the things they needed.
- Over 95 percent of Grameen America members reported operating their own businesses six months after joining the program, 11 percentage points greater than the control group average.
MDRC President Gordon Berlin, notes, “The early results are promising. The Grameen America program produced reductions in measures of financial hardship, which puts the program in a position to increase income and reduce poverty, the ultimate goals of Grameen America, down the road.”
Making small loans to poor American women is a key anti-poverty strategy, given that most banks won’t loan to a poor person with few or no assets. It’s seen as risky, and not worth a bank’s time for the small possible return. “Safe and affordable access to financial services transcends borders and politics. It is the chief force behind economic mobility, empowering people to save, borrow, and invest,” says Andrea Jung, President and CEO of Grameen America. “Unfortunately, financial services are not readily available for a large swath of the population, often women in the lowest income brackets.”
Jung argues that micro-lending can be transformational, “The early results provide encouraging evidence that micro-finance programs can be a sustainable, scalable solution to help close the financial inclusion gap in the U.S. Micro-lending not only empowers women to launch businesses, lessening their reliance on having one primary employer, it has the potential to transform entire communities.”
Microloans provide capital for business formation and growth, and a loan can enable a poor woman to build a financial identity and credit history. This is vital for everything from renting an apartment and getting the utilities turned on, to obtaining a car loan or cashing a check.
The Grameen Bank was established in Bangladesh in 1983 by Nobel Peace Prize recipient Muhammad Yunus, who in the 1970s had loaned his own money to poor local women making baskets. Since its establishment in 2008, Grameen America, a 501(c)(3) nonprofit, has invested more than one billion dollars in over 110,000 low-income women entrepreneurs in 21 locations across the continental U.S. and Puerto Rico.
MDRC is conducting a long-term study of the Grameen America microloan program, and future reports will document longer-term impacts on a wider range of outcomes, including improvements in overall income and earnings, which are the ultimate goals of the Grameen initiative.
For feminist philanthropists, Grameen’s model may be an important one to consider investing in, particularly if you are looking for a modest and relatively secure return on investment and also want to ensure that more women have access to capital. However, small loans are not a silver bullet for addressing gender inequality, and are much more effective when other community supports such as access to education and health care are already in place.