With every day in America bringing news of regressive political changes that will negatively impact women, it’s important for those who want to increase gender equality to explore different strategies for reaching women who need resources. One strategy that recently caught my eye was Grameen America’s announcement that, in celebration of its 10-year anniversary in the U.S., it would enter the fray of impact investing and disburse an added $11 million in capital in microloans to low-income women across the country. With this new fund, over a five-year period, Grameen will make $140 million in loans to low-income women who are struggling to get a foothold in the U.S. economy as entrepreneurs.
In the wake of the Great Recession of 2008, many low-income women have been essentially locked out of the market for affordable financial products. These women are often excluded from traditional bank loans because of low or no credit, or they are gouged with usurious interest rates by predatory lenders. Microfinance, the loaning of small amounts (under $50,000) to borrowers with low or no credit, offers a nonprofit solution to this problem.
Grameen America is the fastest growing microfinance organization in the U.S., and its model of lending to low-income women can have profound impacts on individual lives. But ultimately, the growing popularity of microfinance in America may be another indicator of the increasingly unstable financial picture for many American families, who can’t get credit, and are patching together an income between part-time jobs, personal enterprises, and small loans.
To find out more about Grameen America’s efforts to loan money to some of the most marginalized women in our country, I spoke with David Gough, Chief Financial Officer for Grameen America. In particular, for philanthropists, I wanted to get Gough’s pitch for how Grameen America’s new Impact Fund is the best bang for your gender equality philanthropy dollar.
As it turns out, Grameen is looking to give donors new options for supporting its work. “We want to offer our donor base an additional way to fund our growth,” said David Gough, CFO of Grameen America, in a press release regarding the new Impact Fund. “Our stakeholders are interested in the concept of impact investments that have great social returns while offering an economic return as well. This new funding vehicle will help us expand our outreach and better serve the communities we’re in.”
Starting with an initial $11 million in funding, Grameen is hoping to bring in new stakeholders for impact investing in a series of Social Business Funds. If this plan to raise capital through both new and traditional means is successful, Grameen America will “disburse up to $2 billion in loans to low-income women within the next five years,” according to a press release announcing the new initiative.
“We are focused exclusively on serving low income women in the United States, living at or below the federal poverty levels. Drilling down a little further, we’re focused on entrepreneurial women in that segment,” said Gough, in a phone interview with Philanthropy Women. Gough has served as Grameen America’s CFO and Vice President since October of 2014. He also did a lengthy stint with Women’s World Banking in Business Development and prior to that, had an extensive career in traditional banking.
Currently Grameen America has 45,000 borrowers throughout its 20 U.S. branches, and is the largest microfinance business in the country. Before its U.S. launch, Grameen had a history dating back to 1976 of being one of the largest micro-financiers on the globe.
Why has Grameen chosen to serve low-income women who are typically excluded from getting loans from traditional banks? Is this a recipe for making decent financial returns? As it turns out, yes. Grameen America recovers 99% of the money it loans out, and reports that it has loaned out $820 million over the last ten years.
How do they do it? Grameen’s strategic edge has to do with its model for cultivating women borrowers by setting them up in small working groups with other borrowers. Loans are distributed to the women who are part of a group with four other women. These groups of five meet every week over the six month course of the loan.
“We fund their economic activity, so they can grow their asset base, increase their net worth, and have a positive impact on themselves, their families, and their communities,” said Gough.
But being in the Grameen loan program requires real commitment and accountability, said Gough. “When a woman identifies herself as being interested in the program, she will go through a great deal of education about what the program entails.”
“We don’t mind if you don’t have credit or have broken credit,” said Gough, but borrowers need to take responsibility for repaying the loan, and provide proof of repayment to their five-person group.
“They also have to go through a week of financial literacy training before getting their first loan,” said Gough. “That’s five days of intensive training. It’s aspects like this that make our model unique.”
But Gough noted that microloans are most effective in an economy where there are other basic supports like access to health care and housing. He used the example of a woman borrower that was served out of Grameen America’s Jackson Heights, Queens branch. She was homeless and living in the subway with her child, after fleeing a domestic violence situation. “One of our staff in the Jackson Heights branch spoke to her about the program, said hey, this is what the program is. She came into the program, got a loan, and she used the proceeds to rent a chair in a nail salon. Fast forward five or six years, she is still being served out of our branch. She now has that space, and she’s renting out chairs to other women.”
A big part of what made the Grameen loan effective for this borrower was that she also had the support of the shelter system and transitioned to stable housing. With the support of a safety net for those most vulnerable, a loan from Grameen can further stabilize the situation.
“We can be part of the ecosystem of solutions,” said Gough. “The intervention that we offer is to stabilize an individual woman, as a person in her own right, and therefore, in her community as well.” Gough emphasized that there is a ripple effect value to this intervention that can bring more stability to the community overall. “There is a fantastic network effect to our work,” he added.
The average loan size for a Grameen America loan from this fund is $2,300 — not a lot of money, but enough to give a small business the ability to begin renting space or buying supplies in bulk to get cheaper rates.
$140 million in loans to low-income women over five years will have a real impact on the women receiving the loans and their families, but it is still only a partial solution to the growing problem of poverty in the U.S. It nibbles at the edges of our deeply flawed economy, where predatory lending is still alive and well in many parts of the country.
“That’s why there is great demand for our product,” said Gough. Grameen America is expanding its footprint on U.S. soil in response to this demand, opening new branches in Miami, and looking at new branches in Houston, Texas and Fresno, California. In addition, they are also looking to expand their existing branches in areas like Boston and New York.
The interest rates you pay on a Grameen loan are reasonable, especially when compared with what options are available to low-income women with little or no credit. “For every $1,000 that we lend to someone over six months, Grameen charges $53 in interest,” said Gough.
For funders who are looking for an effective way to move capital into distressed communities, Grameen America offers an option that can accelerate small business growth at the grassroots for women — a target that many gender equality philanthropists are focused on. The program’s emphasis on financial literacy and group support is another value-added feature that can enhance networking and community-building.
But Grameen’s model is not focused on structural change of the banking systems, so it can only provide an intervention for the limited numbers it is able to reach. Nevertheless, as part of a diverse strategy for gender equality giving, this new fund from Grameen America hits several targets at once. With more support from donors who understand Grameen’s positive impact on gender equality at the grassroots, the nonprofit could expand its reach to low-income women.
“Over 90% of our borrowers keep coming back, so that means we need more capital,” said Gough.
Visit Grameen America to learn more.