Microlending In America: Can This Third World Success Come Overseas?

With the advent of sites like Kiva, the popularity of microlending is spreading, and may soon rival nonprofit donations as the prominent method of supporting those in developing nations.

The Kiva.org process is simple: ambitious entrepreneurs in other nations have profiles with a listing of how much money they'll need to start or grow their business; these loans range from $100 to several thousand dollars. That money is then repaid when available.

Microlending has been so successful overseas, that it's starting to work for small business owners in the U.S., especially during the recession.

As The New York Times details, most American banks tend not to make loans of less than $50,000 -- the risk simply outweighs the potential profits. Though the interest rates for microlenders can be higher than that of a traditional bank, the lendee gets more time to repay the loan. The objective can often surprise people, according to microlending pioneer Muhammad Yunus.

"It's an unheard of concept," he says in the upcoming documentary To Catch A Dollar. "A bank which lends money not to lend money, but to help people."

An official selection at the 2010 Sundance Film Festival, To Catch A Dollar presents the successes of microlending, and the trouble that Yunus' Grameen Bank may find in bringing the practice to the U.S.

WATCH the trailer:

If you've benefited from a microloan or know someone who has, HuffPost Impact wants your story. E-mail us at [e-mail] with the subject "Microlending Story" and you could be featured on Impact!

Comments

[Blegoo]

11:26 PM on 08/01/2010

Well... you can get 5 grand on credit card... rates are comparable...
:))
I'm wondering what people who propose this are actually smoking?

[thereisonlyoneparty]

01:46 AM on 08/02/2010

Exactly.

I do not think that people who are in favor of microcredit understand how it actually plays out.

The use of social pressure and high interest rates are very different from the system of credit that most Americans are used to.

[TimHS]

03:26 AM on 08/02/2010

http://www.grameen-info.org/

Go have a look how it works instead of assuming you know. It makes you look stupid.

[TimHS]

03:26 AM on 08/02/2010

http://www.grameen-info.org/

Go have a look how it works instead of assuming you know. It makes you look stupid.

[LeeCalif]

05:50 PM on 08/01/2010

Go to Kiva.org

[PotomacOracle]

01:19 PM on 08/01/2010

The State Bank Option

While states are waiting for the federal government to step in, they could charter their own state-owned banks that issue low-interest credit.There is no Constitutional provision against a state owning a bank that issues ten times its deposit base in loans, using standard fractional reserve principles.

The Bank of North Dakota (BND), the nation's only state-owned bank has done so since 1919 to encourage and promote agriculture, commerce and industry in North Dakota.

Its primary deposit base is the State of North Dakota, and state law requires that all state funds and funds of state institutions be deposited with the bank. The bank's earnings belong to the state, and their use is at the discretion of the state legislature.

As an agent of the state, BND can make subsidized loans to spur economic and agricultural development, and it is more lenient than other banks in pressing foreclosures. Under a program called Ag PACE (Agriculture Partnership in Assisting Community Expansion), the interest on loans made by BND and local lenders may be reduced to as low as 1 percent.

While disruptions in capital markets have hampered student loan operations elsewhere, BND continues to operate a robust student loan business and is one of the nation's leading banks in the number of student loans issued. North Dakota's fiscal track record is particularly impressive; budget surpluses every year, low unemployment (2-3%.)

Ellen H. Brown, Author, "Web of Debt"

[palisades01]

11:20 AM on 08/01/2010

This concept has been in the US for years, although it is better know here as Loan Sharking. The only difference is that here is you don't pay it back they break your legs. Would be nice if a community bank actually implemented microlending. Gee it might actually put the mafia out of business. (well sort of)

[Blegoo]

11:21 PM on 08/01/2010

Replacing the old Mafia with the new Mafia?
Change we can believe in!
:))

[TimHS]

03:27 AM on 08/02/2010

http://www.grameen-info.org/

Go have a look how it works instead of assuming you know. It makes you look stupid.

[TimHS]

03:27 AM on 08/02/2010

http://www.grameen-info.org/

Go have a look how it works instead of assuming you know. It makes you look stupid.

[MetrointheWoods]

01:43 PM on 07/31/2010

I think it's got a chance, if and only if everyone's willing to acknowledge that the 'Micro' amounts will have to be considerably larger than that in other nations.

[Blegoo]

11:22 PM on 08/01/2010

A snowball's chance.

[thereisonlyoneparty]

01:45 AM on 08/02/2010

No one is going to pay rates worse than they can get with credit cards (including cash advances) for a credit line that is essentially that of a credit card.

[gsuescum]

11:18 AM on 08/03/2010

That assumes that you have a credit card.

Read this from their website. Doesn't sound anything like a credit card company to me.

------------------------------------------------------------


There is no legal instrument between the lender and the borrower in the Grameen methodology. There is no stipulation that a client will be taken to the court of law to recover the loan, unlike in the conventional system. There is no provision in the methodology to enforce a contract by any external intervention.

Conventional banks go into 'punishment' mode when a borrower is taking more time in repaying the loan than it was agreed upon. They call these borrowers "defaulters". Grameen methodology allows such borrowers to reschedule their loans without making them feel that they have done anything wrong (indeed, they have not done anything wrong.)

In conventional banks charging interest does not stop unless specific exception is made to a particular defaulted loan. Interest charged on a loan can be multiple of the principal, depending on the length of the loan period. In Grameen Bank, under no circumstances total interest on a loan can exceed the amount of the loan, no matter how long the loan remains unrepaid. No interest is charged after the interest amount equals the principal.

Interest on conventional bank loans are generally compounded quarterly, while all interests are simple interests in Grameen Bank.

[WTFbush]

07:51 PM on 07/30/2010

Don't forget about pawn shops, "We Buy Gold" stores and Army Navy surplus stores, Neocons heaven!

[WTFbush]

07:47 PM on 07/30/2010

I am so in favor of this, I cannot wait until this takes off!

The American banks are holding on to $ and not lending, minimizing credit lines of small business owners and home owners in spite of good credit.

This is the opportunity for REAL finance reform!!! PLUS it works.

How has your bank been treating you lately?

[Mortifyd]

07:28 PM on 07/30/2010

It could work very well here, but it frees people from traditional banks so it will be fought tooth and nail.

[thereisonlyoneparty]

10:15 AM on 07/30/2010

No. It will not work because our society has a much different understanding of credit.

In other countries credit is much harder to get and there is much more a social pressure to repay loans. We have nothing like that. If someone cannot pay a debt they default and let bankruptcy or a settlement handle it.

Plus the high interest rates are not going to make it any better.

Microloans prey on cultures that put stock into "one's good name" and that are unfamiliar with credit and interest rates. That is not us. It will not "catch on."

[MsWoman]

01:30 AM on 07/30/2010

I would suggest not because it will be helping their economy, not ours. They will loan to us and all money paid back will go to their country, Americans, you've been hood-winked enough.

[jeffrey678]

09:18 PM on 07/29/2010

Larry Kudlow on CNBC said that the US and Mexican economy are one. I say we are now a third world country. So give a $10 dollar loan to an American so he can sell pencils or apples on a street corner to support his family. Republicans will now have to find some other way to pay for their Global military dreams because a nation of shop keepers will not support a World superpower.
Third world armies are only big enough to be used against their own citizens.

[Smirk]

07:54 PM on 07/29/2010

We should, but we may not.

[epforrester]

03:04 PM on 07/29/2010

We already utilize microlending here. It's called PayDay Loans. It's a fair "free market" practice charging are mere 25% interest. It's the sort of thing that makes republicans feel good about themselves as they "help" a community.

[chendri887]

08:02 PM on 07/29/2010

Yes, thank goodness for "Pay Day Loan" stores on every corner in America! The GOP can be proud of its efforts to help create this true laissez faire business that destroys the middle class with a twinkle in its eye.

[thereisonlyoneparty]

10:16 AM on 07/30/2010

Nice comment, dick.

There is no requirement that people take out payday loans or go to pawn shops or anything like that.

If people choose to use them that is their problem.

Do you also hate casinos and lotteries from giving people who are bad at math false hope?

[LeeCalif]

05:52 PM on 08/01/2010

Micro lending is much more preferable than these pay day lenders !

I thought epforrester was being facetious.