In his most recent New York Times column ("Here's a Woman Fighting Terrorism. With Microloans"), Nicholas Kristof makes the provocative argument that successful microfinance efforts in the developing world help combat fundamental extremism. Kristof profiles Roshaneh Zafar, a banker turned social entrepreneur now working in Pakistan, who says "Charity is limited, but capitalism isn't. If you want to change the world, you need market-based solutions."
It might be surprising to those who know microfinance in the context of the developing world to learn that it is thriving in America as well. Here at home, microfinance is effectively fighting unemployment, economic exclusion and an evaporating middle class.
At first glance, microfinance looks very different in the U.S. than it does abroad. Domestically, loan sizes are higher to accommodate higher costs of living and doing business in our formalized economy. For example, ACCION has made loans as high as $100,000 in the U.S. (our average is about $7,500). In addition, interest rates must be kept in close proximity to market rates -- a 30 percent annual interest rate is common abroad, but would be considered usurious here.
However, if you take a deeper look at the work of U.S. microlenders, you'll see that we share a core philosophy with our international counterparts -- that sufficient access to small business capital can have lasting, positive change on communities and individuals. We also share a commitment to pairing loans with financial education to ensure long-term success, and know that being integrated in the communities that we serve is the best way to provide financial services that foster dignity and pride.
Business owners worldwide face common frustrations and challenges because they live and work outside of the financial mainstream. I can virtually guarantee that in your own community, there is a small business owner who can't access a loan they need to grow. A microfinance borrower can be the baker who has worked hard for twenty years but doesn't have the credit history to open his own storefront; the stay-at home mom whose emerging home-based business is not recognized as legitimate by the bank; or the restaurant owner who only needs $10,000 to expand.
Since the onset of the recession in 2007, small business owners like these have flocked to microfinance solutions because many of them could not secure traditional bank loans. And while our work has taken on special meaning during these tough times, we have always been there for America's small business owners.
Kristof makes a powerful case that starting businesses, creating jobs, and encouraging education help undermine extremism in some of the world's poorest countries. Describing the extraordinary work of Zafar in Pakistan, Kristof suggests: "The toolkit to fight terrorism includes not only missiles but also microfinance and economic opportunity. The antonym of 'militant' is often 'job.'"
No matter where we live, economic empowerment is of vital importance. For microlenders in the U.S., our work is about maximizing the potential of small business owners to contribute jobs and create steady sources of family income, which has the effect of strengthening our communities and bolstering our national security.
In my first column on The Huffington Post, I mentioned research that showed that each ACCION loan helps business owners to create 2.4 jobs -- and that these self-starters provide wages that are, on average, 25 percent higher than minimum wage. In my next column, I will detail how domestic microfinance is a powerful engine for job growth in America.
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