Big Business Focuses on Small Loans
Shining a new spotlight on the field of microfinance.
By Abby Schultz
The award in October of the Nobel Peace Prize to Muhammad Yunus of Bangladesh and the institution he founded 30 years ago, Grameen Bank, has focused new interest on the field of microfinance, which provides the poor a way out of poverty by lending them small amounts of money for short periods of time without asking for collateral. The loans have allowed millions of low-income people to grow tiny businesses into viable enterprises.
The Nobel Prize “makes it difficult for people to not be paying attention,” says Shari Berenbach, Executive Director of The Calvert Foundation, which has about $30 million invested in 42 leading microfinance organizations.
Based on the success of Yunus and others, the field of microcredit has grown to include for-profit as well as nonprofit institutions, and has expanded through some of these organizations to include other financial products, including insurance, savings deposits, and mortgage lending. Microfinance is the umbrella term for all these efforts.
Financial services companies and commercial banks were among the first to notice microfinancing, and they are the ones jumping in now or expanding their efforts. The Citigroup Foundation, for instance, was lending support to the nonprofit Accion International before Accion even began microlending; today, Citigroup continues to support organizations like Accion as well as to provide capital market support to microfinance institutions through a global group dedicated to microfinance. At the Clinton Global Initiative in September, American International Group announced a $5.25 million, three-year partnership with Accion to develop other kinds of microfinance products. Also at the Clinton summit, the international financial institution, Standard Chartered Bank, announced a $500 million facility to support microfinance institutions in Asia, Africa and the Middle East, where the bank has substantial business operations. Standard Charter’s strategy includes helping microfinance institutions raise funds through the capital markets, says Mizinga Melu, Managing Director and Global Head, Development Organisations.
Financial service companies can understand microfinance is simply providing financial services to previously unserved markets, says Roy Jacobowitz, Senior Vice President for Resource Development at Accion. “Because they are financial services companies, and because they can more readily understand the field or what we are trying to do, the best of them come to it with a mixture of social responsibility goals and business development goals.”
As lending to the smallest and poorest entrepreneurs has boomed, some larger borrowers in developing countries have been left out. EcoLogic Finance, a Boston nonprofit, is among those filling this gap by providing financing to small and medium-sized enterprises, which in turn can provide financing, as well as income, to tradesmen, field workers, and small farmers. Instead of $10 or $100 loans to potters or bike mechanics, EcoLogic is lending $25,000 to $500,000 to business organizations, such as coffee grower cooperatives, that foster “grassroots economic development” as well as environmentally sustainable practices. Similar to microfinance borrowers, these small enterprises don’t have access to affordable credit.
Filling this credit gap is another way corporations can support the same aims of microfinance, that is, lifting up the poor by giving them the means to make a living. Dollars may go to a cooperative, but individual farmers and communities are strengthened. Starbucks Coffee Company is one business depending on this network of financing to ensure the high quality of its coffee for many years to come, according to a spokesman, Andy Fouche. Since 2004, Starbucks has invested with EcoLogic Finance, The Calvert Foundation, and Verde Ventures, a fund managed by the nonprofit Conservation International, to support small coffee and cocoa farmers in Central and South America and Asia.
Public appreciation of microfinance may be emerging, but Accion’s Jacobowitz says corporations should recognize microfinance is a maturing field with proven successes since the early 1970s. “It’s important to know it’s been going on for more than 35 years, almost 40 years, and some corporations have been involved since the beginning,” he says.
Abby Schultz (aschultz@comcast.net) is a freelancer based in Montclair, NJ.