Small-scale Microlending, which used to be popular only in the developing world has gained ground in larger economies like America.
A story on the New York Times said slow economic growth and strict credit conditions at US banks have force a large number of small businesses to consider non-traditional options.
One of the most popular microlenders, Kiva.org, is on its way to starting a pilot program in America. Through partnerships with local microlenders like the Opportunity Fund, Kiva loans money to proprietors of small businesses who repeatedly get rejected by local banks.
A majority of US banks consider loans under the $50,000 mark not worth the loss. However, microlenders approve loan applications for $35,000 and below.
Although microlenders give out loans with higher interest rates compared to traditional banks, the values are not the same. A lot of microlenders operate as non-profit organizations and lists the eradication of poverty as one of their goals, thereby allowing them to accept clients who are less credit worthy.
Muhammad Yunus, owner of Garmeen Bank, has won a Nobel Peace Prize for the work he has done on small scale loans. The Bangladesh-based bank is planning to open four branches in America this year to supplement the large demand in the US for microlenders.
“People are compelled to do something in their backyard,” Accion USA President and CEO Gina Harman said. “Suddenly, giving $1 to someone in Ghana isn’t as important as giving to someone here.” Accion USA is a microlender and one of Kiva’s partners in its American pilot program.
