What We Know About Microcredit in the US

Joyce Klein is director of the Microenterprise Fund for Innovation, Effectiveness, Learning and Dissemination (FIELD), a part of the Aspen Institute Economic Opportunities Program. FIELD works to advance innovation and knowledge in the U.S. microenterprise industry.

On October 28, 2013, The New York Times ran a story in its business section on microcredit in the United States. The story draws on data that FIELD has been collecting for close to 15 years, but focuses largely on the work of Grameen America, one of the largest microcredit providers in the United States. There are good reasons to profile Grameen America, which has successfully used the practices developed by Nobel prize winner Muhammad Yunus to serve large numbers of individuals here in the US. But the focus on Grameen’s work in the US reveals only one facet of what FIELD’s work and experience has shown — that there is a very diverse market of individuals in our country who have entrepreneurial desires and talent, but lack access to financing.

As the article suggests, Grameen has found great success lending to a specific market — low-income Latina women. According to data that Grameen America submitted to FIELD via microTracker, our online data portal on the US microenterprise industry, in 2012, 100% of its more than 12,000 clients were women with incomes below the poverty line, and 95% were Latina. These demographics are consistent with Grameen’s focus on “the poorest of the poor.”

The unsecured loans that Grameen provides are relatively small — again, based on data submitted to FIELD, they averaged just under $2,000 in 2012. Through these loans, Grameen is working to address a critical challenge for many low-income individuals — the lack of access to non-predatory sources of credit. The borrowers profiled in the article illustrate the sense of some observers that some of the loans are used for purposes other than investing in a business — to pay off higher-priced debt, access more affordable sources of consumer financing, or build credit (which, as I noted in an earlier blog post, is increasingly important in today’s economy).

If one steps back from Grameen America to look at the broader range of microcredit organizations active in the US, a more diverse and nuanced picture emerges. Across the more than 70 lenders who have submitted data to FIELD for 2012, 72% of the clients served were women, 64% were minority, and 40% had incomes at or below 150% of the poverty line. These statistics vary significantly according to the geographic markets and the missions of the microlenders.

Two other microlenders that report data to FIELD are Community Ventures Corporation, which lends statewide in Kentucky, and Accion Texas and the Delta, which lends in seven states in the southern US. Both organizations lend in rural as well as urban communities, and for both, just under 60% of their clients in 2012 were women. Almost two-thirds of Community Ventures clients were African American, and almost 10% were individuals with disabilities. Its average loan size was just under $5400. And while Hispanics comprised the largest segment of Accion Texas’ clients, it also served significant percentages of white and African American customers. Its average loan size in 2012 was $14,213.

The larger average loan sizes of Community Ventures Corporation and Accion Texas reflect the fact that although both — like Grameen America — make small, credit-building loans available to their customers, they also make larger business loans underwritten on a number of factors:  the character and credit of the borrower, the cash flow of the business, and in some cases, available collateral. The goal of the larger loans is to build businesses that can provide higher incomes to families and provide jobs for the owners and others. As the article in the Times noted, FIELD’s research indicates that they are realizing these goals. In a recent study FIELD published, the clients of microenterprise programs studied increased their household incomes by a median of 24%, and the businesses created work for an average of 2.9 people, including the owners.  

My point here is not to argue that one approach to lending is “right” or better than the others. We still have more to learn about the potential and efficacy of microcredit in the US. Rather, my goal is to point out that, especially in the wake of the financial crisis, there are large numbers of people with diverse profiles who cannot find affordable financial products that enable them to become financially secure and to build wealth, and that it will likely take a diverse range of products and institutions — in both the nonprofit and for-profit sectors — to meet their needs.