TheLoop21.com

By: Marvin King (Add to your loop)
Mon, 02/01/2010 - 01:00

Traditional banks base their lending on your credit history.

It started in Bangladesh, but it can help many African Americans and other persons of color fulfill their entrepreneurial spirit. "It" is microfinance and means getting small, "microloans" to aspiring capitalists. In the developing world, where in the best of times access to money to start a small business is limited, microlenders have been a real asset in lifting millions out of poverty, especially women.

Microfinancing, through fits and starts, is beginning to make a home in the United States. Because the United States has a fully developed financial system, microcredit works differently here. In developing countries, a loan might be as little as $10. Here, though, typical amounts run from $1,000-$10,000.

The problem in America is that traditional banks usually balk at lending this amount to people with damaged credit (the unemployed who have fallen behind on bills), no credit (recent immigrants) or a criminal history (many African American males). This is where microloans come in and why they are a perfect vehicle for getting startup loans to an entire generation of doers and dreamers.

These people have smart plans, but big banks that are willing to take billion dollar risks on ridiculous investment schemes won't loan $2,000 to hardworking start-ups because of a low credit score. American microlenders like ACCION and BRAC specialize in finding these low-income workers with good ideas and give them a chance.

The secret to microlenders' success is they usually require taking several "how-to" classes in order to receive the loan. They have proven so successful that borrowers pay back 99.5 percent of all microloans with interest.

The Obama administration, critical of big banks' unwillingness to extend credit in 2009, increased the amount of money the Small Business Administration could dole out in these micro-amounts. Why Obama did not tout this fact in his State of the Union address is beyond me, but it is a real hidden success of his first year in office.

In truth, much of the administration's support comes from Hillary Clinton. While first lady of Arkansas and then the United States, she studied the improvements microlending made in the lives of poor women around the world. So far, in her short stint as Secretary of State, she has encouraged foreign governments to support microlenders and pushed the United States to do more for people overlooked and underappreciated by big banks.

Real change for minority and urban communities will only come when people, idea-rich, but wallet-poor have access to just a little bit in start-up funds. Supporting urban communities means supporting microfinance.

Marvin King is an assistant professor of political science at the University of Mississippi and writes the blog King Politics.