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2003, SPECIAL ISSUE I n 1976, Bangladeshi economics professor Muhammad Yunus loaned $26 MICROCREDIT MEANS MACRO OPPORTUNITY to a group of 42 workers. With their 62 cents apiece, the workers purchased materials for a day’s work making clay pots and weaving chairs. At the end of their first day as independent owners, they sold their merchandise and within days repaid the loan. Thus began the microcredit movement. The Grameen Bank originated in Bangladesh to extend small loans to very poor people to start microbusinesses. (Grameen means “village” in Bengali.) By 2002, Grameen Bank had 2.4 million borrowers, 95 percent of them women. The bank had loaned more than $3.7 billion in amounts averaging less than $200. Grameen Foundation USA, headquartered in Washington, D.C., was established in 1997 to provide financial and technical assistance and technological support to grassroots institutions that are replicating Grameen Bank’s success in countries from Tanzania and India to Mexico and the Philippines. As of April 2003, there were 114 such programs in 34 countries. These programs have served more than a million clients worldwide and disbursed more than $472 million in loans. Microcredit, or microfinance, is an antipoverty strategy that provides the very poor with tiny loans—often under $100—to allow them to earn income by establishing or expanding microbusinesses such as cosmetology, janitorial services, child care, tailoring and hundreds of other ventures. The goal is economic self-sufficiency for those who might not otherwise attain it. Microcredit and Dallas tion as a pilot, the fund has served more Empowerment Is the Key Dallas is home to one of Grameen than 1,000 clients and disbursed more The PLAN Fund gives low-income indi- Foundation’s two U.S. microlending pro- than $480,000 in 351 loans that traditional viduals the opportunity to create a peer grams. The Peer Lending Action Network financial institutions would likely never network for personal support and the eco- (PLAN) Fund is a microcredit program that have made. Lives have been changed in nomic seed money to build wealth began as a pilot program of Dallas City the process. through small business proprietorship. Homes in 1997. Dallas City Homes, a non- According to Project Director Alberto Individuals seeking a loan through the profit community development corpora- Muñoz, Dallas was a perfect fit for the PLAN Fund participate with other low- tion (CDC) founded in 1989, helps bring PLAN Fund and Grameen Foundation income entrepreneurs to form peer groups of normally five to seven people. The peer groups work together and support their members through collaboration. This helps to ensure mutual accountability. After several weeks of initial training and technical assistance by PLAN Fund staff or designees, a group joins one of 12 PLAN Fund Centers, located in such places as community centers, churches, cham- COURTESY OF PLAN FUND bers of commerce and even apartment units. PLAN Fund Centers are usually made up of no more than eight peer lending groups. Members meet to review each other’s loan proposals, make loan payments, participate in training, and share business experiences and other informaaffordable housing options to low-income USA. Dallas/Fort Worth is one of the communities in North Texas. The success wealthiest metropolitan areas in the world of the pilot, and the continued lack of serv- but also has a high poverty rate. tion. According to Muñoz, no formal restrictions exist regarding participation in the ices for low-income individuals in Dallas “At 14.45 percent, Dallas County’s program. However, in keeping with its mis- County, inspired the CDC to expand its poverty rate is the second highest among sion and that of the Grameen Foundation, microenterprise program. Texas’ most populous counties,” Muñoz the fund is committed to serving the com- In 1998, Dallas City Homes invited Alex wrote in a recent issue of the Grameen munity’s poorest people and those most in Counts, Grameen Foundation president, Foundation newsletter. “The Hispanic and need of economic opportunity. As a result, to visit the pilot. Counts was immediately African–American communities are dis- the PLAN Fund targets certain demo- impressed with the program’s accomplish- proportionately affected, with roughly 25 graphics, including women (70 percent of ments and the progress of the initial 30 percent of each living in poverty. This participants are women), single mothers borrowers. He also noted that “the pro- diverse group, which includes the working and grandmothers, minorities, heads of gram seemed to grasp the counterintuitive poor, the underemployed, and the desti- households, and recent or current welfare aspects of microlending and injected the tute, is the PLAN Fund’s clientele.” recipients. Participants must be at least 18 spirit and vigor needed to help make the Fund participation and the resulting PLAN Fund successful.” Counts then pro- small business growth has had a multiplier Grameen Foundation’s other U.S. posed a partnership between the CDC and effect in the community. According to microlending program is in New York City. the Grameen Foundation. years old. Muñoz, 32 full-time jobs for low-income Project Enterprise was founded in 1996 As a result, the PLAN Fund was people were directly or indirectly created and certified by the Treasury Department launched in April 1999 as a project of last year as a result of PLAN Fund small as a community development financial Grameen Foundation USA. Since its incep- businesses. 2 PERSPECTIVES | Federal Reserve Bank of Dallas institution two years later. The program overcome. Poor credit and a lack of owner operates much like the PLAN Fund. As of equity and a basic knowledge of finance May 2003, Project Enterprise had made 188 have kept many from realizing the dream loans to 862 clients and disbursed more of small business ownership. However, than $342,000. The repayment rate is organizations like the PLAN Fund are pro- approximately 94 percent. viding opportunities for these entrepre- Access to capital for low-income entrepreneurs is a hurdle that many cannot neurs and a means for them to clear those Microloans and Moral Support hurdles. ■ The PLAN Fund at Work —Jason Sweat It’s Friday morning and like most peoOther Grameen Projects ple, Marsha Graham is settling into her workday routine. Unlike most people, Grameen Foundation USA operates four projects in addition to its two microlending programs. Among them are a technology center and a replication program. however, Graham didn’t commute to work; Grameen Technology Center The technology center focuses on encouraging the world’s most underprivileged individuals to raise themselves out of poverty through access to financial services and information. The center, headquartered in Seattle, helps support microlenders and enables them to reach more people. The center also leverages funds from Grameen Bank and its various partners to fund technology projects for low-income people. Current projects include microcredit automation and village phone and computing programs. The automation project offers a software program to help microlenders increase their capacity, improve financial controls and reach out to more clients. The phone program puts cellular phones into the hands of the underprivileged, who, in turn, use them as a microbusiness. These entrepreneurial individuals purchase the phones with a microloan from Grameen Bank, then sell the use of them on a per-call basis. The computing project, currently being piloted in India, will establish six computer centers equipped with word processing capability and Internet access. The centers will provide Internet access to such things as health care, government services, local market information and email communication. from a $500 microloan from the PLAN this exuberant entrepreneur runs her own business out of her Dallas home. With help Fund, in 1999 Graham began MediClaims Consultant Group, a home-based practicemanagement service that handles all aspects of insurance and patient billing. Being a business owner wasn’t in Graham’s original game plan. She was an administrative assistant when she was laid off in 1989. Motivated to enter a new field where she could seek out opportunities Marsha Graham has expanded her business with three microloans from the PLAN Fund. Replication Program Established in 1999, this program assists financial institutions, organizations and entrepreneurs throughout the world who want to reproduce the Grameen Bank approach to microlending. The program’s four stated objectives are: • Mobilize financial and human resources in support of initiating and scaling up programs that replicate the Grameen Bank approach. • Provide technical assistance through training and advisory services to these replications. • Promote a favorable policy and regulatory environment for microfinance institutions that target the poor. • Promote global networking and disseminate information in support of microcredit programs. Federal Reserve Bank of Dallas | PERSPECTIVES 3 Looking Ahead and excel, Graham decided to go back to was small, there weren’t many options for school and enter the health care industry. me. As soon as I heard about the PLAN Graham has big plans for MediClaims. By 1993 she was working as a medical Fund and what it does, I called to find out She would like to continue building her assistant in the front office of a private more.” customer base and expand operations. Her In pursuit of her dream, and confident second PLAN Fund loan—for $2,000— Graham’s determination and interest in it would prove profitable, Graham did find provided financing for a computer and the field led her to continue her education, out more and within a short time was an printer, two items that streamline her busi- and in 1998 she became certified as a med- active participant in a peer lending group. ness operations. ical records coding specialist. A year later Her first loan—for $500—went directly she was ready to start her own business. toward the purchase of a copier. practice. Graham is currently paying off her third PLAN Fund loan, this one for $6,000— Graham’s entrepreneurial spirit is evi- The PLAN Fund’s peer lending groups 1,100 percent more than the $500 she dent to anyone who talks to her about the are at the heart of the program. The groups received just three years ago. This loan, life-changing opportunity her small busi- are generally composed of about five to among other things, is paying for addi- ness has granted her. “Without the PLAN seven people, who serve as each other’s tional medical coding training that allows Fund’s microloans and technical assis- support and accountability team. Groups Graham to keep pace with her rapidly tance, I would have taken on high credit meet every two weeks at one of 12 centers growing industry. Her five- to 10-year plan card debt, I wouldn’t be as independent to discuss their progress and offer techni- includes moving into office space outside and I would be struggling with the devel- cal and moral support. The lending group her home, hiring employees and expand- opment of my business,” Graham says. decides who gets the first loan. ing her business nationwide. She credits the PLAN Fund with helping “The group pulls together to ask, ‘If you Graham eagerly shares her tips for suc- her understand how the business world get the loan, what would you do with it?’” cess with others. She has mentored other works. Graham explains. Since it’s a peer lending PLAN fund borrowers in her field and group, not only does the group decide who assisted in their development. Currently, gets the first loan, it’s also the group’s she chairs her peer lending group, which is Just a year after becoming a coding spe- responsibility to encourage timely repay- composed of other seasoned PLAN Fund cialist, Graham landed her first client. The ment of the loan. “It’s a shared sense of entrepreneurs who want to expand their work she did for that first customer led to accountability,” says Graham. “You want businesses. She encourages her peers to several word-of-mouth referrals. She was to do well as a group. You sometimes have “run your business like a business and happy her business was growing, but tak- to call a peer who is a few days behind on work hard at it!” ■ ing all her documents to a copy center was their loan.” Finding the PLAN expensive. She clearly needed a copier but didn’t have the cash to buy one. Graham first heard of the PLAN Fund at a networking event. “Even though I had good credit, I knew —Diana Mendoza Energized by her group’s encouragement, Graham attended group meetings To learn more about microcredit, call the even after paying off her first loan. She PLAN Fund at 214-942-6698 or visit these likes the training and peer support that are web sites: www.planfund.org and essential to the PLAN Fund process. www.gfusa.org. that because the loan amount I needed perspectives Federal Reserve Bank of Dallas Gloria Vasquez Brown Community Affairs Office Vice President, Public Affairs P.O. Box 655906 gloria.v.brown@dal.frb.org Dallas, TX 75265-5906 4 www.dallasfed.org 2003, Special Issue PERSPECTIVES Diana Mendoza Community Affairs Specialist diana.mendoza@dal.frb.org Jason Sweat Community Affairs Specialist jason.sweat@dal.frb.org Karen Riley Community Affairs Specialist karen.riley@dal.frb.org Jackie Hoyer Houston Branch, Senior Community Affairs Advisor jackie.hoyer@dal.frb.org | Federal Reserve Bank of Dallas Editor: Monica Reeves Designer: Gene Autry July 2003 The views expressed are those of the authors and should not be attributed to the Federal Reserve Bank of Dallas or the Federal Reserve System. Articles may be reprinted if the source is credited and a copy is provided to the Community Affairs Office.
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