Microcredit is commonly associated with small-scale loans to villagers starting cottage businesses in the developing world. But as joblessness and stingy credit markets touch millions of Americans, microcredit is taking hold in the United States.
Kiva, which has made more than $65 million in loans to about 466,000 borrowers overseas, is making plans to lend in the United States, according Matt Flannery, co-founder of the San Francisco-based microlender.
Washington CASH is already lending domestically. And the Seattle nonprofit isn’t waiting for those who could benefit to just walk through the door.
Washington CASH — the acronym for Community Alliance for Self-Help — is more aggressively recruiting potential local clients for its microloan and business-counseling services. The move is in part a response to growing domestic demand spurred by the recession, as lower-income people consider an alternative to borrowing from a bank.
The nonprofit recently tripled its capital for loans, opened an “accelerator” in March to support fledgling businesses, and in the last year launched an outreach program tailored to support specific ethnic communities.
“I think people are turning to microenterprise as a solution to the economic crisis,” said Cheryl Sesnon, executive director of Washington CASH. “The need for our program is increasing tremendously with the economic situation.”
However, microloans are not ideal for all domestic borrowers, and it is not a solution for those who cannot borrow from traditional lenders or borrowers who need to cover their debts, Sesnon said.
“We are not saving the day for those folks,” she said.
Washington CASH is trying to reach more qualified borrowers with larger needs through a new partnership with Mercy Corps Northwest, the local affiliate of international aid group Mercy Corps, based in Portland, Ore. The partnership is aimed at reaching out to potential borrowers in the Northwest who are interested in loans of up to $50,000, with the two groups splitting the cost of the loan capital.
Behind the more proactive approach is rising demand for both Washington CASH’s capital resources and its guidance in the form of classes aimed at helping small enterprises and businesses achieve their potential.
Between December and the end of February, Washington CASH’s “peer lending” program — where loans range from $1,000 to $5,000 — increased its loan portfolio by 17 percent to $40,000. During the same period, the number of “peer” borrowers grew to 25 from 17, and now more than 150 people are taking the program’s business development classes, a robust attendance that could keep feeding the program’s loan program.
In March, the Small Business Administration awarded CASH a $150,000 infusion that tripled the organization’s $50,000 loan pool. The money will feed CASH’s peer loan program, as well as a larger loan program that is being leveraged under partnership with Mercy Corps Northwest.
Under the partnership, the two nonprofits will split the cost of loans ranging from $1,000 to $50,000. Demand for such loans is surging, and Mercy Corps Northwest provided one of its employees to recruit and assist borrowers for the partnership.
“It is surprising how much the spectrum has opened up as a result of people not being able to access credit,” said Anthony Gromko, Washington lending manager for Mercy Corps Northwest.
Since Mercy Corps Northwest started offering microloans and other services in 2001, it has made 175 loans totaling $1.5 million.
Washington CASH hopes the partnership can help it grow its portfolio. The SBA money will help meet the demand, which Sesnon says is rising as more unemployed look to start their own business and traditional forms of capital for low-income people — like credit cards, payday lenders, friends and families — dry up.
To reach more potential borrowers, a year ago Washington CASH launched a program aimed at Latino populations. That program has grown, so CASH recently started a similar effort to reach Ethiopian and Somali communities, according to Sesnon.
Also this year, Washington CASH opened a “business accelerator” aimed at giving startup enterprises shared office space with a staff of advisers who can help with needs like bookkeeping or marketing. The center, located in Seattle, also encourages part-time business owners to take the plunge and commit to full-time work because the potential to grow revenue is much greater, according to Washington CASH.