Sunday, January 18, 2009

Grameen America sees excellent return on investment and paves the way for immigrant family businesses

Americans are defaulting on their loans in record numbers. Credit cards, student loans and even mortgages. As a result, those with low credit scores or self-employment are finding it difficult, even impossible to get the credit needed to maintain their businesses. Enter Grameen America, a branch of Bangladesh-based Grameen Bank, which shared the 2006 Nobel Peace Prize with the father of microcredit, Professor Muhammad Yunus.

Grameen America is directed by CEO Steve Vogel and is serving loans in one of the poorest parts of New York City—Queens. Since opening a year ago Grameen America has lent $1.1 Million to 440 women in the borough of Queens. All are self employed and have little or nothing in terms of assets. All are also-self employed and many are immigrants. Remarkably, despite mainstream-America’s credit woes, Grameen is reporting a 99.5% loan repayment rate. These loans, averaging about $2,000 each have been issued with receipts and ledgers and without the benefit of credit checks have performed better than heavily documented mortgages and credit cards.

Grameen America holds all of its own loans, and requires weekly meetings with its borrowers. By contrast, according to an MSNBC article, in more than half of all US mortgage foreclosures, the lender and borrower had no communication in the prior twelve months.

There is a core trust between borrowers and lenders (and peer to peer between the borrowers) that the loans will be repaid. In fact, no loans can be issued until all borrowers in a group are current on their payments—which keeps the borrowers aware of each others’ payment status as well.

Grameen America plans to expand to other low-income communities in the United States. Its published goal is to build a culture of individual responsibility, savings and prudent use of credit for income-generating activities throughout the United States. Once a substantial base of about 10,000 borrowers and savers has been established, Grameen America plans to add loans for other purposes.

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Jessica Ward authored this post. She is a freelance writer, microcredit enthusiast and frequent contributor to this blog.

8 comments:

Tom said...

This is exciting news. I'm glad to see Grameen finally move to the US.

I'm impressed to see a "99.5% loan repayment rate." I wonder how this is calculated. Most of the loans probably are not old enough yet to determine if the borrower will repay.

The borrower page has a lot of interesting information but nothing about the loan term or specifics on repayment.

Great article Jessica - thanks for joining our blog team! I look forward to your future posts.

Tom said...

I also wonder what interest rate they charge.

Matt said...

It is great to hear those kinds of stories during the credit crunch when people without assets wouldn't be able to go to a traditional bank.

Clint said...

I'm trying to find the article in the Washington Post that I read this weekend that recounted the bad loans and crazy borrowing that has crippled our economy. I wish I could find it. The responsibility of these micro-lendee's stands in stark contrast to the short sighted lending and borrowing that we usually are reading about in the news.

JessicaW said...

I also looked for stats on what is the average loan default rate for various mainstream loans in the United States. Unfortunately, the only information I could find was on Student Loans and several years old. My guess is that 99.5% of mortgages and 99.5% of credit cards aren't paid back in full. I'll bet there's an even higher level of default for small business loans, just based on the number of small businesses that fail.

erin sheely said...

One of the most fascinating books I've read is Banker to the Poor about Grameen's origins. Mircolending is such an incredibly powerful tool to help the impoverished.

Anonymous said...

Actually Tom, Grameen loans are typically repayable starting a few weeks after borrowing in relatively small weekly installments. Establishing a regular and frequent repayment schedule, in amounts small enough to prevent borrowers from being overwhelmed is one of the hallmarks of the Grameen model.

Interest rates under the Grameen model are traditionally flat (i.e. 10%), which stemmed from the lack of literacy of the bank's borrowers in some areas. Grameen America may have a different approach, but generally this is how things work under "Grameen II" (Yunus's revised microlending scheme).

Tom said...

Thanks for the information on the rates and loan repayment schedule.

What is your source? Do you work for Grameen?