Opportunity Fund helps opportunity knock for low-income borrowers

Micro-lending giants in the developing world, such as the Grameen Bank founded by 2006 Nobel Peace Prize winner Muhammad Yunus, have received a great deal of publicity. At one point these efforts – usually tiny loans of a few dollars to help start a one-person business – were seen as a possible cure-all for poverty. But, perhaps predictably, as more companies have seen opportunities to make money and entered the business, micro-loans in poor nations have come under criticism as sometimes exploitative and poorly managed.

Fewer people know that micro-lending is alive and growing in the United States, where it competes in a much different, highly sophisticated and crowded financial marketplace. In 2008, 362 micro-lenders in the US made more than 9,000 micro-loans totaling just over $100 million.

Each loan keeps or creates 2.4 jobs on average, according to the Opportunity Fund, a micro-lender that operates in the San Francisco Bay area. While mainstream bank lending dropped by 77 percent in California during the recent credit crunch, the lending by the Opportunity Fund increased 56 percent, it says.

In a phone interview, Eric Weaver, the founder and CEO of the Opportunity Fund, talked about how micro-lending and micro-saving works in the US, who it serves, and why it's helping low-income people stay out of financial trouble.

What is the Opportunity Fund?
Eric Weaver: We're a not-for-profit institution based in the Bay Area of California. We have been in the micro-lending and micro-savings business starting in 1995. We've now lent out nearly $20 million to micro-businesses in the Bay Area to about 1,500 borrowers.

We've also enrolled about 3,400 low-income people into our micro-savings program. We're one of the largest micro-savings providers in the US.

[Editor's note: The original version misstated the number of people in the micro-savings program.]

Who funds you?
The money to lend comes primarily from large banks, either in the form of loans or grants. Some of it comes through what is called the CDFI Fund (Community Development Financial Institution), something that was created under [President] Clinton to invest in community development.

We've also had some loans from foundations. That's where the money to lend comes from. And we're also getting some money from the SBA [federal Small Business Administration] to lend out. So it's a mix of public and private capital.

What's your savings program like?
The savings program is a matched-savings program where we provide people with a reward or incentive for saving and actually match their savings [with donated funds].

A one-to-one match?
Actually, two to one.

So if they save $10 you give them $20?
We set $20 aside in a parallel account and when they complete the program they can use the money for an approved purpose.

So they have to learn about how to manage money along the way?
Yes. And they need to save monthly over an extended period of time so that they're really developing a behavior pattern.

How many people are in the savings program?
Currently, about 700 to 800.

Did the banking and mortgage loan crisis in recent years affect you?
It's meant that there's a new category of borrower that we're lending to. We've always talked previously about the "un-banked" or the "under-banked" client who's really not in the financial system or could not qualify for conventional financing.

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