Opportunity Fund helps opportunity knock for low-income borrowers
Micro-lending to the poor in the US is quietly growing. But the Opportunity Fund finds that helping people learn how to save is important too.
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There's a new category now called the "formerly banked." So we've actually seen our average loan size go up since the mortgage crisis and the credit crunch. It doesn't mean we're moving away from our core target market, which is really disadvantaged entrepreneurs. But we've really added another category of borrower.Skip to next paragraph
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What's your loan size?
It's now up to about $12,000, and historically it's been more like $7,000.
What are people doing with the loans?
Most of what we do is lend to people expanding businesses. Some definitely are starting businesses. So it could be anything from an in-home child-care business to a mobile food cart, that's a big one theses days. It could be an independent truck driver who makes $35,000 a year and [needs major repairs on his rig]. We have one client who runs a medical training school, where she's training people how to draw blood or read CT scans. It's helping a lot of people get into the work force.
Is there an income limit for borrowers?
There isn't. The median [annual] income of our borrowers is less than $30,000 in a region where the median income hovers close to $80,000 to $90,000. With the savings program there is an income test.
That's our newest saving product. There are a lot of clients we see who aren't ready to save for college or buying a home but who can benefit from developing a savings pattern and accumulating a small cushion for emergences. So this is the first time in the US where we're running a matched-savings program where the goal simply is a rainy day fund or emergency fund account. We believe it will help people stay away from payday lenders or losing jobs because of emergency car-repair or child-care needs or something like that.
Why offer micro-saving as well as micro-lending?
You're not going to get out of poverty solely through borrowing. Most people aren't entrepreneurs. But they are still going to need capital to allow them to weather crises. Credit is a double-edged sword. It can be beneficial in some cases and damaging in others.
Do you have more demand than you have funds?
On the savings side we have unlimited demand. Government policy provides major incentives, such as mortgage loan tax deductions or tax-free IRA savings, to well-to-do people but doesn't provide them to poor people.
Do people complete the course that teaches them how to be better savers?
Yes, we have about an 80 to 85 percent completion rate for people who complete the course and earn the matching funds. We also did a study of graduates two years out and found that 70 percent of them were still saving on an average of 10 percent of their monthly incomes, which is really high.
We also have people saving up the cost to attain US citizenship. Citizenship can be a real asset from an employment perspective.
How did you come to found the Opportunity Fund?
I was a relief worker in El Salvador and then doing affordable housing development in Washington D.C. Then I was in Stanford University's public business program that trains people for government and nonprofit work.
We think of micro-finance efforts taking place in very poor countries, such as India. Is micro-lending in the US pretty far under the radar?
It's much smaller here. In some countries institutions have been able to go to enormous scale because there has been a lack of financial services of any kind. We've found the group-lending model that's been so successful abroad doesn't appeal to people starting businesses here. This country, by and large, is awash in financial services. A lot of them aren't really very good for people, but it's hard to get your message out amongst the noise and get people to trust you that you have their best interests at heart.
But [micro-finance] is building steam here. I think the recession has brought more and more attention to micro-lenders with banks stopping lending. We think this is our moment to move to a new kind of scale. We've seen growth in the 50 percent per year area.
Thankfully we don't have many people in the US living on $2 a day [as in some countries] but that doesn't mean there isn't a need here.
What's your response to the turmoil in the international micro-lending scene, which includes some studies that question its effectiveness?
Everyone is always quick to jump on the bad news. There have been other studies that have shown positive impacts. I think part of micro-finance's problem has been that it's been oversold and overhyped, especially internationally. Micro-finance is not a silver bullet. It's not the panacea to end poverty, and I'm glad people are seeing that.
• This interview has been edited and condensed.