Wednesday, August 1, 2012

How the Path to Financial Success Has Many Roads and Why Microfinance is Often Overlooked

Imagine a woman who founded a courier company and now has offices and employees in two counties shuttling documents for clients such as architectural and law firms. Envision another woman who turns the love of her native country into a living by selling Colombian souvenirs, crafts, food and clothing. Or dream of a man and his staff who profit from their talents by crafting creative signage and painting custom designs on cars and boats.

These are just three of hundreds of hard-working South Florida entrepreneurs who have wielded maybes and can-dos into realized storefronts and American middle class status. And they’ve done this through a unique financial channel called microlending. While microlending is well known across Latin America and in developing nations, sadly its existence, popularity and prevalence stateside remain in a nascent phase.

Unfortunately, most of the news I read and hear about microfinance in the U.S. involves providing those services abroad when in fact a vast underserved population exists right here. Don’t get me wrong, helping the disenfranchised in places like Sub-Saharan Africa and Asia is a noble thing. But I’m often left wondering why so little of the microfinance conversation involves helping out low-income entrepreneurs right here at home.

Now more than ever, microfinance can be the homegrown vehicle that turns this trend around - especially as the latest jobs report shows the same stubbornly high unemployment, lackluster job creation and consumer penny pinching across the board. The result is that hundreds of thousands of marginal-income families have slipped through the proverbial cracks and our snail-paced economic recovery continues to widen that fissure. Good credit becomes bad credit and access to traditional bank loans dries up.

People can help, and not just by giving donations or crowdfunding, the latest personal investing trend. Many of the recession’s forgotten casualties don’t want handouts; they want opportunities to work themselves out of a financial hole. Kiva Microfunds, a San Francisco-based tiny loan lender, clearly has the right approach. The company connects donors who wish to give money in as little as $25 increments and has lent out $335 million across 62 countries, boasting a 99% repayment rate. Closer to home, Our MicroLending, of Miami, has disbursed over 1,050 loans totaling $6.2 million to over 600 micro-enterprises whose owners use the funds to restock, remodel, expand and hire.

Fortunately there’s other good news as well. Microlending is also increasingly interwoven with the phenomenon of impact investing. Impact investing is the process by which investment takes into account not only direct ROI, but evaluates the social and environmental benefits of doing so. Like mircolending, social impact investing has numerous secondary and tertiary benefits. Blighted neighborhoods on the brink of collapse revitalize, crime rates fall, juvenile delinquency drops and a community or neighborhood has the chance to rebuild. And just this past spring, Morgan Stanley, inspired by its own studies on the matter, announced the launch of its Investing With Impact Platform. J.P. Morgan predicts that, by 2020, there will between $400 billion and $1 trillion invested in ways that have a positive social impact.

So it’s definitely possible to do well by doing good, no matter where funding comes from. A November 2011 report by the University of Pennsylvania’s Wharton School of Business put the number of microfinance institutions in the U.S. at 362. A strong start for sure. But clearly there can (and should) be more. Investing in microfinance for American entrepreneurs and making sure people out there know that this service is available, that self-employment is an option if they’ve lost their jobs, can do a lot to help ease the protracted financial suffering that has left so many of our fellow Americans penniless and without hope.

To dream is priceless. But acting on dreams comes at a price. Mircofinance and social impact investing are paving – and paying – the way forward to turn entrepreneurial dreams into reality. 

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