Micro-Lending Program Started in Developing World now Carrying Thousands of Poor People in the U.S.
CORONA, Queens, NY -- In the living room of a rented house in this New York City borough, 17 mostly middle-aged women -- all Hispanic immigrants -- sat in an irregular circle, each clutching a small bunch of dollar bills, waiting their turn.
Every few minutes, a woman in charge called out a name. One by one, over nearly an hour, the women handed over their cash tucked in a thin green book whose cover read -- “Libreta de Prestamo,” the Bank Book.
Every Monday morning, a group of these women gather to pay their weekly loan installments to Grameen America, a nonprofit that gives small loans to low-income female entrepreneurs.
"I look forward to Monday mornings," said Mary Delfina, a 34-year-old Ecuadorian immigrant who pointed to her watch, which read 9:30. "Everything is so simple and I get to meet my friends."
Built on a model designed to achieve just such a response, Grameen, which was started in Bangladesh 35 years ago by Nobel Laureate Muhammad Younis, began making loans in the United States in 2008.
Now Grameen America has four New York branches in Queens, Brooklyn and Manhattan, and keeps 4,300 New Yorkers in business.
Using the slogan “Banking for the Unbanked,” Grameen America gives collateral-free loans to those below the poverty line.
“Many features of the Grameen model -- the small loan size, involvement of women at all stages and stress on weekly meetings -- have been designed so that the bottom poor get access to credit,” said Shah Newaz, Grameen America's CEO of Operations.
Of Grameen’s 2,400 customers at its Jackson Heights branch, 95 percent are Hispanic, almost all of who are single mothers, Newaz said. Most work up 15 hours a day to support from two to four children.
About a year and a half ago, Delfina was selling ice cream in Corona when a Grameen employee handed her a flyer, explaining the basics of the micro-loans model.
At that time, Delfina neither had a bank account, nor was making enough from her ice cream business to raise her four children, who live by themselves in Canar, a central Ecuadorian province.
Delfina’s husband died five years ago, she said, while crossing the border from Mexico to the U.S. -- but she survived. Living with her nephew in Corona, she often felt lonely and depressed.
To get a loan from Grameen, she needed to form a group of five women she trusted, who lived within five minutes of each other. In June 2009, she brought together four Ecuadorian food entrepreneurs like herself -- Carmen Landy, Maria Tixi, Maria Garcia and Josefina Andrade.
The new group got five days of training: They would have to open a savings account with CitiBank, Grameen's partner in Jackson Heights. Depending on their need and the recommendations of their group, they would each be given a loan of up to $1,500; based on their repayment capability, they could opt for either a six-month or one-year term. The interest rate was 15 percent, refigured after each payment on the remaining loan balance.
Delfina’s group, along with others from the same neighborhood, held a weekly joint meeting, called a “center meeting,” where the center manager, a Grameen executive, would collect the weekly payments – two or four percent of the loan amount, depending on the term.
"I was skeptical at first because I thought they were not telling me something. I thought they would cheat me," said Delfina. She started with a loan of $1,584 and paid $33 per week for the first year.
Peer pressure keeps the default rate at about one percent. If all the group members make regular payments, each one becomes eligible for a second loan 15 percent larger than the first. And if all the groups at a particular center pay on time, the second loan can be 20 percent larger. A default in a group caps loan increases at 10 percent.
"Group disciple is our collateral," said Newaz. "These people are very poor and need continuous credit support. Plus, they know that their payments affect the lives and businesses of their friends.”
Grameen America has helped form a social network of similarly situated women, who not only benefit from it, but also add value to it in many ways. Carmen Landy, 46, a member of Delfina’s group, raises two teenagers alone, sells ice-cream in the summers and sweet, fried churro snacks in the winters, from a food cart she wheels around different neighborhoods in Queens.
A few days ago, Grameen sanctioned Landy’s third loan of $2,520, a nearly 30 percent jump from her previous loan, thanks to her repayment record. She will pay $105 every week for the next six months, but said she is not worried because business has improved significantly.
Landy likened her center members to business partners who routinely help her and trade business tips.
“Many times Delfina calls me and tells me that there are a lot of people in so-and-so park, or an event at such-and-such school,” said Landy. “I go there for more sales. We help each other out. Many times, we set up our carts next to each other."
Group members assist each other financially too, in their own small ways. On three occasions in the past year, Delfina couldn't make her weekly payments. To bail her out, each center member contributed $2, a debt she repaid gradually.
Now that her business has improved, Delfina has applied for a third loan of $3,500, with which she hopes to buy a big food stall.
Delfina’s group members also draw emotional support from each other, said Thelma Suarez, a Grameen America executive familiar with their stories. She said she has watch them become a bunch of friends, who meet often, share each other’s problems and enjoy moments of fun.
“We cook together, and we sometimes have small parties too,” said Landy with a sheepish smile. "We meet and drink coffee," many voices at the meeting chimed in, prompting a burst of laughter.