David Yassky for New York City Comptroller

March 27, 2007

David urges the city to invest in "microlending"

The Loans May Be Small, But Results Could Be Huge

There’s an old saying: If you give a hungry man a fish, you feed him for a day; if you teach him to fish, you feed him for life.

And today we might add: If you lend him a fishing rod, you might help him start a business that will not only feed himself and his family, but employ one or two of his neighbors besides.

That’s the basic insight behind “microlending,” which is the hottest trend among international nonprofits seeking to lift Third-World populations out of poverty. Last year, Mohammed Yunus was awarded the Nobel Peace Prize for his success in helping thousands of impoverished Bangladeshis, mainly women, borrow to buy chickens to start a farming business, or the yarn to start a weaving business.

We can apply this same model here at home. New York City is full of potential entrepreneurs with energy, talent and good ideas — but without access to the capital necessary to get going. Many of our best business-starters are immigrants and face language barriers in dealing with loan officers. Many lack the credit history banks require.

Most important, many would-be entrepreneurs are seeking small loans — $25,000 or less — and for commercial banks, these loans simply don’t generate enough profit to be worth the paperwork.

A handful of pioneering nonprofits have begun to fill this void. The biggest New York City microlender is Acción USA, an offshoot of a Latin American microlender. Over the past five years, Acción has loaned more than $13 million to nearly 5,000 borrowers — for an average loan size of $9,054. These are loans, not charity; the repayment rate is 94%, and the results have been impressive — 77% of Acción clients reported higher business revenues following the loan, and in total, the borrowers have added well over 1,000 employees.

So much of business and of life in New York is about producing the product and making enough money to stay afloat. But the loans Acción and other microlenders provide offer so much more, not just to their clients, but to the communities in which their clients work.

Individual success stories illustrate this larger tale of the success of microlending in this city:

A Bodega owner in the South Bronx, fueled by his loan, provides his family’s income, employs 12 members of his community, and signals both individual and communal economic progress.
With a loan of less than $3,000, a hairdresser in Washington Heights, originally from the Dominican Republic, purchased new mirrors, chairs and hair dryers, transforming a salon into an inviting community establishment.

Simply put, microloans end up being good for communities, neighborhoods and the city. As a result of growing immigrant and other small business entrepreneurship, property values and commercial rents have risen; employment is up; crime is down; the quality of life has improved.

Acción also does a good job to make sure that once entrepreneurs receive a loan, they are not left standing alone. They provide personalized training — financial education resources that complement borrowers’ existing skills. In 2005, over 1,200 individuals received one-on-one training on topics including business planning, recordkeeping, budgeting and credit management.

Even with their limited capital, Acción and other microlenders have their clients’ backs. We at the City Council should get theirs.

Acción and other nonprofits have clearly established the potential for successful microlending in New York. The next step is to expand these efforts.

That is why we have proposed a $5 million infusion of City funds into a revolving fund for microloans. Even better, the City’s larger commercial banks have committed to partnering with the microlenders — if the City chips in $5 million, the banks will add another $20 million, which would provide funding to thousands of entrepreneurs.

That is too good a deal to pass up. When the City Council passes next year’s budget in a few months, we hope the microlending fund will be included.

Council Members David Yassky and Miguel Martinez