Grameen Dialogue -- a regular publication from Grameen Trust

Olga Areniboz moved to Dallas 12 years ago with a dream of owning a sewing shop, just like the one she left behind in Honduras. But getting a bank loan with no U.S. credit history and no collateral was an impossible task. Now, she is on her third loan for a sewing and clothing business through a spinoff of Grameen Bank, that has kicked off a global poverty-fighting movement.

The capitalist credo of economist Muhammad Yunus, is simple: Poor people are bankable. And women, in particular, make fine credit risks, and lending groups of peers can substitute for credit officers and collateral.

Aided by Plan Fund loans, Olga Areniboz rents two apartments where she lives and operates her tailoring business.

"I have good credit ... and I have never been behind in my payments," says Ms. Areniboz, an energetic woman.

Dallas, of course, is worlds away from Bangladesh, a country where per capita income is a mere $400 annually. But like Grameen Bank, the Dallas program is aimed at the poorest of the poor.

Known as the PLAN Fund, the program has operated for about five years here. It's one of two such programs incubated in the United States by Grameen Foundation, USA based in Washington. And it's given out about $500,000 in loans to entrepreneurs whom traditional banks probably would have considered far too risky. Since 1996, the number of micro-enterprise programs giving loans from $500 to $25,000 has doubled to 650 in the United States, according to Aspen Institute, a Washington based think tank. In countries such as Mexico, the programs are experiencing an even larger growth spurt.

In the Dallas program, loans are also aimed at the very poor, but start at $500 and can go as high as $12,000. The "plan" in PLAN Fund stands for the Peer Lending Action Network. Though it is less common in U.S. micro-enterprise programs, PLAN Fund uses peer groups to ensure that loans are repaid and also to share business tips. The PLAN Fund runs about a dozen lending centers in the Dallas area, working with the networks of established organizations ranging from the Greater Dallas Hispanic Chamber of Commerce, to North Dallas Shared Ministries.

Ms. Areniboz's group meets twice a month at the Hispanic chamber. It christened itself Las Aquilas de 2003 or the Eagles of 2003, to reflect its optimism. "I said we are going to fly very high, and no one is going to pull us down", Ms. Areniboz says. To get her first loan, Ms. Areniboz attended ten hours of classes, including tutoring on the basics of a business plan and book keeping. With her first loan, Ms. Areniboz bought two sewing machines that stand near a window in an aging apartment complex, where she rents two units. One is used for her business, and the other is used, well, for her business, and for her bedroom and kitchen. Her third loan with the PLAN Fund is for $2,500. In addition to frilly pink dresses for little girls and bedspreads in primary colors, Ms. Areniboz sells sodas, telephone cards and dried flower arrangements. She now makes enough money to contribute to a savings account and to send back money to Honduras to her children. Ms. Areniboz even employs an accountant sporadically.

Shortfalls

And unlike many of the programs in the developing world, most U.S. micro-finance programs aren't self-sufficient. The PLAN Fund is one of them, and that is why there is currently a fund-raising drive to cover a $231,000 deficit in the operating budget. The great bulk of that isn't the result of loan write-offs, but simply payroll expenses. Some think these factors are partly the reasons why U.S. micro-finance programs haven't taken off with greater force.

"If one could make money in the U.S. [in micro-finance], mainstream banks would be doing it in a heartbeat," says Dr. Caroline Glackin, the director of the Entrepreneur Center at Delaware State University. Micro-finance programs can't charge interest rates that would recoup the operational deficits of the programs because of U.S. usury laws. Typically in Latin America and Asia, the interest rates can range from 20 percent to 80 percent. The PLAN Fund's interest rate is 12 percent annually, for example. That is higher than a commercial loan, which would require collateral and typically come in at 8 percent to 10 percent annual interest. But it is also much lower than so-called payday loans, where annualized interest rates can soar past 200 percent.

And Dallas' PLAN Fund must raise funds to cover its operating budget for about 450 borrowers in 2004. Next year, it will need about $230,000.

Elaine Agather, chairwoman and chief executive of JPMorgan Chase Bank in the Dallas region, is leading a committee aimed at reducing part of that deficit.

"Everyone sees that this whole effort makes perfect sense," says Trish Houck, a Dallas businesswoman who has donated money to the PLAN Fund. "And it doesn't matter where you come from, whether Mexico or El Salvador, or whether you have credit history."