Small Loans, Significant Impact
They are part of a nascent lending program created by Muhammad Yunus, a Bangladeshi economist who won the 2006 Nobel Peace Prize for developing the Grameen Bank, which uses micro-loans to help eradicate poverty in developing nations.
But these women are not in Bangladesh, they are in Queens. They are among the first 100 borrowers of Grameen America, which began disbursing loans in January. This is the first time Grameen has run its program in a developed country.
"I just want to live a little better, and one day own a little house or something," said Socorro Diaz, 54, a borrower who sells women's lingerie and jewelry. "I'm trying to change my life. Bit by bit."
Grameen America, which offers loans from $500 to $3,000, hopes to reach people like her, part of the large segment of poor Americans without access to credit, said Ritu Chattree, the vice president for finance and development.
They are bakers who can only buy enough eggs and milk for a day's work because they cannot afford a restaurant refrigerator to store ingredients. They are vendors who borrow money daily to rent a cart. They are hair salon owners who take out loans every time they need to buy shampoo.
They often use pawn shops, or fall prey to check-cashing stores, loan sharks, and payday lenders, which can charge interest rates of 200 or 300 percent, Chattree said.
"You think this is normal, because you grew up with it," said Yunus of such high-interest lending in a recent interview with the Financial Times. "This is an abnormal situation, because of the problem with the financial system, so we have to adjust the financial system."
His adjustment begins with this experiment in the immigrant neighborhood of Jackson Heights, Queens.
Three groups of five borrowers attend the meeting in the apartment of Jenny Guante, 40, who makes silver and gold jewelry and runs a home day care. Some are making weekly loan payments; the largest payment is $66 on a $3,000 loan. Guante, the group's chairwoman, counts the money carefully before passing it to Alethia Mendez, the Grameen staff member who serves as community banker and center director.
"I've known these people forever," said one borrower in the roomful of immigrants from the Dominican Republic. "We grew up together. We went to school together around the corner."
That bond helps people make payments, said Chattree. If one woman is having trouble repaying a loan because, say, her husband is sick and she has to care for him and the children, another of her group might pitch in to help with child care. Loan disbursements for the whole group are slowed if one person defaults, she said.
After the meeting, as several women drift off into the kitchen with a calculator to discuss their plans, 10 new prospective borrowers stop by the apartment.
The program began in 1974, when Yunus lent $27 to a group of poor villagers and realized that even small amounts could make transformative differences. He set up the Grameen Bank, which has since disbursed about $6 billion in tiny loans to about 7.4 million Bangladeshi micro-entrepreneurs, mostly women in businesses such as street vending and farming.
In Bangladesh, Grameen also functions as a savings bank, makes college and housing loans, and operates projects in areas such as telecommunications, yogurt production and solar energy.
The problem with capitalism, Yunus says, is its distinction between companies pursuing profit and charities pursuing good. His bank model operates with corporate efficiency, but pumps profits back into social objectives.
The borrowers in Queens are following Grameen's self-sufficient model in the developing world.
But Yunus acknowledges that the United States is different from the seven countries where Grameen operates its loan programs, or the dozens of others where Grameen has offered technical advice.
Here, there is more regulation, so a person cannot just set up a cart and sell cakes without a permit.
The welfare system discourages income-generating activities, Yunus says. "If you earn a dollar, that dollar is to be deducted from your welfare check. If you want to quit welfare, then you lose your health benefits," he told the Financial Times.
Rules for setting up a bank are cumbersome for a micro-operation, and Yunus has met with the head of the Federal Reserve and members of Congress to discuss creating more flexible legal frameworks.
Grameen America will break even when it has 20,000 borrowers, Chattree said, a scale she expects to achieve in three to five years.
That is something that no American micro-lender has achieved, said Michael Chu, a specialist in micro-finance at Harvard. "In general, the feeling is that micro-finance doesn't work in the States," said Chattree, even though many groups, including some aided by the Grameen Trust, have followed the Grameen model.
Other micro-lenders and academics say that if anyone can spark discussion on the issue, Grameen can.