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Issue 2: Community Scale Economics

Profiles in Microenterprise

by Betsy Brill

Photo by Ken Kobre

Forward by Lynne Elizabeth


One of the most promising economic development strategies for low-income communities in the United States that has emerged in the past decade is microenterprise. Microenterprise is entrepreneurship on the small scale that offers the most disadvantaged an escape from the trap of minimum wage jobs or welfare.

To a beginning microentrepreneur the biggest hurdle can be finding start-up capital. Banks are seldom interested in business loans under $25,000, which is more than twice as much as the $9,000 needed to launch the average microenterprise in the United States (Aspen Institute). The poor are also likely to find themselves shut out from conventional lending for a number of reasons, including lack of collateral or a sketchy credit history. As comedian Bob Hope once quipped, banks are institutions that give loans to people who can prove they don't need them.

Microenterprise development organizations were created to bridge this gap by offering business loans of less than $25,000 - sometimes as little as $500 - to individuals within various target groups such as minorities, women, working poor, immigrants, welfare recipients, youth, and homeless individuals. Most microenterprise development organizations also provide counseling in accounting, business start-up and management, and marketing, as most of their clients entering business for the first time discover they need a lot more than a timely idea and a strong will.

International Movement

Although informal forms of microlending have always existed, a thriving international microcredit industry has evolved in the last thirty years. ACCION International, Opportunity International, and Self-Employed Women's Association (SEWA) Bank, were among the earliest pioneers of this movement. Because of their high success rate, microcredit programs have been proliferating throughout the world with Women's World Banking and World Bank among the lenders.

Probably the most well known microlender is Grameen Bank, established in Bangladesh in 1977 to help lift village women out of poverty. Grameen (village) Bank offers tiny collateral-free loans to small groups of self-employed women, who guarantee one another's repayment.

Peer Lending

Many microlending programs are based on a system called peer lending in which money is loaned to individuals within a group that is collectively responsible for repayment. While peer lending has been successful in countries like India, Bangladesh, and Indonesia, it has not transplanted perfectly in the United States, where the kind of social safety net found in the traditional, multi-generational villages is missing.

Despite these limitations, peer lending programs in this country offer a useful structure to support inexperienced entrepreneurs. Community Capital Works of Philadelphia, for example, sees the business loan group as the heart of their program. Their self-governing groups of four to eight business owners meet regularly to share ideas, network, and build business skills. They review and approve loans for each other, encourage timely repayment, and help each other with business goals. All members must be current in their repayment for any member to receive a new loan.

Economic Development Costs

While repayment on microloans in the United States averages better than 95%, according to the Association for Enterprise Opportunity, the cost of lending is significantly higher than it is in developing countries where microlending can be profitable. The Aspen Institute reports that thirty cents to two dollars per loan dollar is spent by U.S. microenterprise development organizations in training and support for fledgling business owners. Part of the high expense is attributable to the relatively complex business regulations and tax laws in this country.

Nevertheless, microenterprise has proven to be a better economic development investment than the more conventional route of providing jobs. The cost of creating employment opportunities through enticements to corporations, in the form of tax breaks and other public subsidies, is a whopping $20,000 to $100,000 per job, by account of the Aspen Institute. Jobs generated through microenterprise programs cost one tenth that amount.

Community Building

Microentrepreneurship programs deserve recognition not only for bootstrapping new businesses that serve the local community, but also for building alliances between diverse economic and human services institutions that partner in the development process. Microenterprise organizations work with loan funds, credit unions, community development banks, community development corporations, housing and social service organizations, and numerous government agencies.

The entrepreneurs, however, are ultimately the real heroes, especially as many have to overcome major difficulties such as racism, gender bias, inadequate education, and location in depressed communities. When the message that echoes from every corner is "find a job" - and there are no jobs to be found or no jobs worth finding - these people rise to the spirit that urges them to make a unique contribution and create their own livelihood.

Merlinda Sedillo Welch

Merlinda Sedillo Welch loves to cook, and her family and friends love to eat. So she already had a loyal following when she took the recipes for her grandmother's canned salsa and chiles to the New Mexico State Fair in 1994. Her fans weren't surprised when both products took blue ribbons.

In late 1995, Merlinda decided to market her tasty wares to bring in extra income. Her retirement check just wasn't enough to make ends meet when some family difficulties began to strain the budget. Personally taking her chiles from store to store, she soon had orders from 29 Albuquerque grocery markets - and immediately had to move her chile canning from the kitchen to a local cannery.

"But my salsa is what my friends really love, she says, "so when one of the stores asked me to do a cooking demo in the store, I brought along some salsa samples, too, to see if customers thought I should market it.

The answer was a resounding yes, and soon store managers were calling Merlinda to ask when she could supply the salsa. While the chile business was brisk, though, she just didn't have the cash to have the required "nutrition facts for the salsa analyzed nor to have labels printed. Just $500 seemed like a small fortune.

Merlinda's modest request for a $500 business loan would have interested few banks or other lending outlets. Even Wells Fargo Bank's aggressive national "microloan program requires being in business for two years and services loans no less than $5,000. Further complicating the picture was a pile of unpaid bills her husband had accumulated without her knowledge"but for which she was responsible. The credit union to which she,d belonged for 30 years denied her request to refinance her home to improve her monthly cash flow.

Fortunately, she had received information about ACCION New Mexico's loan program in the mail. The simplicity of the loan program sounded appealing, Merlinda recalls, so she gave ACCION a call.

ACCION loan officer Marissa Barrera took one look at Merlinda's meticulous accounts and at the potential orders for salsa and saw that Merlinda would have no trouble repaying the loan. "Sure, we look at credit reports, says Marissa. "But we take into account the circumstances that lead to the report. There's a difference between things like illnesses or family problems and just being irresponsible with debt.

The money was in Merlinda's hands in just two days. And four months later (one month ahead of schedule), Merlinda repaid her loan and in the process sold more than 4,000 jars of salsa. She has used the income from her business to pay off her other debts, as well.

"It meant so much that ACCION believed in me, she says. "They gave me credit for being the kind of person I am - a fighter.

Jealously guarding her grandmother's recipe, Merlinda continued to cook the salsa in her kitchen until last fall, when Furr's grocery stores decided to carry the spicy concoction in their 68 stores throughout New Mexico and west Texas. Now she oversees the canning of both her salsa and chilies in a local commercial cannery.

Small loans from ACCION - the most recent for $3,000 - continue to help with "peak load demand like the New Mexico State Fair (30 cases of salsa) and the Bernalillo Wine Festival (around 80 cases). "It was so exciting to have people come up and say "You,re Merlinda! I buy your stuff all the time.

Two years ago, while stirring a simmering pot of salsa in her kitchen, Merlinda was feeling the first flush of success. "When my business started taking off, she said. "I used to say that I,d make my first million in five years. Now I think it's going to be sooner than that.

With recent hints from Seattle that an investor may be interested in buying out her company, Albuquerque's award-winning alchemist may soon enough be turning salsa and chiles into retirement gold.

Goldie Garcia

"Don't leave anything in your car, warns Goldie Garcia. "It's that kind of neigborhood, she says. Though her work is at the Whitney Museum, and she is a sought-after exhibitor at Santa Fe's annual Spanish Market, artist Goldie Garcia still struggles to make ends meet.

But the 42-year-old artist, whose bottlecap "shrines to saints and celebrities now support her, has come a long way in the three years since her first business loan from ACCION New Mexico, a U.S. affiliate of microlending pioneer ACCION International.

A liberal arts graduate from Harvard University, Goldie was an aspiring stand-up comic when she divorced her husband and returned to the Southwest to be with her family and to regroup. She looked for work to help pay for her transition, but her Harvard diploma turned out to be a red flag to prospective employers. "Too qualified, she was told repeatedly.

"Hispanic woman in the Southwest with a liberal arts Harvard degree - what did I expect- she says, laughing. "Before I left (New Mexico), I could have had just about any kind of service or clerical job, she says. "But no one would hire a Harvard graduate. I didn't care what kind of work - I can type 80 words a minute. I even went to people I did typing for when I was a student at University of New Mexico. They wouldn't hire me, either. Nor was the New Mexico comedy circuit exactly warm to a Hispanic feminist funny woman.

At 35 years old, Goldie found herself living again in her father's home. "It was embarrassing, she recalls. The oldest of nine children, she wouldn't ask for more than the roof over her head from her already struggling family.

But earrings she had made for her sister caught a friend's eye, so she made another pair and sold them. Soon she was selling pins, as well. As the wearable art evolved into the iconographic bottlecap "shrines for which she is known today, Goldie soon enough was selling in venues ranging from museum gift shops to barrio pharmacies. But it takes a lot of art to generate cash flow.

"When I was accepted into Spanish Market in 1993 - it's a juried art show that attracts people from around the world - I didn't have the cash to buy supplies for that kind of volume. I also needed to buy a table, hire people, she recalls. "So I decided to see if ACCION would lend me the money.

Given her sparse part-time income and outstanding student loans, Goldie's financial outlook was anything but golden. But ACCION loan officers could see how far the $500 she was requesting could take her in the huge annual art festival. And in fact, the $500 loan generated over $3,000 in two days that first year - and she repaid the loan within a week. Equally important, exposure at the show generated further interest in her art, which is now for sale in galleries from New York to San Francisco.

Since successfully repaying her first $500 loan, Goldie has turned to ACCION to expand her business. Loans have purchased a respirator to protect her from the noxious fumes produced by some of her materials, a mechanical buffer, marketing materials, a reliable car for making deliveries and buying supplies, and a computer. ACCION loans can also help her meet "peak load demands.

Goldie's prudent use of business credit is typical of how ACCION's microloan program works. Once borrowers repay their initial small loans, they are eligible to borrow increasingly larger sums, up to a maximum of $50,000, at which point loan officers help match them with conventional lenders. The stepped loans, explains executive director Anne Haines-Yatskowitz, help the often marginal borrowers learn to deal gradually with business debt. "The last thing we want to do is create obligations that will push our clients over the edge, she says. The stepped approach also helps the tiny businesses establish business credit histories independent of the owners, personal histories.

For Goldie Garcia, the stepped loans have helped turn her part-time, $4,000-a-year effort into a full-time income of around $30,000 annually. "That's a lot of bottlecaps," she says.

Sharon Franklin

Sharon Franklin's business, Sweet Rest and Care Domiciliary Home, was humming right along. The nursing veteran and single mother of three had observed a need and filled it. A serene woman whose answering machine greets callers with a blessing, she provides a home for older adults and those needing some care but not the extensive medical supervision given at a nursing home.

Backed by an investment from her mother, Sharon negotiated rock-bottom rents for two abandoned old houses in exchange for do-it-yourself repairs. Soon, her own former patients and those referred by other nurses and doctors at Baltimore's Sinai Hospital were living in small groups in pleasant old homes.

For nearly three years, Sharon continued working at the hospital while operating Sweet Rest and Care on the side. When the business began clearing as much as her $22,000 wage, she left her job to be a full-time business owner. Today, the business supports two full-time salaries - Sharon draws $25,000 a year - and two part-time employees. But as much as the houses were homes, as content as her clients were, Sharon admits, "I didn't know a damn thing about running a business. I knew how to take care of people, how to manage everything. I didn't know about business. That's why I came to WEB.

WEB - Women Entrepreneurs of Baltimore - is a local non-profit organization that promotes self-employment among low-income women in that city. Among its programs is a highly selective 12-week business training course. Alone, the 108-hour course is formidable. But its graduates also gain access to free consultants, mentoring, prestigious networking opportunities - and, among other services, small loans through a peer lending and savings program WEB sponsors with Washington-based FINCA (Foundation for International Community Assistance).

In her classes, Sharon learned the shocking truth. It wasn't enough to provide a good home - even with her nursing background, even if her clients could have lived in their own homes with someone to look after them. Her homes were a business, after all, and there are rules, licenses, taxes and paperwork. "She was basically operating illegally, says Amanda Crook Zinn, chief executive officer of Women Entrepreneurs of Baltimore. "The class gave her the support to face up to that and go through the licensing processes to clean it up.

For unsophisticated entrepreneurs, regulatory barriers to self-employment are enormous. Lack of business skills, says Crook Zinn, is also a huge roadblock. That is why the lending and savings groups are open only to graduates of the exhaustive training program. Candidates must also have some experience related to their business idea.

Bob Granger, U.S. program manager for FINCA, says WEB peer groups are by far the most successful of those being funded in FINCA's two-year-old U.S. microlending effort. Currently, FINCA is working with community groups in Minnesota and in the Baltimore-Washington metropolitan area. Some but not all offer training in addition to FINCA's own 14-hour preparatory class. Peer groups in Washington, he says, are maintaining an 84 percent repayment rate in contrast to Baltimore's 100 percent record. Baltimore's groups are also more cohesive, he says, and the individual businesses more successful.

Five hundred to 600 people request information about each of the three classes Women Entrepreneurs of Baltimore offers each year. Of the 150 who apply, only 30 make it into the classes. Not unlike the camaraderie boot camp creates among new soldiers, those demanding weeks create strong bonds and intimacy among classmates, says facilitator Kate Goddard. Women who have been through the training together, she observes, also are familiar with one another's business plans - and with their capabilities for carrying out those plans. Goddard believes that this knowledge makes for committed group members who are armed with the information to make wise lending decisions.

Now a stickler for paperwork, Sharon is a founding member of "Success by Ten$, the most recent of four peer lending and savings groups to form since 1995. Modeled on FINCA's successful "village banking programs in Latin America, each group operates like a small bank. The self-selected members write by-laws, elect officers, set payment schedules, late fees and even dun one another for tardiness or absences from monthly meetings. Before they are eligible to borrow, the group must establish an emergency bank account, each person contributing a minimum of 10 percent of the amount to be loaned - $50 for $500 loans, for example. They also examine, approve and guarantee one another's loans. As the loans are repaid, the women can borrow increasingly larger sums - up to a maximum of $6,000. The Self-Employment Associations, as these groups are called, actually borrow from and repay FINCA, but no individual can borrow if one person is late or in default.

Beyond the loans, says Goddard, the groups are a built-in support system, referral service, and business network. They also sustain the structure the 12-week course has provided - a structure often lacking for solo entrepreneurs. In Sharon's group, the women share business tips, set monthly business goals, and do business with one another when the occasion arises. Ella Bowden does Sharon's taxes, for example. Terri Jory, an interior designer, will help design Sharon's new dream. Sharon and Shelly Anderson, another provider of elder care in the group, share information and ideas. At its monthly meetings in the dark basement of a neighborhood library near Baltimore's downtown, the group ends each meeting clasping hands in a prayer circle. Shelly, who has been to divinity school, leads the group in an intense prayer for guidance - and success.

For $1,800 in back taxes, Sharon has purchased a dilapidated, abandoned house. Her dream: a home for her eight clients in one building. She has almost repaid an initial $500 loan that helped clean and board up the house after a fire the night before she signed the final papers. Despite the extensive damage, she went through with the purchase. Eligible next to borrow $1,500 through the group, she also is working with a WEB consultant to apply for a Small Business Administration loan to speed the repairs, estimated at $20,000 - before the fire.

Sharon is filled with confidence that God, her new business training, her colleagues, support - and access to capital - will bring her dream to reality. But can confidence and sweat equity really fill the unforeseen gaps seared in a business plan by a destructive fire- Like life itself, Sharon's story is still unfolding.

Author Betsy Brill spent a year with her husband, photo-journalist Ken Kobre, traveling through India, Asia, and the United States documenting the lives of very poor women who had built businesses through microloans. They are currently raising funds to produce a documentary video from their microlending project. Some of these profiles first appeared in a five-part series in The San Francisco Examiner.

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