I'm currently at the Summit on Micro finance in the U.S. hosted by Accion Texas in San Antonio. Micro finance is one of the next issues I'm interested in, since there is such a need in our community for developing small businesses.
Micro enterprise (ME) in the US - Robert Annibale, Citi
- Much opportunity in the US immigrant communities
- Micro finance (MF) institution - one that brings financial services to the unbanked. Many types of institutions. Most are not empowered to take deposits.
- Mexico - 75% of families don't have access to financial services
- 12% of individuals in U.K. don't have bank account
- 12% of US adults are 'unbanked' - lack of financial services designed for their needs
- Low income Hispanic
- Small businesses, 'Mom and Pop'
- Needs are more than credit - it's about capacity building and providing access to other services
- Book: "Fortune at the Bottom of the Pyramid"
- Community focused banks are best positioned to play a role
- Supplier credit is main source of credit for many ME
- Credit Unions are playing an important role with ME development
- How can we leverage the current players and providers
- The ability to reach scale is important - cost of financial services
- Poor pay disproportionately more for all financial services
- MF institutions have good performing portfolios, sometimes better than banks
- knowing clients / relationship based.
- How to bring scale
- more than credit or philanthropy - individuals are clients
- low cost is important
- collaboration of institutions is important
- leveraging the capacity of partners, 'mutual footprints' (key objective)
- Citi chose to act and get involved beyond funding
- Integration between MF / ME institutions and the banking community is an important piece
Microfinance: Knowledge for a New World
Macroeconomic forces affect the role of ME in the US
- Decline of mfg sector and loss of well paying jobs
- Downsizing of corporations and outsourcing use of temporary workers
- Working parents and their care giving roles
- changes in 'safety net' - recipients are now required to work, time limits. Has moved women into this sector
- decline of rural communities
- creates 'niche markets' - opportunities as well. Business services in ethnic enclaves
- 2001 - 20.7 million MEs in the US
- 86% of all enterprises in the US
- Contribute 16.6% of total non farm employment
- How do we help ME progress into small businesses?
- Progress to next stage
- Increase valuation
- Financial Literacy
The Role of Business schools
- develop mechanisms to strengthen interaction between academics and practicing managers
- Research / Training / policy development / finance innovations
- Partnership with Accion
- Year long integrated academic and service leaning program
- Exposes students to: financial literacy training, CED policies, entrepreneurship, challenges in minority and low income communities
- Service leaning with high school students and micro enterprises
MEs - 5 or fewer employees - 30 million jobs in the US
10 million facing barriers to credit and business services
1/2 of clients are women 1/2 are people of color, 2/3 are low income
How to achieve success in ME Development:
Proper assessment of risk
4% loan loss rate for MF in US (7% industry wide)
Trends in the Industry:
- Pursuit of scale
- easy to find start up funding, hard to find capacity building funding
- Aspen launched 'Scale Academy'
- Deepening Outreach of Immigrant Markets
- Broadening Products and Services
- Move up the ladder to larger investments to those who still don't meet lending criteria for large institutions
- Credit Repair / Financial Literacy
- "Credit Builders Alliance"
- Increased Focus on Entrepreneurial Development
- Entrepreneurship development systems partnerships between serving organizations, schools... Meets needs from start up to high growth
- 'regional flavor initiatives' - built around regionally characteristics
- Using the Tax System as a Portal to Business Development Services
- Tax forms as 'teachable moment'
Association for Enterprise Opportunity - Trade Association
Q and A from Audience:
Cultural issues (group lending) in US? Group model is less the model in the US. Community Banks are perhaps the model for group lending in the US.
How do you bring MF to scale in the US? Growing strong ME / ML orgs. Developing much tighter relationships with banking sector and other orgs. M and As in certain fields.
Contrasts between MF lenders and tradtional banks? Lower the loan loss rate the lower the costs. Invest in credit valuations. Outreach and innovation is key in MF orgs. Refine models / grater scale. Broaden references to evaluate individual's risk.