More About Microfinance in the United States

The United States has a market for microfinance. The Aspen Institute estimates that only 2% of potential U.S. microfinance customers are being served compared to the 17% being served in the developing world. Furthermore, a growing percentage of Americans are “unbanked” — 30% of Americans have no banking relationship whatsoever.

Market Size of Microfinance

In the U.S., there are at least 20 million microenterprises.
In the Bay Area, there are 50,000 potential businesses that need microfinance services.

Key Differences Between U.S. and International Microfinance

There are a lot of differences between microfinance abroad and microfinance in the U.S.  But keep in mind that the positive effects are very much the same.
 
Loan Size
Business Coaching
Interest Rates
Cost Recovery
Concentration of Borrowers
Use of Peer Lending
Savings Match

Loan Size

More than 90% of our loans are between $1,000 and $10,000. While these loans are much larger than microfinance loans abroad, they are still quite small for a business trying to survive in the high-cost Bay Area. In the United States, the term “microloans” typically refers to loans under $35,000.

Our loans fill an unmet need in the U.S. financial system. Banks in the United States do not typically make business loans smaller than $50,000. Many customers turn to high-interest credit cards to access the capital they need.

Additionally, nearly 40% of our loans are $1,000 credit builder loans. These loans help immigrants new to the U.S. establish a credit history so that they can enter the financial mainstream and gain access to credit cards and make purchases like homes or cars.

Business Coaching

As a part of our loan application process, our clients meet with a business advisor to discuss if a loan is a good solution to meet their business needs.  Clients receive individually tailored, detailed advice on how to improve their business and how to manage taking on a loan.  Most of our clients agree that while they did not expect to receive this assistance when applying for a loan, it is the most valuable part of their experience with Opportunity Fund. 

Interest Rates

Because of lending regulations In the U.S., microlenders cannot charge the very high interest rates that microfinance institutions can charge abroad. Our loans are typically 3-5% over the prime rate, based on each individual's business and credit history.

Cost Recovery

While we relentlessly pursue efficiency, Opportunity Fund does not aim to have 100% cost recovery on the loans we make. The other factors discussed here make 100% cost recovery an exceedingly unlikely goal for a mission-driven microlender in the U.S. Furthermore, we believe that microfinance stacks up very well against other interventions against poverty in the U.S. that require subsidy (affordable housing, job training, after school tutoring), and we are not ashamed of our use of grant funding.

Concentration of Borrowers

In the U.S., microfinance borrowers are much more widely distributed across geography, industry, and business size than in developing countries.  This means that our marketing costs are high—we have to market to potential borrowers and find eligible applicants who meet our loan criteria.

Use of Peer Lending

The peer lending model, under which groups of (usually) women in developing countries jointly guarantee one another's loans, and jointly determine who is allowed to enter the group, has led to very high repayment rates and virtually no underwriting costs. It has not worked well when tried here in the U.S., which means we have to expend resources on underwriting.

Savings Match

Opportunity Fund uses the tool of IDA savings to complement and expand our microfinance services, a unique program that is not used in microfinance abroad. By giving people the tools they need to manage money and build savings, we are providing them with the opportunity to purchase assets, like homes, education, or retirement, that change their lives and can be passed on to their children. Learn more about our IDA Savings.