Guest Post by Luz Gomez, Aspen Institute's FIELD Program
Opportunity Fund is a member of the Aspen Institute's Scale Academy for Microenterprise Development

I’m glad to see Opportunity Fund’s recent posts around pricing and interest rates.  These are precisely the tough issues explored in the just-released publication, Dollars for Dreams: Scaling Microlending in the U.S..  Opportunity Fund, along with four other leading U.S. microlenders, participated in a three-year journey of peer exchange as part of FIELD’s Scale Academy for Microenterprise Development.

One thing the Scale Academy members weren’t ready for as they entered several years of peer learning and exchange in 2007 was the Great Recession. The outcome from this journey, documented in Dollars for Dreams, could have been filled with the same horror stories on bank performance and stunted growth that filled many newspapers over the past two years. However, what comes out of this publication is more nuanced and dare I say optimistic-- these leading microlending organizations not only persevered but managed to innovate in these trying times, and have lessons to share and other questions to pose to the wider industry embarking on efforts to scale and grow their microlending.

Fiscal Year 2010 Update
August 12, 2010

What do Tim Geithner, Nancy Pelosi, and Maria Shriver have in common? 
They all got to hear first-hand about the impact of microfinance from an Opportunity Fund client this year.

• November, 2009: Treasury Secretary Geithner convened a “Small Business Financing Forum” in Washington, DC, where he heard small business owner William Ortiz testify about how a microloan from Opportunity Fund helped him save six jobs, and create six more, during the depths of the credit crunch.

• February, 2010: William was on hand again to help Speaker of the House Pelosi celebrate the one-year anniversary of the federal stimulus packages, which provided $2 million to Opportunity Fund to help us help our clients weather the financial crisis. “As a small business owner, I sometimes feel like I’m David up against Goliath,” explained William.  “But Opportunity Fund is my slingshot.”

• May, 2010: First Lady of California Shriver shared the stage at our Microfinance USA conference with Opportunity Fund borrowers Amanda Keppert and Erik Mantch, who provided pointers on running a successful small business and how microfinance has helped them make it happen.

Opportunity Fund’s mission is to advance the economic well-being of working people by helping them earn, save, and invest in their future. We’re building a more inclusive financial system, and our Small Business Loan program is one of our primary vehicles to do this work. By providing access to capital and business advising to small businesses that can’t get a traditional bank loan, we are serving a community need and our clients often tell us how grateful they are for the helping hand. While we have plenty of success stories that show our impact through the experiences of our individual clients, that knowledge can only get us so far.

How do we know if our clients’ businesses are actually faring better after they get a loan from us? Opportunity Fund is committed to evaluating our program and measuring its impact on the clients we serve. Our relationship with a borrower doesn’t end when they receive their loan. We want to know how our borrowers are doing one, two, or even three years later. Are clients staying in business? Are they increasing their sales? Are they creating and retaining local jobs? And how can we help them be even more successful?

The Wall Street Journal article about SKS Microfinance Ltd. moving towards an IPO has the microfinance community abuzz again about the tension between mission and profits.  It’s Vikram Akula of SKS arguing that access to the financial markets is essential versus Muhammad Yunus of Grameen who feels that it is inappropriate to make profits from lending to the poor.  Without taking sides, I’d like to suggest that there is way too much focus within this debate on interest rates, and not nearly enough on “practice.”

At the end of the day, the interest rate charged is only one of several factors that determine whether a loan made to a microentrepreneur is a “good” loan or not.  One business owner might be delighted to get a loan at 36% interest, and easily have the profit margins to repay it and expand.  Another might be forced by desperation (other loans coming due, a sick child) to take out a loan at 15% interest that she can’t possibly afford.

I was very excited to see the article in The New York Times questioning the business practices and transparency of some of the organizations making loans to very poor people around the world.  There are clearly abuses going on, and much greater scrutiny needs to be applied to everyone who is applying the increasingly popular “microfinance” label to their activities. 

To my mind, only organizations that place the mission of helping borrowers improve their economic circumstances above profits should be considered microfinance practitioners.  Earning a reasonable profit by making microloans, when circumstances permit, is fine and good.  But if those profits are linked to deception about the true cost of credit to the borrower, or very high pressure sales tactics, or if loans are made too easily without regard to an individual’s ability to grow their business, it’s a good bet the talk of “mission” is just window dressing.
 

Last night I discussed Opportunity Fund's microlending program at the World Affairs Council of Northern California's conference on "Innovation in the Face of Crises". We were honored to join in the discussion on the most promising solutions to some of the world's biggest problems.

 It was a busy night. I sat down for an interview to discuss the "innovation" of microlending and Opportunity Fund's work in this industry since 1995.  The interviewer asked about our most significant innovation in the face of a crisis, and I was glad to talk about Opportunity Fund's ability to continue lending to small businesses throughout the recent credit crunch. Our work, and the work of microlenders across the nation, has become even more important than ever in that regard.

Watch the 4 minute interview:

The evening continued with a "Take Action" event, where Opportunity Fund (along with about 15 other great non-profits) offered conference attendees a way to take their new ideas and excitement about effective solutions to the world's great problems.  Folks continue to be amazed that microlending is even happening here in the United States. Many conference attendees I spoke with had heard Matt Flannery, CEO and co-founder of Kiva, speak on a panel earlier in the day.  They were excited about microfinance and even more excited to learn Opportunity Fund is doing it here in their own backyard. Because the night was about "Taking Action", we offered people three ways to get involved in microfinance:
 

I participated in a "roundtable" yesterday with Speaker Pelosi to discuss the impact of the Recovery Act in San Francisco. The small group discussion included department heads from City government and other recipients of stimulus funding. It was followed by a press conference, at which our client William Ortiz spoke, along with Speaker Pelosi, Mayor Newsom, the Police Chief and the Chancellor of UCSF. William did a great job as usual, explaining how he used a $10,000 loan from Opportunity Fund to double his workforce during the recession.

This week has been particularly busy around Opportunity Fund as we strive to help truckers beat a February 16th deadline to retrofit their truck engines as new EPA emissions standards go into effect.  Truckers told Opportunity Fund yesterday that without these loans, they would have to give up trucking or move their business to another state.  We’ve made 24 loans to truckers so far.  Yesterday we we

It was of course great to hear President Obama place a high priority on providing credit to small businesses in Wednesday night's State of the Union speech. Trouble is, no one seems to know what he meant when he mentioned "$30 billion for community banks,"

I went on a last-minute trip to DC last week, so speak truth to power. Officials from the Treasury Dept. had visited San Francisco the prior week, and we took them to meet our client, William Ortiz of Gentle Parking. William told them about how he has been able to create 12 jobs, many of them for at-risk youth, after receiving a $10,000 loan from Opportunity Fund.