Is a credit crisis brewing in microfinance? Perhaps in the for-profit microfinance sector, but don’t tell that to Grameen America.
Grameen America just reached its 1,000th borrower in the US. Grameen America makes loans, savings programs, credit establishment, and financial education available to women at or below the poverty line in the US. Some key results:
- High repayment rate on loans extended
- Accumulation of $165,000 in savings accounts.
Most borrowers in the program lacked a savings account or ATM card prior to receiving their loan.
One of the forms of creative destruction already at work in lending and banking is in the area of microfinance and reaching the unbanked. While $2.3 million in new loans, high repayment rates and $165,000 in new savings accounts are not enough to “move the dial,” so to speak, for many large banks, what is impressive about Grameen America is that it is a new program (started in 2008) that has essentially been “testing” its business model in two markets (New York (Brooklyn and Upper Manhatan) and Nebraska).
The unbanked in the US is a market segment desperately wanted by banks: approximately 28 million people, with an additional 45 million that are underbanked (source: “Unbanked in the USA,” Payments Cards and Mobile, June 19, 2009). 75 million customers can move the dial! However, few banks have found a way to successfully serve this market.
The intention of microfinance organizations like Grameen America is not to displace banks, but rather to reduce poverty and empower the poor. Still, microfinance is finding a way to serve a large population of people that banks have not successfully reached – and is therefore disrupting banks. The lack of customer trust in banks combined with new lending models and “competitors” (like Grameen America) may essentially eliminate the unbanked as a growth market opportunity for banks – even as the need for microfinance increases with rising (or high sustained) unemployment and rising global poverty levels.