Microfinance Provides Benefits for U.S. Recipients, Study Finds

Microfinance Provides Benefits for U.S. Recipients, Study Finds

The vast majority of recipients of microfinance in a U.S. program saw their financial situation improve within a year, a report from Grameen America and MDRC finds.

Funded by Robin Hood, the report, Microfinance in the United States: Early Impacts of the Grameen America Program (34 pages, PDF), examined the experiences of nearly fifteen hundred women in northern New Jersey who applied to the Grameen America microlending program. According to the study, more than 94 percent of program participants reported that their current financial situation improved from the previous year, a 13 percentage-point increase compared to the control group of women who were not eligible to receive a Grameen loan. In addition, the program produced a twenty-two point increase in the attainment of a credit score at seven to twelve months after participants enrolled in the study and a six-point increase in the attainment of a prime credit score. More than 95 percent of Grameen America members reported owning a business within six months of joining the program, an increase of 11 percentage points over the control group.

Based on the Grameen model, which originated in Bangladesh in the mid-1970s, the Grameen America program requires participants to form a peer network of five people and undergo group financial training — including instruction in loan repayment, interest rates, saving, credit establishment, and asset accumulation — before awarding an individual a low-interest microloan of between $500 and $2,000 to start or expand a small business. Participants in the program build financial and social capital through regular group trainings and are only eligible to apply for future loans when each member of the peer network has repaid her individual loan. Future loans are of higher monetary value and are intended for further business expansion.

"Our goal in embarking upon this rigorous study was to determine whether the Grameen America model leads to the alleviation of poverty for borrowers," said MDRC president Gordon Berlin. "The early results are promising. The Grameen America program produced reductions in measures of financial hardship, which puts the program in a position to increase income and reduce poverty, the ultimate goals of Grameen America, down the road."

"Though often associated with the emerging markets, the need for microfinance loan programs in industrialized countries like the U.S. is severely understated," said Grameen America president and CEO Andrea Jung. "Safe and affordable access to financial services transcends borders and politics. It is the chief force behind economic mobility, empowering people to save, borrow, and invest. Unfortunately, financial services are not readily available for a large swatch of the population, often women in the lowest income brackets. The early results provide encouraging evidence that microfinance programs can be a sustainable, scalable solution to help close the financial inclusion gap in the U.S. Microlending not only empowers women to launch businesses, lessening their reliance on having one primary employer; it has the potential to transform entire communities."