Can Microfinance Save the World?
Gina Harman, head of microfinance group ACCION US Network, explains how the global economy can reshape itself.
Financial institutions are getting a lot of bad press as of late. And for good reason: banks are bilking customers out of billions, Wall Street fat cats are raking it in and the average American continues to struggle under economic malaise.
But as Gina Harman, CEO of microfinancing group ACCION International’s United States division, explains, the industry is far more than just fiduciary giants — and still has great potential to help millions across the globe.
“There are different cultures between a non-profit business and a for profit business, but they aren’t mutually exclusive,” Harman told me in a recent interview. And she definitely knows the best of both worlds: Harman got her professional start as a community organizer in Manhattan, where she helped establish and run a day care center at the old Washington Square Methodist Church, and then in Queens as part of the effort to save an economically depressed hospital.
“That was the famous period when Ford told New York City to go to hell,” Harman laughs.
After years of grassroots activism, Harman left community organizing in the early 80s to join Harman International, the electronics company founded by her father, the late Dr. Sidney Harman. She spent 23-years at the company, working her way up the ladder to become president of the company’s consumer division.
The September 11th attacks, however, brough Harman’s attention back to her grassroots, and was soon turned on to ACCION, a microfinancing group started in 1961 as a community development organization and that twelve years later, in 1973, began dispersing microloans in Latin America.
Today, 38-years later, ACCION International has helped over 4,213,336 people build businesses, credit and livelihoods. Their U.S. division, launched in 1991, has so far aided 119 million people with over 19,000 microloans, including many in New York City. Leading the group was, for Harman, a perfect fit.
“It felt like the right time for me. I was living in the city, working out on my own, and it felt like the right time to put these two very distinct careers together in a way that was useful,” she recalls.
The businesswoman got her feet wet at ACCION first as a board member and then, as the search for a new CEO petered out, agreed to take the position for two years. That was four years ago.
“Microfinance was just what I thought it would be,” she says. “It’s a way to bridge my idea of social justice with my business experience. It wasn’t just a fantasy; that was a fact.” And, as with private companies, ACCION’s selling a product, albeit with a very different mission.
“We are trying to reach people with a message that we can help them grow their business to the next level with the products or services that we offer or that we can help them move from unemployment to self employment,” explains Harman.
As part of her duties as ACCION’s CEO, Harman helps oversee thousands of microloans. Rather than simply evaluating an individual’s economic status or credit, ACCION and similar organizations do what Harman describes as “character lending,” in which they look at more than an applicant’s ability to handle debt and credit.
“We look at how rooted they are in the community — and that can be any number of things: if their kids are in school, or how long they’ve lived there or if they participate in community activities, what their commitment is as a business honor in the community in which their business resides,” she says. “Banks don’t have the time to look at those things and time is money. For the bank, it’s about the transaction. For ACCION, it’s about the relationship.”
That relationship is based on far smaller investments. While banks are concerned with turning a profit, microfinance investments in the United States average at about $8,000 — “Banks don’t make loans of $8,000. It’s not worth their while.” — and are very often home-based businesses for people banks would not even consider, like recent immigrants. ACCION also has less stringent requirements when it comes to start-ups.
“For a bank, a start-up is defined as a business that has built revenue over three years; our view of a start-up is one that builds revenue in six months.” ACCION, unlike banks, wants to help people, not themselves.
“For us, the end game is not ‘get the loan into somebody’s hands.’ It’s to create a sustainable business institution and to create credit for a family or an individual as an asset for their lifetime,” she says. “Instead of looking to make money on fees because people pay late, we’re looking to encourage them to pay on time so that they can set the foundation for borrowing successfully.”
Not that banks aren’t an essential part of ACCION’s actions. The organization works closely with one of the more vilified banking groups, Citigroup, which gives them grants, hosting mentorship conferences with big name business people like Russell Simmons and designer Tory Burch, and helped develop the ACCION Texas’ Microfinance Management System.
Together with Citi and other big name organizations, ACCION has successfully helped fund a variety of businesses, including storefronts, regional food restaurants and the livery cabs on which so many people rely. According to Harman, 96% of their clients have paid off their debt and are still in business.
So, yes, while there are serious differences between big banks and microfinance groups, they make great collaborators. In fact, Harman insists that while microfinance could exist without them, it would be far more challenging.
“Is it possible to exist without traditional banks, but it would require access to capital markets in new ways, to individual investors and greater reliance on government programs to keep our portfolios liquid,” she contends. “It’s possible, but difficult.”
Considering their alliances with banks, and reliance on interest rates, microfinance firms such as ACCION often come under critical fire, as they did when Indian farmers reliant on loans committed suicide during a drought last year. Harman understands such critiques, but insists the entire system cannot be blamed.
“Are you going to condemn the whole of microfinance because some organizations have done things that haven’t worked?” she muses. “I have no problem saying microfinancing institutions make mistakes. What I believe is true for us is that we see ourselves in a leadership role and we know that means first and foremost taking care of the well-being of our clients and potential clients.”
She continues, “We know that we’re lending to people who are committed. We’d like to believe that between the loans, the relationship and the business coaching that we provide, that the likelihood of their success goes up and we have data that suggests that is the case.”
As the global economy continues to evolve — or, in some cases, devolve — Harman’s confident microfinance can help lead the way to a better tomorrow. The public at large, however, has to start rethinking the game of finance.
The key is more focus on self-employment, rather than just the next big thing, she says, citing the Association of Enterprise Opportunity’s recent study, “One-in-Three.”
According to that report, if small businesses — those with five or fewer employees — each took on one new employee, they could help eliminate unemployment all together.
“The discussion around small businesses being the engine to take this country out of economic downturn is based in fact,” Harman remarks. “I think the programs that are being suggested to harness that potential are far afield of where the economic opportunity is the United States.”
“The government has been looking for the next Google. It takes 2,000 efforts to generate a single Google.” But it takes just one investment from a group like ACCION to help a family get off the ground. And, as Harman points out, “We didn’t receive hundreds of billions of free dollars to build our business.”
Image via Do No Harm.