How Micro Loans Can Uplift Poor Communities
We were having our first training session, the eight of us, in our new building. The room we sat in had been renovated and smelled of raw wood, although our bookshelves had not yet been built. There was nothing on the walls and the outside sign was not yet out. It would read "National Development Foundation of Grenada." We would call it "NDFG" for short.
Just the year before, Grenada had made it through a violent coup—an assassination of popular leader (Maurice Bishop) and seven of his key supporters—followed by an armed invasion of U.S. Special Forces to oust the communists then in charge.
Now we were going to help create peace by strengthening the business sector of Grenada and its sister islands, Carriacou and Petit Martinique. It was 1984 and Grenada and the outside world were counting on the NDFG to be successful.
I sat just inside the open door on a bare wooden chair, enjoying the breeze, wondering who the others were and what we would be doing. Our trainer, Richard Correus (not his real name), asked us to introduce ourselves first, then he would tell us about the NDFG's five collaborating agencies.
The Executive Director and all five employees turned out to be local residents of Grenada. All had the lilting Caribbean accent I was learning to love. The Executive Director, Mr. Charles* (we called him Charlie), was born and raised in Grenada, but had just come back from California, where he'd acquired a BS in business management.
The three field officers lived in Grenada, but had come originally from elsewhere—Kristen from Dominica, Justin from Trinidad, and Georgio from Columbia. Our office manager and accountant, who were both born and raised in Grenada, distrusted Americans like me.
We had an English volunteer (with a different accent) helping out in sundry ways during the first year and myself—an American volunteer. Both of us were excited to be contributing to such an exciting endeavor.
* All names have been slightly changed.
Staff and Offices of the NDFG
A micro-finance agency's success lies in the numbers and types of loans distributed to worthy recipients in downtrodden communities. In order to reach those recipients, it helps for an agency's field workers to be local. This increases the trust of potential applicants, since employees speak "their language," understand the issues they're dealing with, and may actually know them or friends of theirs.
From an agency perspective, it makes sense that employees who are local—seeing themselves as already "successful"—would recognize others who also had potential and contact them to help kick-start the application process. To prevent claims of "favoritism," loan evaluations are best handled by local banks.
There are not enough qualified micro-loan applicants in the United States. I wonder why?
Questions About the United States
With the recent coronavirus pandemic and the advent of the Black Lives Matter movement, my semi-conscious question about how micro loans might work in the U.S. surfaced and became acute. If black and brown communities had access to micro loans and training, might it not help to quell the violence and poverty they've been living through? Might it not help to keep our economy afloat during tough times? Might it not uplift poor communities of all colors, and help bridge the rapidly growing income gap in the United States? After all, an economic pyramid, like the one we have here in the U.S., is not stable when it has a crumbling base.
It turns out that such agencies do exist in the U.S. (e.g. Grameen, ACCION), but their success is still limited, according to my research. Now that legislation has been passed to flesh out and support micro-finance, the biggest remaining deterrent is that there aren't enough qualified applicants. Loan money sits there, unclaimed, while an agency pays administrative expenses that seem unjustified, hence making the agency unsustainable . . . but I digress.
A pyramid is not stable when it its base is crumbling.
Micro-Finance Network of Initiators
The NDFG was not set up by a single agency or donor, but by a network of organizations, each with its own supportive role. On his portable whiteboard in front of the room, Correus listed each organization and what they did, to help us see the overall picture and where we fit in:
- The Pan American Development Foundation (PADF) provided the model, the oversight and, via Correus, the initial organizer. He told us he'd run a similar foundation in Guyana, and that his job was to arrange logistics, and hire and train agency staff.
- The U.S. Agency for International Development (USAID) was providing money for micro loans (US $724,000), which would be held in trust by a local bank consortium. The bankers would be vetting each of our micro-loan applicants.
- The Organization for American States (OAS) was providing credibility in their support of us, helping to counteract fears that we were an imperialist agency intending to dominate and control the Grenadian economy. The interim government of Grenada, although not a direct partner, was also publicly supportive.
- The U.S. Peace Corps provided a representative, with a business management degree, to work with the agency for its first two years to make sure it got off the ground. That representative was me.
The NDFG was only one of seven such foundations established in the East Caribbean in 1984–85. Each agency played a specific role, sharing the burden: PADF (the initiator), USAID (the financier), OAS (the promoter), and the Peace Corps (the stabilizer) supported all seven Caribbean foundations.
The banking, employees, and governments were all local, so that once the parent agencies left (the Peace Corps being last) then the local foundations could survive on their own.
How the Foundation Operated
Each foundation has one main function: To provide micro loans and business management training to local entrepreneurs. I was asked to shape that task for the NDFG, which field officers would then carry out.
The Executive Director (Charlie), the office manager, and the accountant would provide executive management and support services—including reporting to key partners, public promotion, coordination of activities, accounting, reception, and information storage.
The field officers and I split the island up into "territories" to carry out the following functions:
- Visit loan applicants in their places of business, to find out how they're doing and what they need.
- Check their reliability and integrity with neighbors and customers.
- Fill out the application form, prepare them for an interview, and convey back the decision of the bankers.
- Follow through with any training needed, and verify proper use and repayment of the loan.
The Islands of Grenada, Carriacou, and Petit Martinique
The NDFG's function was to provide micro loans and business management training to Grenadians who had small-scale businesses.
Developing the Field Program
I'll call this client David. His porch was barely big enough for two chairs with a small, round table in between. Sitting there amongst the tropical trees was pleasant, especially with the smell of fresh bread wafting through the windows. His wife brought out a sample, which we nibbled while we talked about his request for a loan.
I'd already told David the loan process. Now he was telling me what he wanted the loan for. He would soon take off on his bicycle to deliver the bread his wife was baking to nearby neighbors—who had been spreading the word. Now people in other villages were asking to buy bread, but he couldn't deliver there on his bicycle, because it would take too long. He needed a truck.
We talked about the truck and what else that would enable him to do:
- Buy all his supplies at once.
- Promote his bakery, if he put a logo on the truck.
- Safely move his money to the bank.
- Eventually get a driver, so David could do other things while bread was delivered.
It was clear to me that David understood his business and was reliable. He gave me the names of customers I could talk to. I filled out the loan request form, as we continued to talk, and his loan was eventually granted. This is an example of a successful micro-loan borrower. It's also an example of how all three field officers conducted their interviews.
Handling the Application Form
One of my field officers interviewed the gentleman below who had a little shop of his own, separate from his home. His skill was repairing guitars and other stringed instruments.
Justin asked me to go with him to their second interview, to make sure he was covering everything he needed to (he was). We went through the application form, I double-checked a few things with the applicant, and looked around at his shop, which he was proud to show off.
Back in the NDFG office, Justin and I talked about what came next, and I agreed with him about the viability of this request. He filled out a statement stating why he thought this applicant should be approved, then submitted the statement and application form to Mr. Charles who, in turn, would endorse it (or not).
Once every two weeks, Charlie would gather all requests he'd endorsed and take them to the loan evaluation committee, consisting of local bankers. They had a different set of criteria they went by, which sometimes jived with ours and sometimes did not. Loan requests varied from $200–20,000. This applicant was also approved for a loan (and received his money quickly), but the next one was not.
The Loan Approval Process
One day I rode my motorcycle to St. Andrews on the east side to meet a potential applicant in a nearby village. She lived in a house with a kitchen that was barely big enough for us to edge past each other. On a shelf in her living room she showed me the packets of school supplies she sold, but that was not what she wanted money for.
Instead, she intended to set herself up as a hairdresser. She told me her friends loved the way she fixed their hair, and were encouraging her to turn it into a business. She asked me for a loan to buy a hair dryer. I asked the requisite questions, we filled out the application form, and I took it back to the office.
When I showed it to Charlie, he balked. This would not be an ongoing business, he pointed out, but starting a new one from scratch. I reminded him that she'd proven her business acumen already by selling school supplies. He reluctantly agreed to take it to the loan committee.
They reviewed it and refused. There were too many hairdressers already, they said. Grenada didn't need another one. That meant I had to go back and tell her no.
The Value of Business Management Training
I drove my motorcycle to St. Andrews again. This time she had another villager there, who also wanted a loan. He made coal for the village. I arranged to meet him at his place later and he left.
I walked through the kitchen to find my client, who had already guessed that the bankers said no. I told her I knew of another way she could buy a hair dryer, and asked her to put two jars on her shelf, which she did.
I said, "This first jar is for school supplies. Put all the money you make from selling school supplies inside it. When it's time to buy more supplies, take the money out of this jar, then move the extra—whatever is left—into the other jar. Those are your profits and that jar is for the bank."
"Keep on doing it," I said, "and when the bank jar is full, take it down to the bank and open a savings account. When there's enough money in the savings account to buy a hair dryer, then you can start your new business." She understood and agreed to try it.
This taught me the important role that training could play and, after talking it over with Charlie, we decided to elevate training to top priority. That way applicants would benefit even if they didn't get a loan.
Eight months later I checked back with my aspiring hairdresser. She had already bought two hair dryers and had an assistant.
"I got funds from the NDF to add to my own to build the shelter and purchase appliances. Business is going quite progressively for the time being. I'm selling sandwiches and t'ing to taxi drivers and dock workers, and local fruit juices and beers to tourists."
– Christopher Palmer (tourist snackette), NDFG Client
Following Up After the Loan
Once an applicant's loan was approved, they were classified as a borrower. One thing we learned to make clear to our borrowers was that getting approval of the loan was not the last interaction we would have.
- We would check back regularly to make sure they were doing ok.
- Whatever promises we made about training, we would carry out.
- And if they missed paying back their loan, the bankers would call us, and we'd come out to see what was up.
This type of followup lets borrowers know that we're still a team. It also reminds them that paying back the loan, as soon as they can, is part of the deal.
A few clients, in fact, did not repay their loans. One used her loan to set up a secret prostitute ring, and used the bookkeeping I taught her (not knowing) to make it more efficient. She was not included in our annual report.
The program we developed, in conjunction with the word of mouth and news promotions we did, made us highly successful those first couple of years. At the end of the first year, I decided to compile an annual report showing the NDFG's work, so we could have figures and charts to reflect our success. I took photographs, interviewed clients, and used charts to show applicant distribution and loan data.
Analysis of Loans Granted
It was important to the Grenadian people to know which locations received loans; it was important to NDFG leadership to know which business sectors received loans; and it was important to me to know the gender distribution of loans.
I evaluated all three in my report, and here is what I found. Of the 500 and more visitors we had that year, 81 got loans ranging from $200–$20,000:
- By location, loans were most heavily concentrated in St. George's Parish (county), where the central government and NDFG were located—60% in numbers, 47% in dollars. The rest were distributed between four out of five other parishes on the island. None went to Carriacou or Petit Martinique that first year, which was a concern—that was where some of the most vocal critics of American imperialism lived. We'd only received eight applicants from there, and continued to encourage the most qualified.
- By business sector, loans were distributed to small manufacturing enterprises (45%), to retail (24%), to agriculture (16%), and to the service/repair sector (10%). The rest went to a mix of other types of businesses.
- 69% of loans were granted to males, 31% to females.
- Dollar-wise, the highest total loan amount went to manufacturing, and the second highest total went to the service/repair sector—most of which, in both sectors, was intended for equipment.
It was too early to analyze repayment percentages, since loan requirements gave borrowers one year to start repaying.
"I didn't have no experience with bookkeeping. It's going well now—real smooth. I bought some material, a few machines, hired a few fellows. Business good now. I can't complain."
– Junior Sawney (shoemaker), NDFG Client
The Success of Micro-Finance in the United States
I soon discovered that the success of micro-finance agencies in the United States is strongly affected by the legal system. The three top qualities such agencies look for in potential borrowers is evidence of an entrepreneurial spirit, integrity, and a viable product. However, opportunities in poor communities in the U.S. to prove one's business acumen are extremely limited.
As you can see in the chart below, the United States has problems with locating potential borrowers—not because poor people are passive or uneducated—but because laws in the United States prevent them from getting started.
Check out the following comparison between Grenada and the United States in how applicants can prove they have an entrepreneurial spirit.
Proof of Entrepreneurial Spirit
Type of Proof
Started a business in their home
Majority of borrowers
Illegal in most cities and towns (with a few exceptions).
Business as a sidewalk vendor
2nd most popular type, mostly focused on supplying tourists.
Illegal in most towns. Expensive license required in others.
Has an official place of business
Less than 1/3 of borrowers had separate locations.
Between rent, utilities, licensing, insurance, and purchasing of supplies, it's too costly for poor people.
Hustling by phone or in person.
Casual and common. Not strictly necessary.
Hustlers in poor neighborhoods are targeted by police for drug arrests, whether valid or not.
Developed skills in prison.
Hardly anyone is in prison.
Most applicants with criminal records are denied loans.
People request loans because they don't have enough money for their next step up. Without money they can't rent a business location or buy required licenses. If they can't run a business from home or on the sidewalk without being arrested, they have to hustle. If they hustle and get arrested they're labeled a criminal and thrown in jail. If they have a criminal record they can't borrow money, and they become trapped in a vicious cycle. In order to give micro-loan agencies the best chance for boosting impoverished communities, the legal system in the U.S. needs to be changed.
Meanwhile, one potential solution is for private sector donors (like PepsiCo and Lowe's) to offer financing, without restrictions, to applicants with prison records. If loans are granted to such applicants, part of the financing could go to business management training or two year degrees. They could be encouraged to team up to reduce expenses and keep each other motivated. They could eventually be set up as mentors, if interested, for new applicants out on parole.
If restrictive entrepreneurship laws in cities and towns were to be modified or removed, this would be the biggest boost of all. The private sector could encourage it . . . maybe even write sample laws for the city to consider. This would not only encourage new businesses, but would also cut down on crime. Meanwhile, California has passed new coronavirus legislation that sets up a state micro-lending program.
Additional Successes—NDFG Staff
Back in the office, we decided to print the final report and distribute it to whomever wanted a copy. I knew it would give clients a boost to see their names and photos inside. It turns out that, by showing our success in a nutshell, it gave everyone else a boost too—including NDFG staff, the Board of Directors, and PADF.
The Pan American Development Foundation declared that we'd had the most successful first year of all such agencies they'd established in the Caribbean.
The Board of Directors requested an in-person report so they could ask questions, commended us on our success, then arranged for interviews with the local newspapers.
Two of the field officers went on to start successful businesses of their own—Justin fishing and repairing boats for tourists, Georgio beekeeping and producing a natural insecticide soap for pets (out of locally available NEEM oil).
Kristin moved back to her home country to manage a NDF there. Charlie moved on to another agency, and the adviser (local) that was hired to replace me took over as Executive Director of the NDFG. From what I heard later, she was doing a great job.
This content reflects the personal opinions of the author. It is accurate and true to the best of the author’s knowledge and should not be substituted for impartial fact or advice in legal, political, or personal matters.