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About 11 years ago, Nobel Peace Prize winner Muhammad Yunus launched a U.S. version of his Grameen Bank to provide microloans to low-income women entrepreneurs. The organization, called Grameen America, recently released early results of a study assessing how borrowers–and microfinance as a tool for climbing out of poverty–are doing.
Preliminary results indicate the answer is a thumbs up. For example most of the Grameen America members surveyed reported that their financial situation had improved over the past year.
“I think this shows that Grameen has legs and staying power” says CEO Andrea Jung. “It’s all about access to capital and the role of entrepreneurship as a tool for poverty alleviation.”
According to Jung, the findings also have implications for larger policy. “Formal capital markets have excluded this cohort,” she says. “We’re looking at how do we encourage people to create their own small businesses and create more employment in those businesses. Women have the potential to serve as powerful economic engines in their communities.”
More than 40 million Americans live in poverty and more than half of low-income children live in households headed by a female, according to Jung.
Called Microfinance in the United States: Early Impacts of the Grameen America Program, the study examined 1,492 women in 300 loan groups of five in Grameen’s Union City, NJ, branch. Applicant groups were randomly assigned into two buckets: one with entrepreneurs eligible to receive Grameen loans and a control group with women who were not. The study was funded by Robin Hood, a New York City-based organization that finances and creates programs to lift families out of poverty, and was conducted by research firm MDRC.
The results are the first set of findings in a long-term study. There will be further analysis at 18 months, 36 months and, potentially, after five years.
- Over 94% of Grameen America members reported that their financial situation had improved over the past year, a 13-point increase over the control group’s average.
- Grameen borrowers experienced a 22-percentage point increase in the ability to get a credit score after 7-12 months and a 6-percentage point increase in obtaining a Prime credit score, which is top of the pops in terms of creditworthiness. That’s particularly important, says Jung, because, “The reason they come to Grameen America is they don’t have a credit score or aren’t deemed credit-worthy.”
- The Grammen cohort also was more likely than the control group to report they could afford to buy things they needed.
- Over 95% were operating their own businesses six months after joining the program, 11 percentage points over the control group average.
Grameen, which is now in 14 cities in 21 locations, provides loans to entrepreneurs with an existing business or who are launching an enterprise from scratch. First-time borrowers can take out loans of no more than $2,000; the average is $1,500. They also have to attend regular meetings of their loan group and financial literacy training. At each meeting, entrepreneurs are responsible for making payments. If they’re successful, then after six months they’re eligible to take out another loan and so on. As they grow, businesses can get larger infusions, up to $6,000. Enterprises range from food trucks to tire repair services.
One typical entrepreneur is Ana, a cosmetics store owner. Two years ago, after spending 18 years selling at flea markets around New Jersey, she decided to open up a shop in Union City. But the only loans she could find charged exorbitant interest rates and paying them back almost drove her out of business. Eventually, she heard about Grameen. She’s now on her third loan, using the $2,800 to buy makeup, perfume and accessories. “I feel so much more at ease,” she wrote in an email. “Before joining, I was really on the brink of bankruptcy.”
Last year, Grameen also announced it closed its first Social Business Fund, an $11 million impact investing fund aimed at providing additional money to entrepreneurs who have already started working with the organization.
March 12, 2019 at 02:49PM
Forbes – Entrepreneurs