The Microfinance Insider is a forum for graduate students engaged or interested in working in the field of microfinance. Through weekly posts and comments we hope to inspire students and foster the creation of a knowledge community of bloggers with a commitment to financial access and first hand industry information.

Monday, July 14, 2008

Microfinance in NYC

Generally, when people hear the term “microfinance,” they think about small amounts of money lent out to groups of impoverished women in developing countries. In their minds, this scene might occur against the backdrop of thatched huts or rice paddies in rural South Asia or Africa. Perhaps a few cows or chickens stroll into view as the loan agent comes to call on his clients. Rarely, if ever, do people imagine individuals arriving via the subway, or crossing a traffic-filled Broadway Street, to seek out their desired loans.

Most people are unaware of the vast array of microfinance services that proliferate throughout the United States. Yet, for many resource-deprived residents of major metropolitan centers and rural areas throughout America, microfinance services are a very real, and very integral, part of life. As the summer intern for The Financial Access Initiative (FAI), I’ve been assigned the task of investigating the often-overlooked phenomenon of microfinance in America. Over the next couple of weeks, I hope to shed light upon how microfinance services operate in the city of New York.

Accompanied by the FAI research assistant, Lara, I made my first stop at NYANA (New York Association for New Americans) located in lower Manhattan on Broadway Street. NYANA is a large organization that provides immigrants and refugees living in New York City with a variety of services regarding education, healthcare, legal advice, and financial aid. When Lara and I entered the office of NYANA’s Micro-Enterprise Development Program, we were warmly received by two employees—Leonid, a loan officer, and Yanki, the Director of the Business Center.

Leonid and Yanki talked with us at great length about a range of topics concerning their work. We learned that NYANA receives funding from a number of governmental and commercial sources. The organization uses these funds to cover operational costs, as well as to extend a variety of loan products to its clients. To receive a loan from NYANA, individuals must meet some basic criteria: They must reside within the five boroughs of New York and have either an existing or start-up micro-enterprise. In Queens and Statten Island, borrowers can be US-born, while in other boroughs borrowers must be foreign-born. (As of 2007, NYANA's Women's Business Center has allowed the organization to lend to all female entrepreneurs.) Ideally, individuals seeking a loan should be “un-bankable,” that is, either without, or with a very weak, credit history, and therefore unable to access loans from a bank. Loan products range from $500 to $35,000, with terms extending up to five years. The organization has a very low default rate among clients with a loan loss rate of less than 2%.

Yet, despite the general success of NYANA’s provision of financial services, vice-president Yanki told us that she believes the organization should strive to become more efficient. Comparing NYANA to the Grameen Bank (often considered the founder of microfinance) in Bangladesh, she told us that “everything here [in New York] is slower and less efficient.” Seems a bit ironic, no? But, she went on to explain how the scale and character of the city complicates NYANA’s work –while a Grameen worker can hop on his bicycle and visit 15 clients in a day, a NYANA worker simply cannot work as quickly or cost effectively.

Although unable to alter this aspect of the urban setting, Yanki believes that NYANA must first and foremost strive for increased practicality. Instead of relying upon theoretical or academic teachings, NYANA workers should focus on the human aspect of microlending—they should seek out personal relationships with clients, pay heed to lessons learned in the field, and above all, employ common sense when faced with a problem. (An example of this sort of practicality is apparent in NYANA’s policy that agents of diverse racial and ethnic heritages should work within communities of similar cultural backgrounds.) At the same time though, the organization should streamline its services—it should employ an under-writer responsible for creating and maintaining a scoring model that would standardize the lending process. This, in turn, would allow agents to spend more time developing personal relationships with their clients.

However, therein lies the paradox—with increased efficiency comes the risk of becoming a detached, impersonal institution that churns out micro-loans. In the coming years, NYANA must find a way to increase its efficiency while maintaining its commitment to practicality and the development of personal connections. This will be no easy task, but with creative and committed individuals like Yanki and Leonid at the helm, I feel confident that NYANA will succeed.

1 comment:

AD said...

This is a very interesting post. Can you provide more information on the type of loans NYANA offers and their collection practices? How does their model compare to international lending models that include group lending and weekly repayments?