Small Loans With Big Payoffs

“Microcredit” has become a household word ever since Muhammad Yunus, founder of the Grameen Bank in Bangladesh, won the Nobel Peace Prize last October. Yunus, the father of “microfinance,” developed a winning strategy to help people -- mostly women -- lift themselves out of poverty by providing them with small loans.

Most people think of microcredit in connection with Yunus and his work in Bangladesh and elsewhere in the developing world. But microcredit also plays a role in the United States, where people with little or no credit often need money to start a small business employing up to five people.

MicroCredit-NH, a nonprofit program of the New Hampshire Community Loan Fund, was founded in 1996 on the same principles as the Grameen Bank. It provides loans to people who want to become self-employed or who want to further develop their existing small businesses -- people such as hair stylists, accountants and electricians.

Microenterprises are a largely hidden but very important segment of the state and local economy in New Hampshire. According to the 2002 U.S. Census, there are more than 115,000 microenterprises in the state, representing 19 percent of all private (non-farm) employment -- a share that puts New Hampshire among the top 10 in the nation. These microenterprises employ about 151,000 people.

In Grafton County alone, 87 percent of all businesses are categorized as microenterprises, and they employ more than 12,100 people. As you travel the roads of Grafton County, it's evident that microenterprises are everywhere, playing a vital role in our local communities. Currently, almost a quarter of MicroCredit-NH's loan portfolio consists of loans made to microenterprises in Grafton County. The region is clearly experiencing a significant amount of activity in relation to the state’s other nine counties.

Each month I meet with the Lebanon business group at Harvest Hill Retirement Community. The group, “Solutions for Success,” includes a painting contractor, an IT consultant, a dog groomer, a home-care provider and an off-road tour adventure guide. On the surface, these micro-entrepreneurs would appear to be very different. But they all need access to credit, as well as to information and resources that will help them achieve their goals.

Lebanon's business group is typical of the peer groups that are the backbone of MicroCredit-NH. In these groups, members can apply for loans as small as $500 or as large as 15,000. Group members review the loan applications (with support from MicroCredit-NH staff). If the group approves the loan, MicroCredit-NH provides the funds to the applicant. This sort of peer lending system is unique to New Hampshire. Interestingly, more than half of group members never take a loan. The majority of a group's activity is focused on working together on business issues, acting as an advisory board and working to advance business skills

Since its inception, MicroCredit-NH has lent more than $775,000 to entrepreneurs. The loans have a significant impact on the success of microenterprises. Laurette Scott, a member of the Lebanon business group and owner of a home-care company based in the city recently accessed a line of credit to pay for capital expenses and to cover a gap in payroll.

MicroCredit-NH also offers members the Individual Development Account (IDA) program -- a savings account that offers $3 for every $1 saved by a business owner. For example, an IDA business owner who saves $2,000 would receive $6,000 in matching funds for a total of $8,000. Raymond Sanville Sr., owner of Grantham Guitar Shop, recently used his matching funds to buy insulation, radiant heat pumps, sheet rock and other materials to finish construction of his shop and purchase inventory.

MicroCredit-NH's Grafton County referral partners have been especially helpful in expanding the program locally. Mark Scarano, executive director of the Grafton County Economic Development Council, has offered the Dartmouth Regional Technology Center for program orientations and for workshops, including one scheduled for Jan. 9 on how to ensure successful collections. Others, including Listen and N.H. Employment Security, have generously offered space for our events in Lebanon, allowing me to deliver MicroCredit-NH's services to those who require them.

Activity in the region is increasing. New groups like the one that meets in Lebanon are planned for Enfield and Hanover as a result of local demand.

MicroCredit-NH isn't structured exactly the same as the now famous Grameen Bank. Grameen serves millions of clients, and its average loan amount is a mere $200; MicroCredit's average loan amount is $2,985, and it serves thousands in quite different economic circumstances than the poverty-stricken women in Bangladesh.

But, like Grameen, we work to help make microenterprises sustainable and “bankable” -- and our 95 percent loan repayment rate is a testament to Muhammad Yunus's principle that peer lending really works. Microenterprises deserve to be recognized as one of New Hampshire 's finest products.

Janet F. Cote

The writer is a regional manager for MicroCredit-NH. More information about the MicroCredit-NH program is available at www.microcreditnh.org.

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