Tiny-Loan Programs May Get $105-Million Boost in Senate

An idea spawned in the impoverished countryside of South Asia is taking root in America--and if two U.S. senators have their way, it might become an increasingly key element in this nation’s fight against poverty.

In less developed parts of the world, peasants are lifting their families--and even entire villages--out of poverty after receiving loans of $20 or less to start their own businesses.

“Micro-credit,” as the concept is known, was the brainchild of Muhammad Yunus, a former economics professor at an obscure university in Bangladesh. His conviction that the poor can be just as enterprising as anyone else if given access to credit--no matter how small--led to the creation of what is now called the Grameen Bank in his country. (Grameen means rural in Bengali.)

The idea also found fertile ground in the United States, with programs in place in a variety of cities, including Los Angeles and Pasadena. “Anywhere anybody is rejected by the banking system, you have room for a Grameen-type program,” Yunus said.

President Clinton long has been a fan of the micro-credit notion. As governor, he started such a program in Arkansas. And in the early years of his presidential administration, he successfully pushed for creation of a fund run by the Treasury Department that aims to foster the expansion of micro-credit schemes.

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There are now more than 400 micro-lenders operating in the U.S., with more than $2 billion in capital, according to Rene Bryce-Laporte of Results Inc., a Washington-based anti-poverty organization.

But, while a few dollars might suffice to gear up a business in a Third World country, micro-entrepreneurs in a sophisticated economy such as the United States’ need more than start-up capital.

That is where Sens. Edward M. Kennedy (D-Mass.) and Pete V. Domenici (R-N.M.) come into the picture. The pair recently introduced a bill in the Senate that would offer $105 million over five years to provide training and technical assistance to micro-credit recipients.

The bill--titled the Program for Investment in Micro-Entrepreneurs--would provide federal funding for nonprofit, quasi-financial organizations that lend to the poor with money donated by corporations and charities. With this money, these organizations would be able to assist those receiving micro-credit in the development of planning, marketing and money management skills. Such skills, in turn, would help the micro-entrepreneurs turn their ideas into successful business ventures.

No federal bureaucracy would be created to administer the funds.

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Bryce-Laporte has high hopes for the bill’s passage, given the backing it has from Domenici--the influential chairman of the Senate Budget Committee. “The problem for the poor in this country is not only capital. What they need even more is training in business practices, financial management skills, credit management, proper savings habits and the incentives to succeed,” Bryce-Laporte said.

Yunus began his micro-loan system in 1976 with a total of $27 of his own money, lending it to a handful of poor Bangladeshi women to finance their home-based businesses. He was responding to a challenge by a friend, who argued that the poor could not be trusted to manage credit. But as the women’s incomes increased and they repaid their loans--in full and on time--Yunus arranged for more loans, which eventually led to creation of the Grameen Bank.

Compared with the $20 loans still typically provided by the Grameen Bank, micro-credit amounts in the United States generally range between $100 and $5,000.

Most of the borrowers in this country, as in developing countries, are women. And most of the U.S. borrowers invest in the service sector, in such businesses as home-based child care, desktop publishing, catering, cleaning, paging and message services, as well as clothes design.

One borrower, a massage therapist, spent her loan on a portable massage chair so that she could take her business to clients in their offices.