Appendix D: Notes from the Microfinance USA 2010 Conference www.microfinanceusa2010.org May 2010 Attendee: Linda Peng, Duke University Main Revelations (1) Student microfinance clubs in the U.S. are currently at very different starting points, have different mission statements, and are involved in a wide spectrum of activities. 1 The guide/wiki I work on this summer must take into account the fact that student microfinance clubs do not have homogenous mission statements. A good guide would incorporate the many different options for students to make an impact, the many challenges they might encounter pursing that impact, and the starting steps for introducing that specific programmatic component to their clubs. In short, this wiki/guide must serve as a good resource for both emerging clubs and clubs that want to “do more.” (2) Outside the sphere of microfinance clubs, there are an increasing number of undergraduate and graduate students engaged in free consulting services for nonprofits and small businesses (which are often social enterprises that feed revenue back into the non-profit). Therefore, in addition to surveying student groups that call themselves “microfinance clubs,” I must also survey students involved in community outreach projects in general – since the services they are providing to local clients (e.g. training workshops, offering technical assistance, writing up business plans, etc.) are very similar to what many emerging microfinance clubs hope to do. Therefore, in summary, I propose two surveys: One survey targeted at student MICROFINANCE CLUB LEADERS (presidents, treasurers). • The results of this survey will help us better understand how ACCION USA can form a partnership with established, “true” student microfinance organizations One survey targeted at ANY STUDENT who has been involved in nonprofit or business-oriented outreach work in their local communities • The results of the second survey will help us better understand how students can or have produced substantive volunteer work with residents in their local communities. We can stand to learn a lot from the processes and organizational formats of 1
For example: The most traditional idea of a club – a student-run organization that trains and lends to microentrepreneurs – is embodied in the Yale Elmseed Fund, and also happens to be the oldest student microfinance organization in the field. Meanwhile, the Intersect Fund at Rutgers utilizes student volunteers as part of its staff, but is run by two full-time founders. The group at Notre Dame is being managed by a full-time professor who runs a program that does not let students lend to microentrepreneurs, but nevertheless gets them heavily engaged with microentrepreneurs in South Bend, Indiana. The Capital Good Fund at Brown University has started a “citizen loans” program to help immigrants pay for the cost of citizenship tests and fees. The founders of the microfinance club at Claremont McKenna decided (in the aftermath of the conference) against using their $5k seed funding as loans, and to invest it instead in a good microentrepreneur training program organized by Claremont McKenna students.
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undergraduate consulting clubs and MBA clubs that do training work similar to what student microfinance organizations hope to achieve2. Microfinance is not just about loans. It is about incentivizing low-income families to save more; it is about providing micro-insurance, matching savings grants, raising awareness about it in the field, financial literacy, and providing training or technical services to entrepreneurs. This means that student microfinance clubs do not necessarily have to lend to be an effective microfinance club. There are lots of ways clubs can get involved. In the professional field, there is no standardized training regimen used by microfinance organizations to aid microentrepreneurs. I wonder if in my wiki/guide, I can at least try to hit upon descriptions of all the components that are necessary in a good client training program. There is no point for me to visit a campus unless there’s a program or other activity (e.g. training class, entrepreneur showcase, etc.) that I will only have the opportunity to observe on location. A number of people have already caught on to the idea of utilizing university students for community projects. www.moremarbles.com connects businesses and non-profits with business students, charges the businesses/non-profits a fee, and pays the students and/or professor. Revenues vary from $500 to $4000. www.americanopportunities.org, a new non-profit, is seeking to “leverage the skills and education of undergraduates and graduates at America’s best universities” by recruiting students as business consultants or associates in AO’s plan to serve emerging microentrepreneurs.
The Metreon terrace – outside a panel room
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Buena Yerba Gardens in SF
Upon reflection, I realize that various student microfinance clubs are already utilizing MBA students or very quickly crossing the line into consulting. The Duke Microfinance Leadership Initiative’s FLIP IT program hosts rapidfire consulting sessions with non-profits in the Triangle area, not just small business owners. Duke and The Intersect Fund at Rutgers both have MBA student volunteers amongst their staff.
Attendee Snapshots Met a finance major from the National University in Singapore who was doing a semester-long internship with an investment company near San Francisco. She is a rising junior and is working with some of her friends to launch a youth-to-youth microloan program. Her experiences growing up in Malaysia convinced her that there are a lot of children in Southeast Asia who would be able to benefit from microloans that would give them the opportunity to afford a primary or secondary education. Her current challenge is in finding a trusted partner organization that would be able to work with the children in the field and make sure that the loans are being used for their intended purposes. Also met a recent ’08 graduate from a UC school, who had worked to raise some money after graduation so that she that she could work with a microfinance organization in Tanzania for six months. She plans to attend the Peace Corps in the fall and work in French-speaking Senegal. Ran into the Executive Director of the Foundation for Women (focus: providing microcredit for women in developing countries) many times throughout the conference. She is a highly engaging speaker and is promoting a new coffee brand that would serve as a revenue generator for the Foundation for Women. MBA students from UC San Diego are working with her non-profit to work on the launch of this social enterprise. I followed up with her via e-mail and hopefully will be able to talk to the MBA students (or at least ask them to fill out my survey) in July. Talked to a fundraising officer from an opportunity fund for women in the Bay area. 11week classes are taught for $100; classes are held in both Spanish and English; approximately 80 classes are taught per year; classes are taught by professionals with experience owning a business. Talked to a Stanford student who had heard about the conference from a professor who was teaching a course on microfinance. Her entire class was there on Thursday! Met a UC Berkeley international student from China. We discussed the need for microcredit to poor people in China, and how difficult it was for microfinance organizations to get a head start in China because of the strict regulatory environment on any type of financial institution there. He was not an active member of his microfinance club at Berkeley, but he had volunteered with the Opportunity Fund since freshman year. He also mentioned how he had a lot of friends (presumably undergraduate) who were actively involved in offering consulting services to nonprofits. He also mentioned a program at Berkeley called Decal, where students can teach their own courses on any topic (think: House Courses at Duke). A microfinance course was taught this spring. I plan to follow up with this student via e-mail. Was introduced to the Wooster College students who had won the twitter competition from ACCION USA. Two were recent graduates and one was in my year. They had started their own microfinance organization called Global Youth Connection, a youthto-youth peer lending network. They won a business competition at Wooster with this idea and have ambitious plans to launch it forward as a student-led non-profit. Talked to two club founders from Claremont McKenna College. They had just started a microfinance club at their school this year, and were broadcasting the simulcast class on microfinance started by a UC Berkeley professor in the fall. They had received a $5k grant to launch their organization. Initially they were thinking of providing microloans to their local community, but after the panel decided that their efforts would be better served offering some type of consulting or financial training classes to small business owners. They are still in the phase of looking for a faculty mentor for the club and developing a game plan for launching the club successfully in the fall.
Ended up sitting next to the VP of Programs at the Opportunity Fund during dinner. Ran over the student-collaboration idea to him and he said that he had some reservations about how exactly a good partnership with students would work. We need to make sure that there is value added to the students, to the clients, and to the microfinance organization (which might initially incur a lot of costs vetting and training the students). Met the founder of a non-profit in Florida who is helping migrant field workers lift themselves out of poverty through business-starting microloans. He is originally from Brooklyn, and shared parts of his life story with me about working in the non-profit world. Joked about how he did the Fidel Castro method in life – that is, before commanding anyone to do anything, he made sure that he taught himself exactly how to do it first. Talked to two young women who volunteer for the Microfinance Council and work at the New York Federal Reserve. Both work in public policy and hold graduate degrees. Met the founder of a microfinance organization that exclusively served disabled persons in Washington State. Talked to a senior business strategy & operations manager at the Cisco Entrepreneur Institute. Her team is working on an open source customizable learning management system to help MFOs train microentrepeneurs. I have her e-mail and may follow up with her to figure out if this system (~$100 per head; discount if bought in bulk?) can be utilized by student groups that want to provide professional value to their clients.
Day 1 - Thursday, March 20th – Notes from Each Panel Opening Session: Conversation with Maria Shriver - Recent trend: people leaving corporate America to start their own small businesses to free up time to raise a child or care for an elder - Challenges that microentrepreneurs have faced: navigating local government permits and fees; language barriers - More people might now be aware of microfinance, but not many are aware that microfinance is prevalent in the United States - Right now, a lot of attention is being focused on “green” initiatives - Martin Eakes talked about Self Help’s beginnings and his inspirations. He demonstrated the importance of a good economy by telling a sad story about a woman whose baby died because she had just lost her job, didn’t have adequate savings, and decided not to take her child to the hospital when he fell ill. A Living History: Past, Present and Future - Marco Lucioni: “I see the credit crisis as a hurricane.” - What Peer-to-Peer lending (see Kiva’s model) does is replace the traditional need for collateral. - In the wake of the recent economic crisis, the community banks that didn’t go down knew their clients. They stayed in touch with them and knew how their businesses were going and knew when to step in to help their customers. - ACCION USA does not have the capacity to help everyone in all 50 states. Partnering with other organizations is the key to reaching out. – Gina Harman, ACCION USA Personal Note: To extend the analogy: microfinance organizations are not present in every neighborhood, but lots of neighborhoods have universities or colleges. A student microfinance organization, even without the resources to capably train microentrepreneurs, can at least spread awareness about the resources available for aspiring small business owners to people in their communities. - “Trust everybody, but monitor like crazy” – Julia Vindasius’ advice on how to ensure high loan repayment rates - Microfinance is not about the loan. The loan is only a hook. MFOs, more importantly, provide a human network for microentrepreneurs to plug into and to gain invaluable access to information they otherwise never would have had. So MFOs, in a way, are community organizers. - As a result of the early pioneers of microfinance, national policy is becoming increasingly favorable to microfinance in the U.S. - Eric Weaver: “Be jealous of the brand.” There was a lot of skepticism about KIVA when it was first launched, and controversy when it decided to open up its operations to clients in the U.S. (people thought microfinance was only for developing countries). KIVA proved to be successful, but Eric Weaver warned that MFOs should take a close look against newcomer payday lender type institutions that claim to be MFIs. - Confianza (led by Marco Lucioni) is a for-profit MFI! Microentrepreneurship Bus Tour in San Francisco - Diju Jewlry – Diana Medina Diana Medina designs and sells her own jewelry. Her workshop is in the back of the store.
She received a $2000 microloan from Women’s Initiative. The loan helped her improve her credit and better position her to apply for new loans. Women’s Imitative also provided a lease grant that covered the first two months of rental of her new store space.
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The Curiosity Shoppe – Lauren Smith and Derek Fagerstrom Lauren Smith and Derek Fagerstrom used to run the Curiosity Shoppe online (which sells and vintage and quirky items) before they decided they wanted to open up a physical store. After 8 years working in the design and publishing industry in NYC, the couple moved to the Bay area. The street they settled on was profiled for its charm by the New York Times. Smith and Fagerstrom faced many rejections from conventional local and national banks because they didn’t have three years of financials for the business they wanted to open. They finally found Working Solutions, which gave them the loan and is continuing to offer them account management/financial advising. They enjoy being part of the Working Solutions’ client community network.
Growing Microlending in a Challenging Economy - ACCION New Mexico expanded to two other states because they needed to achieve scale to solve their inefficiency problems. Because they weren’t finding enough clients in New Mexico, the cost of servicing a $500 loan for a rural client was far greater than what the actual loan amounted to, sometimes. They expanded to reach a larger market. - Other approaches to ride out the economy: finding home-based team members who could help lend to clients that were geographically out of reach from the office; using
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donated office space provided by partner organizations; created an endowment for investments; issued more loans per team member JustinePetersen (based in St. Louis), founded in 1997, decided that their goal was to graduate clients to mainstream financing. Their sole mission was to elevate the credit scores of their clients through loans, and offered an interesting plan (which involved taking out 3 lines of credit) to accomplish this goal. They’ve had clients jump from a 0 to a 620 credit score after one year. JPetersen is a member of the Credit Builders’ Alliance.
Rise of P2P Lending - You can earn 2-6% interest from loans you invest at microplace.com! AND you can take your money out whenever you want to. No other investment gives you so much freedom. Microplace is heavily regulated in the U.S. and you can ONLY invest in it if you are in the U.S. -
The Lending Club, similarly, has a 9.64% return on investment.
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According to the CFO of Microplace, even advisors who specialize in socially responsible investments don’t completely understand how the regulations work for microfinance.
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KIVA does not offer returns to lenders for a reason. (It wants to maintain its non-profit status.)
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A Global Youth Connection founder asked about competition in the marketplace from other peer-to-peer lending websites. KIVA, Microplace, and Lending Club all said “bring it on,” since there is a huge untapped market of investors for their programs.
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The CFO of Microplace believes that impact measurement is virtually impossible and a huge waste of time. What CAN be evaluated is whether the MFI is doing enough outreach to its toughest commitments; whether it is generating a profit; whether it is offering education/savings/other services that are beneficial to its clients.
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Lending Club measures impact by checking the credit history of its clients throughout the lifetime of the loan and by relying on anecdotal client stories about how the loans have impacted their lives.
Day 2 – Friday, May 21st – Notes from Each Panel Opening Remarks: Gavin Newsom, Mayor of San Francisco -
“Politicians must not just be against [ ], but provide for a positive alternative.” Bank on San Francisco’s stretch goal of 10,000 families was reached within one year, with over 20,000 families signed on to the program.
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San Francisco is developing a policy that will give every child that enters into a San Franciscan public school an education savings fund for college. Research has shown that children who have education accounts opened for them are more likely to go to college.
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One speaker pointed out biases against the poor: “Why is it that financial incentives for the upper income population are called policy whereas financial incentives for the lower income population are called subsidies?”
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Microfinance is not the only solution to poverty, but it is one solution
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The Schedule C on the IRS is one of the most important financial documents because it qualifies self-employed individuals for federal earned income tax credit.
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There are currently 4.4 million self-employed households in the United States.
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78 million people in the U.S. do not have 401K savings accounts.
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For low-income populations, actively saving is an inherently entrepreneurial endeavor because it is risky for them to allocate savings to a restricted account.
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Savings may be more important than credit.
Student-led Microfinance Clubs Melissa Paulsen – professor of social entrepreneurship at Notre Dame Designed a two-semester long class that connects students with entrepreneurs in the community. The first class is a very theoretical introduction to microfinance; the second class gets the students out in the field. Partnered with the Student International Business Council at Notre Dame Has served over 40 microentrepreneurs over the past few years Hosts workshops for the community Prepackages loans for ACCION USA?? Encourages students to engage in “zip code marketing” – or wander around in the community Melissa: It does not cost much for students to provide technical assistance to microentrepreneurs. Students have the ability to tap into market research, databases, and – under the label of “student researcher” – obtain information that professors may not be in a position to get. To track meetings with clients, students fill out a:
Pre-questionnaire
Midterm
Post-evaluation
Students sign a confidentiality agreement before they start providing technical assistance to small business owners At the end of the class, students may apply for an award to grant their partner money for their business. For example, students may petition to give their client a sign for their shop, which typically costs $2k - $3k – money which the small business owner might not have. Challenges
Has started to realize that many of the microentrepreneurs need access to legal expertise, which her undergrads cannot provide. Is working on getting law students at Notre Dame to sign up as volunteers.
Paloma Pineda – officer at Elmseed Enterprise, Yale ‘12 501©3 organization, completely student run
9.5% default in the past 9 years – 21 total loans Students at Yale apply to be Elmseed staff. The process is competitive: Typically only 20% of applicants are accepted. New staff go through a training course taught by older members. 3 components of Elmseed’s program:
Consulting - 2 student consultants work with every client
Business training for clients – student-taught course takes 6 weeks
Lending
Elmseed receives funding from corporate sponsors, wealthy individuals, and foundations Clients are discovered through small business development organizations that either do not offer loans, or offer loans at minimum levels that exceed the need of the entrepreneur. New clients are also discovered through word-of-mouth recommendations from previous clients. Elmseed also hosts an annual SEED Conference that showcases their clients; this event is advertised heavily. Challenges
The age difference. Because it is often hard for experienced entrepreneurs to take suggestions from students who start off with almost no knowledge about their clients’ industries, students must be sure to maintain their professionalism and explain each of the assumptions that form the basis of their recommendations.
Institutional memory is another challenge. With students constantly graduating, it’s tough to manage records and partnerships that only last at best for two years.
Time. Paloma cited the Intersect Fund as its biggest critic because whereas Elmseed is completely student-run, the Intersect Fund with its two full-time staff members has been able to take it to the next level.
Rohan Mathew – co-founder of The Intersect Fund in New Jersey, Rutgers ‘09 501c3 with 2.5 full-time staff
Member of the Credit Builders Alliance Loan applicants typically hear back about their status within 7 days The Intersect Fund typically gets 2-3 calls per day from people looking for loans 1/8 students who apply to volunteer end up on staff Corporate donations are easiest to get The Intersect Fund was launched with seed funding of $5k 40% of clients come from word-of-mouth recommendations from previous clients; 30% come from community organization recommendations such as churches; the Intersect Fund also markets itself by sending postcards to new small businesses within 20 miles of Rutgers Rohan: The default rate has been 0%. However, the loans are very risky. The underwriting process consists of three questions: 1) Does the client need the loan? 2) Can the client afford the loan? 3) Can the client realistically be able to repay the loan? Challenges
How do you assess the credit worthiness of your clients?
Legal issues with lending
Alex Dang – Director of Global Brigades, founder of Global Microfinance Brigades, UCLA ‘08 Global Brigades is comprised of student chapters at hundreds of universities that raise their own money to send students to do service-related work in Panama or Honduras for 7-10 days during the summer A quick search on their website revealed http://globalbrigades.wikidot.com, a wiki guide/resource for global brigade clubs. The site includes samples of constitutions, excel sheets of sample fundraising organizers, etc.
One consideration: Would ACCION USA want to partner with groups that are already established, or its own “brigade” of new student groups? Global Brigades has a comprehensive step-by-step guide of what students should do to start up their own club on campus, fundraise, buy tickets, etc. Can ACCION USA afford to convince students to start up ACCION USA chapters, or should it simply introduce a program to
partner with already established student clubs (Personally, I’m tempted to lean towards the latter.) Global Brigades International has its own chapters: Global Law Brigades, Global Business Brigades, Global Medical Brigades (which has a chapter at Duke!), Global Microfinance Brigades, etc. Alex: not too many students know about domestic MF. There could be a lot of awareness raising in this arena.
Miscellaneous Observations/Ideas/Notes San Francisco is a beautiful city. It is also, as another attendee opined, a prime location for demonstrating the value of domestic microfinance because it is is a city of small businesses. According to an attendee whose conversation I overheard, microfinance organizations like the Opportunity Fund have partnered with banks to take off some of their added burden when legislation like the Community Reinvestment Act of 1977 (which required that depository institutions not discriminate against low and moderate-income households with their loans) was enacted. Essentially, microfinance has had its place in the U.S. for a while. Why Schwab Charitable partnered with Grameen Foundation: they needed a really strong credit worthiness assessment program from their partner organization. Microfinance has the best track record in dealing with guarantees to reduce the cost of capital. Schwab Charitable runs a donor-advised fund. “The simpler the message, the clearer it is.” – Kimberly Wright-Violich, President, Schwab Charitable (on how to draw clients into microfinance or the importance of savings) Confianza has been challenged with not only how to make training resources available, but also how to make sure that the clients who need the resources are convinced to pursue those free resources. “Going to a partner that’s not aligned with your mission is a recipe for disaster” – quote from Leveraging Partnerships to Reach Millions panel.