What does Microfinance “look like” in the US?

By: Kimia Raafat

I had my doubts about microfinance in San Francisco. Having 7 months of work experience at microfinance institutes in Ecuador and Paraguay, the images I associated with South American field visits (see two photos below) included cane homes, wooden kiosks, rural shops and unpaved roads—slightly different from the “techy”, modern Silicon Valley/San Francisco state of mind.

The cliche microfinance story goes as such: a single mother in a developing country was given credit to purchase a cow or chicken; she then sold off the animal’s produce and used the revenue to eventually pick herself up from her own bootstraps.

San Francisco may be a concrete jungle, but I doubted this traditional cow/chicken scenario would ever present itself during my Bay Area visits… so I wondered, what did microfinance “look like” in the US?

Preparing for my first borrower visit in the US, I retired my list of Spanish microfinance terms, exited Kiva Headquarters and walked 7 blocks to Georgia’s event space, the whole time I kept thinking of my parallel experiences in South America. In my head I compared the cemented sidewalks of San Francisco to the unpaved roads of Guayaquil (Ecuador), the social-media savvy beautician to the homelier “Chipas” vendor in Asuncion, and the subway ride on BART to my motorcycle journeys.

I stepped into Georgia’s business and she immediately invited me into her life. Over the years, Georgia has paid other business owners considerable monthly fees to rent chairs in their plush beauty salons. Last year she grew tired of sharing her earnings with salons that did not share her vision. She declared, “I want do something innovative, fun and my own…it is my turn.”

One day, rather than just passing by the shabby hair salon, Georgia marched in and asked to buy the space. From this bold move, “Pretty Pretty Collective” was born. Upon purchasing the salon space last year, a friend referred Georgia to the small business section in City Hall where she found Women’s Initiative for Self Employment and Opportunity Fund, two nonprofits that offer training, support, and micro-loans to San Francisco’s small business owners. Georgia recently received a $10,000 loan from Opportunity Fund.

In addition to serving her own client base, Georgia will proudly rent out the space to five other stylists who share her passion and her vision. To help keep overhead costs low and to maximize the real estate, she will transform the space at night into a setting for art shows and fundraisers featuring local artists and popular neighborhood vendors. She hopes to host a fundraiser for her son’s school, which, like other schools across California, faces serious budget cuts.

Georgia and her business will be creating and sustaining approximately 6 jobs. Opportunity Fund loans are filling an unmet need in the U.S. financial system. Banks in the United States do not typically make business loans smaller than $50,000 – an amount that, for many small business owners, can be more of a burden than a blessing. Entrepreneurs such as Georgia who seek credit in smaller amounts, may be forced to turn to high-interest credit cards to access the capital they need. In contrast to traditional bank loans, the majority of Opportunity Fund’s loans are between $500 and $10,000. While these loans are much larger than microfinance loans abroad, they are still quite small for a business trying to survive in the high-cost Bay Area.

One of the most valuable assets available to microloan borrowers in the US is the opportunity to meet with a business advisor to discuss if a loan is a good solution to meet their business needs. Clients receive individually tailored, detailed advice on how to improve their business and how to manage taking on a loan. Georgia first met with someone from WISE in order to help her create an impressive business plan, and then received further business advising from Opportunity Fund once she applied for a loan.

So while, microfinance in San Francisco may look different than in South America, the microcredit “ripple” effect holds true; access to capital and business advising could make a difference in the lives of working people anywhere.

After 7 months as a Kiva Fellow in South America, Kimia Raafat is currently a Kiva Fellow at Opportunity Fund, a microfinance institution that provides financial services to small business owners in the Bay Area. Learn more about their work at http://www.opportunityfund.org/ or join the Friends of Opportunity Fund Lending Team to get more frequent updates from Opportunity Fund staff: http://www.kiva.org/team/friends_of_opportunity_fund