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Sep 02nd

Microlending offers hope to aspiring minority entrepreneurs who lack capital to put dreams to test

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Microlending offers hope to aspiring minority entrepreneurs who lack capital to put dreams to test

One guiding principle of the National Urban League's recently released Opportunity Compact is the opportunity to prosper. We contend that every individual in America who possesses entrepreneurial vision, ingenuity, drive and desire should have access to the resources needed to establish and grow a viable business enterprise.

One guiding principle of the National Urban League's recently released Opportunity Compact is the opportunity to prosper. We contend that every individual in America who possesses entrepreneurial vision, ingenuity, drive and desire should have access to the resources needed to establish and grow a viable business enterprise.

The importance of minority-owned businesses to urban economic development is well-documented. They're more likely to be located in urban communities, so they're more likely to hire local residents and use minority-owned suppliers, thereby lowering local unemployment rates and boosting business growth. Despite these benefits, minority entrepreneurs continue to face major obstacles to their start-up and growth, including lack of financial capital, among others.

A 2005 U.S. Small Business Administration's Office of Advocacy report found that minority business owners are less likely to get bank loans of any kind, and that African-American and Hispanic owners face loan denials at a higher rate than that of white males. In 2002, minority-owned businesses represented eighteen percent (4.1 million) of all firms, grossed eight percent of all annual gross receipts ($668 billion), and employed nine percent of all paid employees (4.7 million), according to the U.S. Census Bureau. In that same year, there were 1.2 million African American-owned firms in the United States, employing 754,000 Americans and generating $89 billion in revenue.

A little more than thirty years ago, economics professor Muhammad Yunus launched an experimental project to reduce poverty by lending very small sums of money to landless peasants in remote rural villages of Bangladesh to help them start their own businesses. Within a decade it grew into a formal bank known as Grameen Bank, which by 1996 had roughly 1,100 branches in Bangladesh and loans in excess of $2 billion, which were repaid at a rate of ninety percent, serving more than two million clients, according to a 1998 Federal Reserve Bank report. Wages rose, borrowers increased their savings and school enrollment went up. In 2006, Yunus received the Nobel Peace Prize for his efforts.

In 2004, the nation was home to nearly 23.5 million micro-enterprises -- firms with fewer than five employees -- employing nearly 30.2 million -- or 18.2 percent of total non-farm employment, according to the Association for Enterprise Opportunity. Of Black-owned businesses in 2002, roughly seventy percent could be considered micro-enterprises, according to the U.S. Census Bureau.

In the 1990s, several federal government programs in the United States emerged to advance micro-entrepreneurship. Since the beginning of the decade, they've been under constant threat of budget cutback or elimination. One of the most comprehensive is the U.S. SBA's Microloan Program, which provides a combination of technical assistance and loans for micro-entrepreneurs. Since 1992, roughly 22,000 loans -- totaling more than $254 million -- have been made.

In 2006 the nation's largest microlender, ACCION USA, disbursed $5.65 million in loans, serving 1,031 clients – sixty-one percent Hispanic, twenty-seven percent African-American and forty percent female, with a repayment rate of nearly ninety-six percent. Since 2000 the group has made nearly 5,000 loans, totaling $18.6 million.

Microlending in the United States hasn't seen the success that it has in developing countries, but it still shows some promise in improving the lot of struggling entrepreneurs. Because the risk associated with micro-loans is much lower than that of traditional bank loans, the sting of failure isn't as lasting or as devastating.

As the Federal Reserve Bank noted in 1998: "Even when microlending is not used strictly as a poverty alleviation strategy, it can play an important role in making opport
 

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