Third World Banking Headed To Queen City
The Charlotte City Council is diving headfirst into the microcredit lending pool, unanimously voting this week to shell out up to $230,000 in taxpayer money to help establish a Grameen America Bank in the Queen City.
Mecklenburg County officials are also being tapped to contribute a matching $230,000, but have not yet voted on the request. The city/county seed money will be used to help fill a multi-million-dollar Grameen America Bank loan pool that can be used by qualified low-income, small business entrepreneurs.
Grameen America is a spin-off of sorts from the Bangladesh-based Grameen Bank that was founded by Muhammed Yunus, who in 2006 won a Nobel Peace Prize for his work in helping to extend credit to businesses in some of the most impoverished areas of India. The so-called microcredit banks provide small loans to low-income borrowers to help them start small businesses.
While drawing rave initial reviews, the India microcredit market has recently come under criticism, with concerns that massive defaults on tens of thousands of the small loans could trigger widespread financial tumult.
There wasn’t any sign of such worries at Monday night’s city council meeting, where councilmembers greeted the Grameen news with largely enthusiastic reviews. Councilmember James Mitchell, a Democrat, called the Grameen venture a good catalyst for jumpstarting small businesses and creating local jobs.
In the Charlotte model, the Grameen microloans would likely hit a maximum of $1,500, targeted toward people who make between $12,000 and $20,000 a year and need assistance in starting a small company, said Dennis Marstall with the city’s neighborhood and businesses service division.
“To address some of your policy focus,” he told councilmembers, “it’s how can we create economic activity, promote entrepreneurship, and kind of spur some capital that doesn’t seem to be flowing to the market right now.”
The Grameen loans, he said, would have to be repaid in six- or 12-month increments, with a weekly payback from the borrower. A borrower would also have to recruit a local five-member support team to help develop a plan to repay the loan and grow the business, and as a requirement of the loan would have to set aside at least $2 per week in savings.
The intent, Marstall said, would be for extending the microcredit loans through Charlotte’s economic development business corridors where there are pockets of poverty. To that end, as a condition of the city’s grant, Grameen would open a local office within one of the targeted business corridors, with Beatties Ford Road referenced as a possibility.
Councilmember Michael Barnes, a Democrat, called the Grameen initiative “a novel idea.”
Money for the $230,0000 grant to Grameen is being taken from the city’s economic development business corridor fund, bypassing an option that would have provided a chance to see the money returned to city coffers.
The city could have used money from its economic development revolving fund to loan, instead of give, the money to Grameen, said Deputy City Manager Ron Kimble. But because those funds are tied to federal community development block grants, he said, the money would have needed to be tracked throughout the process.
“We would have to track those funds as to their principle and interest, commingled with other funds that Grameen Bank would be raising and offering for loans,” Kimble said. “And then those funds would have to ultimately be paid back, both principle and interest, at a later time to the revolving loan fund.”
In other words, it would have been a lot more work; so, let’s just give the money to Grameen as a grant. Delivery of $230,000 worth of largess, however, is contingent on Grameen America first securing at least $2.3 million for the bank’s loan pool from outside sources.
A local fundraising committee, fronted by Wells Fargo executive Joe Mynatt, former city councilmember John Lassiter and local entrepreneur Sara Garces Roselli, is leading that effort. Earlier this year, Wells Fargo committed $1 million to Grameen in the form of a low-interest loan to its San Francisco-based branch, and half of those funds will be used toward the Charlotte branch’s efforts. Talks are also in the works to garner either direct financial or in-kind support from the Foundation For The Carolinas, UNC Charlotte, and the Latin American and Asian chambers of commerce.
Charlotte would be the fifth U.S. city to house a Grameen America Bank, joining New York, which has four branch offices, Washington, D.C., San Francisco, and Omaha, Nebraska. In those locations, city officials said, Grameen has seen a 99 percent repayment rate from borrowers.
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