Funders Love Grameen America, But Questions Persist About Its Approach

If someone told you ten years ago that a Bangladeshi bank would be coming to the U.S. to specialize in giving loans to women below the poverty line, would you have believed them? Probably not. But that's what is happening as Grameen America, the U.S. version of Nobel Prize winner Muhammad Yunus's Grameen Bank, expands its operatons. Most notably, it's rolling out 13 new branches in LA County.

Grameen America opened its doors in 2008 in New York City in the midst of the greatest financial crisis of our time. Since then, Grameen has made $140 million in small loans to more than 23,000 women in the U.S.

As your might expect, Grameen America has attracted support from a bevy of funders. The Sherwood Foundation, operated by Susan Buffett, has given at least $2 million to finance its operations. The Dalio Foundation, bankrolled by hedge manager Ray Dalio, has also been a big supporter. Other major backers of Grameen America have included the Nike Foundation, the Smith Reynolds Foundation, Harry and Jeannette Weinberg Foundation, and the Citi Founddation.

Grameen America's expansion in Los Angeles has been supported by the California Community Foundation (CCF). The Ralph M. Parsons Foundation has also supported the LA push, although at a lower level. Grameen America's bigger source of financing comes from loans from banks like Wells Fargo and Capital One, which see the longer-term prospect of new customers as borrowers develop credit and are able to qualify for better financial products.

Grameen and CCF aim build capacity to invest more than $650 million to help 91,000 businesses. This early money will help borrowers to generate income and establish a credit history. The goal of this new initiative is to provide more than 10 percent of all women living in poverty in LA County with the chance to build a small business.

For CCF, this initiative fits right in with its aim to improve the lives of LA's most vulnerable folks. CCF stewards nearly $1.4 billion in total assets and manages more than 1,600 charitable foundations, funds and legacies. CCF has been supporting Grameen with grants since 2012, and they gave $2 million to Grameen to open their first branch in Boyle Heights in May 2013.

The initial loan for borrowers from Grameen is for $1,500, and the average interest rate on a Grameen loan in the U.S. is 15 percent APR. Of course, in the business world, $1,500 doesn't get you very far, but you can return to Grameen for another, larger loan once the initial loan is paid off. Grameen also offers free access to savings accounts through local banks and helps borrowers build credit by reporting their loan payments to Experian.

Support among funders for Grameen America is encouraging in light of philanthropy's need of better strategies for attacking poverty. Too many funders either put their money into addressing the symptoms of poverty through giving for direct services (see our recent piece on this) or place too much faith in investments in education as a pathway out of poverty. Building small businesses and assets, especially for women, has long been a promising strategy with support from key funders, but it still doesn't have nearly the traction of other approaches.

That said, controversy persists about microfinance efforts. In recent years, economists have questioned whether the ability of this approach to alleviate poverty has been overstated. Some economists point out that the model often puts increased pressure on women and creates a debt trap that can lead to them losing what little collateral they have.

In addition, this feminist critique by Susan Feiner and Drucilla Barker points out how microcredit as the solution to poverty buys into the belief that poverty is the sole responsibility of the impoverished person. "Microcredit fits nicely with the prevailing ideology that defines poverty as an individual problem and that shifts responsibility for addressing it away from government policy-makers and multilateral bank managers onto the backs of poor women," say the authors.

It will be interesting to watch how the microfinance movement impacts women in the U.S. as it grows. One thing is for sure—Grameen America has become a major player in this movement, expanding the overall global reach of the Grameen model with the support of both national and local U.S. foundations. And Los Angeles has become an important city to watch for anyone interested in the effectiveness of microfinance.