Microfinance – small loans usually given out in hundreds instead of thousands – has helped alleviate millions out of dire poverty across the world.
Microloans, a relatively new banking concept, have been so successful that Grameen Bank in Bangladesh, a leading microfinance institution, won a Nobel Prize in 2006.
In the third world, microfinance is largely successful because of the impact a few hundred dollars can have on an impoverished economy.
A poor woman in India can start a jewelry business at little startup cost and engage in trade with her neighbors.
A struggling mechanic can purchase a tire tool that will increase his business tenfold.
However, in the United States, small-scale enterprise is difficult because of regulations, safety codes and the high cost of capital – the materials required to manufacture a good.
When a group of enthusiastic economics, finance and management majors at SMU decided to start a microfinance organization for the Dallas area, but there were concerns.
“We didn’t know how to answer the viability issues in the United States,” founding membe Trigg Burrage said. “This is really one of the first microfinance institutions in the country.”
Microfinance institutions rely on high returns from their clients in order to be self-sustaining.
Clients need to pay back the original cost of loans and accrued interest in a short period of time.
The SMU microfinance club, a group founded through SMU Big Ideas, has had great initial results.
Working in City Square, the club has been able to gain a respectable reputation in an often overlooked area.
“People complain that the government and the banks do not care about them. This is why the Occupy Wall Street movement occurred,” Amrita Vir, the club’s co-founder, said. “We show them that we care about their success.”
Support from the club and the natural ability of borrowers has made for a successful combination.
“Our clients have been really resourceful. One very resourceful one buys a large can of oil for $10 to $15 and then puts the oil in many smaller bottles and returns great profits,” Vir said.
The club has discovered that resourcefulness and business smarts are universal human qualities.
But Vir believes that the initial success of SMU microfinance is because of the club’s commitment to personal interaction.
“We’re not a faceless, scary bank that is out to take people’s money,” Vir said. “We really care about helping our clients succeed in their business endeavors.”
At weekly meetings, microfinance club members discuss upcoming loan cycles, business opportunities and innovative marketing schemes that can help their clients.
“We need to take advantage of the entrepreneurial spirit of our clients,” general member Daisuke Takeda said.
Recently, the club has looked at online marketing as a viable, low-cost tool to help their clients gain business.
“It is all about an emphasis on personal relationships. It’s a synthesis of students and resources to directly get involved with people,” Burrage said.
In the long run, the group is hopeful that it will become sustainable.
“We want to hand this group over to current underclassmen when we all graduate,” Burrage said. “It’s all about honing and streamlining our process and continuing to strengthen our relationships with the DFW community.”
