U.S Microfinance at the crossroads: Scale and sustainability
Presenting a comparative analysis of microfinance in the United States and developing countries
This report examines trends in access to finance in the United States (U.S.) drawing on lessons from international microfinance while recognizing that the U.S. sector operates in a very different context.
The paper states that the recent economic crisis has impacted U.S. poverty and unemployment, presenting opportunities for non-profit institutions that serve micro-businesses. But, in fact, much of this has been filled by private sector institutions that charge high interest. The mission-driven, non-profit sector that largely comprises Community Development Financial Institution (CDFI) loan funds is unable to fill the gap in providing financial services to underserved entrepreneurs. Low-income credit union (LICU) and the community development credit union (CDCU) business models have are based on self-sufficiency and sustainability, but their small net margins do not allow for rapid growth through earnings. Emerging for-profit financial institutions seem to offer approaches to scale. Emerging technology coupled with an intense focus on specific target markets seems to offer the greatest opportunities for for-profits.