Working Through the Concept of Micro-Finance

This week, a group of bankers and MBA students assemble to talk about micro-financing. The group tries to imagine what life would be like without insurance, credit cards and bank accounts, a common situation in developing countries. Rachael Myrow of member station KPCC reports.

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Plenty of bankers focus on financing middle class mortgages and managing assets for wealthy clients. Few seek out the poor and attempt to help them pull out of poverty.

This week, the University of Southern California assembled hundreds of bankers and bright-eyed MBA students to talk about what's called microfinancing.

From member station KPCC, here in Los Angeles, Rachel Myrow reports.

RACHEL MYROW reporting:

The classic example of a microfinancing project in the developing world is the cell phone lady. Lend her enough money to buy a cell phone and she can sell the minutes to individual callers. Pretty soon, she'll be buying a house and sending her kids to college.

Muhammad Yunus knows all about it. He's managing director of the Grameen(ph) Bank in Bangladesh, which lends to about 200,000 cell phone ladies. Recently, Yunus found himself addressing the children of those micro entrepreneurs.

Mr. MUHAMMAD YUNUS (Managing Director, Grameen Bank, Bangladesh): Every morning when you get up, you repeat that: I shall never ask for a job from anybody. I will create jobs. So some students asked me, How do we do that, we don't know. I said, If you don't know how to do that, ask your mother.

MYROW: These days microfinance has expanded to include everything from insurance to student loans and home loans.

Christina Barrineau, of the United Nations Capital Development Fund Savings, asked the well-heeled audience to imagine life without access to financial services.

Ms. CHRISTINA BARRINEAU (Chief Technical Advisor, United Nations Capital Development Fund Savings): What would your life be like if you didn't have a credit card, if you didn't have a bank account, if you had to walk for miles and miles to deposit a few dollars into a savings account and never know whether or not those savings were safe at the end of the day or whether they might be taken by the government or taken by somebody else.

MYROW: It's not just a problem in developing countries. Hurricane Katrina, to name just one example, exposed a large domestic population without bank accounts, credit cards or insurance.

John Bryant heads Operation Hope in South Los Angeles. The non-profit created a bank operating under the motto No Loans Denied.

Mr. JOHN BRYANT (Founder and Chairman, Operation Hope): So we invite you in. We pull your credit report. We all have a nice laugh. And we then back into a loan approval through alternative documentation, copies of your utility bills, copies of rent statements, copies of phone bills...

MYROW: Bryant says in 14 years of facilitating home mortgages, not one borrower has defaulted.

Operation Hope eventually sold the institution to three commercial banks. John Bryant says the next big microfinancing opportunity in the U.S. will likely be remittances from immigrants back to the home country.

Mr. BRYANT: The growing Latino market in the U.S. is going to force the banking industry to innovate. And I believe it will look in some ways like microfinances. The model is not completely, as you know, transferable, but I think it'll address their needs. No different than, again, the Democratization of credit. They're in business to make money. It's too big a market to ignore.

MYROW: The Democratization of credit, he notes, has a long history in the U.S. Back in 1904, when immigrants and small borrowers weren't considered worth the attention of traditional banks, a small start-up called The Bank of Italy began serving that market. After the San Francisco earthquake of 1906, the market for small business loans took off as merchants struggled to rebuild following the disaster.

Many mergers later, the bank of Italy's corporate descendent is known as The Bank of America.

For NPR News, I'm Rachel Myrow in Los Angeles.

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