I have some exciting news regarding the micro-credit initiative I’ve been working on. For starters, I just found out that our team was awarded a $2,000 grant by the Clinton Global Initiative! Student teams from around the country applied for grants for student-led initiatives, and only several dozen projects were chosen out of a large pool of applicants. Needless to say, we are very excited to have been chosen, and the $2,000 will be added to the $5,000 that we’ve already received from Brown for a pilot phase.
The Business Model Is Coming Together
Amazingly, that might not even be the most interesting news regarding the project. During the last few weeks we have continued developing relationships with community partners, and we are now on the verge of conducting roughly 6 focus groups with potential borrowers to better understand their needs; their business ideas; barriers to implementation; what they are currently doing for loans (loan sharking?); etc. Our business model is also beginning to take shape. The project team, which now consists of four students and a faculty advisor, will be developing the business model during the Social Entrepreneurship class that we’re taking this semester. We spent much of the summer wrestling with the question of whether or not the group lending model employed by Grameen Bank in Bangladesh can work in the United States; in my last post, I wrote about a possible solution to the limited success of micro-finance in the U.S. Since then, we have had some realizations and come across other models that have enabled us to start figuring out the nuts and bolts of how this micro-credit program will work.
The Earned Income Tax Credit Model
First of all, we heard about a program being run by the Silverton Foundation in Austin, Texas, where the Foundation provides loans to people in order to cover the up-front cost of becoming a citizen ($650 application fee + legal expenses). They give these loans to people who, by becoming citizens, are then eligible for the earned income tax credit (EITC), which is worth $6,000 over three years. The best part is that there is absolutely no risk of default because as soon as the EITC money is deposited in the borrowers bank account, the loan amount plus interest is automatically taken out and given back to the Foundation. In the first year alone, the Foundation reached 17,000 people in Austin, returning several million dollars to the community.
Clearly, this is one of those models that is an absolute no brainer: no-risk, and it meets a critical need. Aside from the fact that borrowers will net $5,000 by participating, they will also be able to reap the benefits of being U.S. citizens. We’ve decided to do several EITC-style loans as part of our pilot phase. Our thinking here is that these loans will help get our project some publicity; will begin establish a base of borrowers with whom we have a relationship and who, in the future, can come to us for business loans; and will enable us to go to funders and investors and point to our ability to achieve real, measurable results in the community.
The Business Loan Model
However, the long-term vision of our initiative is to become a borrower-owned, community development bank that offers loan products tailored to low-income, underbanked and under served individuals. Doing that will require that we do traditional micro-credit loans for entrepreneurs. Fortunately, we have developed a relationship with an office of the Rhode Island Economic Development Center (RIEDC) located at Johnson & Wales University in Providence, RI. The RIEDC offers free business training classes to would-be entrepreneurs, and our idea is to identify between 5 and 10 graduates of the training program–called Primer Paso, or First Step–who have a solid business idea and who would make ideal candidates for our pilot-phase of business loans. Instead of doing the group lending model, our idea is to have our community partners vet the business idea and the entrepreneur, and to essential vouch for their ability to pay-back the loan. While we aren’t sure that this model will work in the long-term (that is, at some point we will probably implement group lending as we grow), for our pilot-phase we are quite confident that we will be successful. The goal is to be able to go to funders with 5 or 10 success stories that inspire them to invest in our vision.
Mission, Vision, Strategy and Name
Finally, we are at the point where we are considering names, vision and mission statements, and strategies. Here is my first stab at all of those:
Capital Good Bank
“Your money. Capital Good.”
To create a world free of poverty, urban blight and environmental degradation by revolutionizing how banks do business, and with whom.
Capital Good Bank’s mission is to provide affordable loans to low-income American entrepreneurs and others lacking access to capital; to invest in projects with social and/or environmental aims; and to create a sound option for socially minded investors looking for a secure investment in the social good.
Capital Good Bank will begin by providing loans to cover the cost of citizenship for individuals who will then be able to qualify for the Earned Income Tax Credit (EITC). In addition, we will disperse loans to low-income entrepreneurs who have graduated from a business training program given by one of our community partners.
Any feedback on the business model, name, mission, strategy, etc., would be greatly appreciated! Also, please go to my Wiki page to write an article or to edit an existing article about this project!