cc >> Jeanan Yasiri: This is
Entrepreneurship in Society. It is a course that is offered
through the University of Wisconsin School of Human
Ecology. I'm Jeanan Yasiri.
As we begin today, I'd like to extend thanks to our partners in
supporting this course, the UW Office of Corporate Relations,
the UW College of Engineering for their technical support
and financial support from the Ewing Marion Kauffman Foundation
which is committed to advancing academic education in
entrepreneurship. Additionally, we'd like to thank
our media partners, Wisconsin Public Television and their
University Place crew for taping today's lecture.
I'm quite pleased to introduce our special guests today,
Seema Gohill and Katherine Rosenberg
with Grameen America based out of New York.
Grameen America was founded by economics professor Muhammad
Yunus, who was awarded the Nobel Peace Prize in 2006 for his
ground-breaking work on developing a microfinance
movement that provides affordable microloans to
financially empower low-income entrepreneurs worldwide.
The organization's vision is to help create a world free of
poverty. They envision a market where any
individual with a dream can achieve affordable financial
products regardless of income, regardless of their previous
credit history, education or business experience.
And they foresee a world where burgeoning entrepreneurs are
empowered to lift themselves out of poverty through hard work and
determination to forge better lives for themselves and their
families. Katherine Rosenberg, with
Grameen America, is director of evaluation and education.
Early in her career, Katherine served as a Peace Corps
volunteer in Senegal where she designed and implemented
numerous health education and community development
initiatives, including establishing a village-operated
cooperative pharmacy. Katherine holds degrees
from Union College in American Studies, and has
a master's in public health from Columbia University.
Seema Gohill is Grameen America's director of finance
and development. And her professional background
has been in corporate finance. Prior to joining Grameen, Seema
worked in the investment banking division of Morgan Stanley.
She holds a bachelor's in finance from the University of
Miami. As we explore social
entrepreneurship and the innovative ways to empower
communities across the world to be entrepreneurial despite their
current income and wealth status, understanding
microfinance and microlending is a very important component to
that equation. So please join me in welcoming
our Grameen guests starting with Seema Gohill.
[APPLAUSE]
Seema Gohill: Thank you for that great introduction,
and thank you to the university for hosting us here today.
Katherine and I both are very excited to talk to you today
about microfinance. We'll talk a little bit about
the history of Grameen Bank, and Grameen America specifically,
and how a simple concept has the power to change so many lives.
And it's not just by financially empowering people in the
developing world but it's by financially empowering people
right here in the US as well. We all think of poverty,
we all think of health issues, we all think of diseases.
All of these sound like huge economic problems that seem so
daunting to actually change, and it seems like such a big
challenge to change all these things.
But little concepts actually do have the power to change lives
globally. And hopefully by the end of this
presentation we'll prove to you that this can be done.
I think most of you may know Professor Muhammad Yunus.
He's actually been dubbed the father of microcredit.
He started the concept of microfinance with a very, very
simple concept. In 1976 he was a professor at
the University in Bangladesh, and he went out in the villages
one day and what he found is that there were 42 people,
42 borrowers who owed $27 to payday lenders.
They were stuck in this virtual cycle of poverty because the
payday lenders were charging them exorbitant interest rates
and thus they could never break out of that cycle.
What he did was just take out $27 from his own pocket, give it
to them and said there you go, you're now free from them.
You can now build your businesses.
These were all people that lived in the villages.
Nobody ever found them credit worthy.
No bank would lend to them. And he basically never expected
a return from them. What he found was that
all 42 borrowers paid the full $27 back.
As an economic professor he was shocked.
He actually went out and redid this, and what he found again
was people repaid him. So this was the beginning of the
global microfinance movement. Professor Yunus was awarded the
Nobel Peace Prize in 2006 based on this concept.
What's remarkable is that that $27 has now grown to a bank
that has now lent out $8 billion and serves eight million
borrowers in Bangladesh. These borrowers, eight million
people, meet on a weekly basis. All of them attend weekly
meetings where they make interest payment, they pay down
their principle and they also get financial education.
Every week, this bank lends out $100 million and gets
$90 million back in repayments. All of these loans are as small
as $250. This is remarkable when you
think of the actual scale of the program.
What we've done now is actually replicate this program in the
US. So as you can see, there are a
number of replication projects that Grameen has worldwide.
Specifically, there's eight projects that are staffed by
Grameen senior managers that work in different countries
around the world to implement the microfinance project.
Grameen America is actually one of them.
In 2006, when Professor Yunus won the Nobel Peace Prize,
people said it's great, it works in the developing world,
it will never work in the US. And his response to that was
why not? There are poor people
everywhere. Everybody deserves a chance,
everybody wants an opportunity to make a better life for
themselves. So what he did was actually
staff one of his most senior managers who worked with him
since the beginning, and he actually came to the US and
started the lending program in Jackson Heights in New York.
Since then we've grown a lot, and Katherine will go through
the program and the model. We have a short video that we'd
like to play for you that kind of goes through the first year
of our operations before we jump into the model.
I was teaching economics in one of the universities in
Bangladesh. I'm teaching in my classrooms
about the five-year plans with the millions of dollars or
billions of dollars that are being invested to change the
lives of the people. Here next door, people needed
less than a dollar a piece and there's nobody who can help
them. So I went to the local bank to
arrange loans for them and the bank manager said he cannot lend
money to the poor people because they are not credit worthy.
I said I'll become a guarantor and take the money to the people
and see whether this is true.
Our workers started giving loans to 42 people.
A total amount of $27.
Today, it grew into a big bank. Right now we give loans
to seven and a half million borrowers in Bangladesh,
no collateral, no guarantee, no legal papers.
97% of them are women, and one after another loan
to change their life. They move out of poverty
consistently. We can create a world absolutely
free from poverty.
After the Nobel Peace Prize suddenly everybody's willing to
listen, suddenly all the doors are open, the doors that we had
been banging for many, many years.
Thank you so much.
Looking back, the guy who lends money, less than a dollar,
coming to Malibu... [LAUGHTER]
Telling them the importance of money.
[LAUGHTER]
I've got to take advantage of this opportunity, because
this opportunity may not last forever.
[INDISTINCT TALKING] >> How you doin'?
Yeah, you wrote that book. >> That's right.
I know your face. >> You saw it?
I put it... >> Oh, my God!
Thank you! >> I never shook your hand...
Thank you. >> All right, have good day.
I would like to add that the book is number 18 on next week's
New York Times Best Seller List...
It can work everywhere. Despite the fact this is
New York City, this is the capitol of capitalism itself,
but still there are things that doesn't work out perfectly.
We have borrowers of this program already here.
[APPLAUSE] Hey!
Congratulations to you. You have been in the forefront
of a big, big history that you are going to make.
It's almost like landing on the moon.
Your small step will be a giant step for all of America because
if your program, you make it successful, then this will open
the door for many, many millions of people in this country who do
not have this service from the other kind of banks.
You will be opening this door for the rest of America.
All right, go! [CHEERS AND APPLAUSE]
Two dollars in her savings account, and $66 for her loan
repayment. >> I got two small mixers,
and I was able to purchase a big mixer, so I could do
my business on a larger scale. [SPEAKING SPANISH]
I bought my first machine to clean the carpets.
It was $1,100. >> Thank you very much.
I bought an ice cream trunk. >> It's amazing how things are
happening exactly the way Grameen programs work in
Bangladesh and how women benefit from that, and how women have
been suffering because all their hard work never brought them any
return because they didn't have the money to invest and carry on
at their own terms. Now having this money from
Grameen program, they can control their own lives.
They can change their own lives with their own initiatives.
Katherine Rosenberg: So, Professor Yunus and
our borrowers are a little challenging of an act to follow,
but one of the reasons we're here is because Professor Yunus
saw such a need in the United States to operate
microfinance. Everybody was incredibly
supportive of what happened in Bangladesh and in other
replication projects throughout the world but nobody believed
that something like this actually would work in New York
City. So one of the things we were
actually talking about earlier today is how there is such a
need and there is such significant poverty here in the
US and how so few people recognize that need and how we
oftentimes look abroad before we look in our own backyard.
If you can imagine, I'm sure you've all seen the recent
census updates of the increases in poverty due to the economic
recession, but one thing that people don't often look at is
the unbanked and how incredibly important that is.
So one in five Americans, one in five families has no access to
banking services. So if you look at this room, and
we think of it as a class of a hundred give or take attendance,
only 20 people in this room, if we're thinking of a microcosm of
the United States, only 20 people in this room have either
a savings account or a checking account or can walk into your
local bank and ask for a loan. That is actually unbelievable
when you're trying to think about growing businesses and
this budding entrepreneurial spirit that America's is pretty
much founded upon. Our biggest competitor in the
United States is what we call payday lenders.
Payday lenders are individuals on the street that are offering
loans and it's easy money, it's either a check casher or
somebody who says hey, yeah, I'll give you $1,000
or I'll give you $500 but they're actually charging
300% interest rate. So that's the same kind of
situation that Professor Yunus saw in Bangladesh in the late
'70s where people that want to start a business are now trapped
because they've taken out this loan.
Oftentimes they don't have the same education that many of us
in this room have and they think it sounds like a great idea.
Sure I'll give you $1,000 and all I have to do is pay $20 a
week. But in fact, they're tied to
that loan and they can never grow their business because
they're tied to just paying down the interest and they can never
grow to the point where they're paying down the principle.
So what we've done is Professor Yunus started and he took his
program of microfinance and this peer lending model that we'll
get into in a second and he put it down right in
Jackson Heights, Queens. We have four main programs that
we focus on. The first one is access
to capital, which is the most obvious.
The second one is financial literacy.
The third is building credit, and the fourth is access to
savings. So all of these, it's this
holistic approach to alleviating poverty.
And I think it's important to say that we don't think that
this is a panacea. This isn't going to solve world
poverty overnight, but this is a great product for some
entrepreneurs out there that have had no access before.
So let's talk a little bit about the model.
This is one of the quirky things that Grameen and that Professor
Yunus has sort of coined as the microfinance peer lending
system. And it's different.
And a lot of people sort of claim they do this lending
model, but what's unique to Grameen and Grameen America is
that this is exact model we're about to go through that they
run in Bangladesh. We picked it up and we put it
here in the United States. We haven't changed a piece of
it. And everybody said that this
model is why we would fail because this would never work in
the United States. So can I ask you your name?
Mine? >> Yeah.
Victoria. >> So, say Victoria walks into
our field office in Jackson Heights, Queens, and she says,
hey, I really want a loan. And we're going to say, okay,
that's great, let's talk about it.
We're going to ask Victoria whether she lives below the
poverty line. Not making any generalizations
to Victoria but for purposes of the conversation let's assume
she says she does. And we'll say, okay, you live
below the poverty line, do you want to start a business?
Hopefully she's going to say yes.
Assuming those two questions are yes, we're going to say this is
great. This is a wonderful first step.
But Victoria can you turn around in your community and ask four
of your friends or acquaintances or friends of friends if they
also want to start a business? And then we're going to force
her to go out into the community and build a group of her own.
So we'll never just lend to Victoria.
We're only going to lend to groups of five.
And this is a huge social component of the Grameen system.
It really builds peer pressure into the model, and it also says
Victoria is not going to jump into a group and this loan
process with like Joe on the corner who she knows has no
business aspirations, can't repay his loan.
She knows her community better than we know the community.
We're not asking Victoria for collateral, we're not asking her
for a credit score, but we are asking her to work in a group of
five. So then Victoria has her group
of five, say it's this first row-ish.
The group of five comes in, they all fall below the poverty line,
they all want a loan, they all want to start a business.
It's important to note that our maximum first time loan is
$1,500. So that's larger than we see in
Bangladesh but also, and we'll talk a little bit more about
what people do with that loan, but we're trying not to get back
into that mortgage crisis that we're still trying to get out
of. We really want to give people
just the amount of credit that they need without forcing them
into debt that they can never get out of.
So we've got this group of five, they all live below the poverty
line, they all want to start a business and the first thing we
do is we put them through a five-day continuous group
training. So that group of five is going
to meet for five consecutive days for an hour every single
day. And they're going to meet with
our staff that we call in Grameen lingo our center
managers which is essentially a loan officer.
Every day, we're very focused on transparency.
So we're going to ask them to learn about the interest rate.
We're going to ask them to learn about the requirements of the
program which are a lot. And we're going to just kind of
get them to talk to each other, think through their businesses,
what are they going to do. The other important piece of the
program is the savings model. So during that five-day training
period everybody's going to walk to our local bank, which in New
York we're either working with Citibank or Capital One, and
they're all going to open a savings account.
And for many of our borrowers this is a brand new phenomenon.
Most of them fall into that four and five that have never had
access to a bank before. So they've got this new savings
account, and in the long-term they feel much more comfortable,
we hope, walking into a formal banking institution because
we're helping them develop this relationship.
So they've got a savings account, they're meeting for
five consecutive days, they're meeting with that group, they're
learning all the details of the weird Grameen model, and as a
part of the savings program everybody is going to deposit $2
every single day and they're going to give it to Victoria
day one. So on day one, Victoria and
going to go home with $10. The next day she's going to come
back with that same $10, and everybody is going to give
another $2. So the next day, sorry, what's
your name? >> Nick.
Nick's going to take $20 home, and Nick's going to come
back the third day and then Nicks going to have $20.
Sorry, what's your name? >> Ashley.
Thank you. You guys could have those, too.
So we're going to have $30 the next day and so on and so on and
so on until at the end of the week everybody's got $10.
But it also builds this trust within the group where all the
sudden everybody gets to know each other an a different level
and they all, it's the first step in building trust.
So after that first five days of training, the first two people
get the loan. It depends on what they're going
to use the loan for. But people need to have an exact
idea of what they want that loan for, and they need to say I want
to buy an industrial mixer. And the mixer is $800.
And they're going to show us that it's $800, and then the
first two people that are elected by the group get that
$800. They have to show proof of
purchase and receipt within the first seven days of receiving
that loan, and then once they start paying back, the other
three people in the group are going to receive the loan as
well. So then for the next 50 weeks of
the year that group meets every single week in a borrower's
home. So we're not asking our
borrowers to come to us, we're actually going to them.
And again it's important to remember that this is actually
in New York City, this is not in the rural villages of Bangladesh
or wherever. But our center managers are
meeting with these groups every single week.
And what happens in these groups is that everybody's repaying the
principle of their loan, they're also repaying the interest and
then they're depositing a minimum of $2 in savings.
And then informally they're talking about sort of financial
education. So what we do, and we can
probably go to the next slide, what we do is we don't actually
have a formal financial curriculum.
So we're not going to say on week one we're going to teach of
accounting, week two is budgeting, week three is
marketing. And Professor Yunus has really
found that the borrowers actually know the businesses in
their communities better than we could ever know their
communities. They know the business, they
know the market but a lot of times they're all a little
different. So one person may know one
thing, another person in the group knows another and they all
kind of come together to teach each other.
So licensing is a huge challenge to our borrowers.
So we have a lot of food carts. One borrowers may come in one
week and say, hey, I just got this great license for my food
cart. I'm selling it in this corner of
Jackson Heights, Queens, and another borrower says actually I
was just trying to figure out how to get a food license.
So then we create this conversation.
It's an organic conversation within the group where it's not
us teaching them things that they may or may not want to
know, but it's them teaching each other.
And we feel like, and Professor Yunus feels like it's a much
more sustainable form of development and forcing these
community groups to work together and it's building this
network of a community. The access to capital is really
the hook that gets everybody in, but as you can see there are a
lot more pieces to the program. Savings, as we talked about, is
another powerful piece. The other piece is financial
literacy and then credit building.
So credit building is something that's specific to the United
States. They don't have credit ratings
or credit scores in most other countries, certainly not in
Bangladesh. And what was news to me when we
started researching a lot of this, is that it actually costs
borrowers or individuals that don't have a credit score
upwards of $3,500 a year, either if you don't have a credit score
or if your credit score is bad. So what I mean by it costs you
up to $3,500 a year is if you're going to open a cell phone
account with AT&T, you walk into the cell phone store and you
say, hey, I want the family plan and I want this great awesome
iPhone. AT&T is going to say, okay,
we'll sell you whatever you want, but then they ask for all
those things like your social security number and your address
and all those things. And they're doing a credit
check, actually, in the background.
And if your credit is poor or if you don't have credit, they're
going to say, all right, well we need a $250 deposit.
The same thing happens with when the people are looking to rent
apartments in New York City and I'm sure anywhere in the
country. They want to know what your
credit is. They want to know whether you're
a reliable renter. So all of our borrowers are
forced to put down all these deposits that they oftentimes
don't have the cash to do it. So we're reporting all of our
borrowers' repayments for their small loans to Experian, which
is one of the three major credit agencies in the United States.
And what we've found is that for the majority of our borrowers
who don't have a credit history, they're actually building their
credit up to 650 points after just six months of working with
Grameen, which gets them out of the AT&T deposit, gets them out
of opening utility bills and renting apartments.
So that's actually saving them money just in a short period of
six months. They're are obviously some of
our borrowers who have adverse credit history which is takes a
little bit longer to improve that credit.
But through these weekly conversations and having our
program focus on credit as one of the main components, we're
really starting to help people learn about credit, whereas I
had no idea what credit was before I really started thinking
about it. It's certainly not a common
piece of education that we learn about.
So those are kind of the big fun pieces of the program.
Just to talk a little bit about some of our borrowers, as I
mentioned all of our borrowers fall below the federal poverty
line. The federal poverty line is the
same in any US city, whether you're in New York City, whether
you're in rural Arkansas, it's all dictated upon the number of
people in your family. So if you're a family of four,
this is sort of the one of the standards that we use, if you're
a family of four, you have to make below $22,050 a year which
is pretty unbelievable, especially living in New York
City. If you guys have ever been
there, it's sort of a pricey place to live.
But many of our borrowers live far below that poverty line.
Last year we found that our average income from our
borrowers was just under $12,000.
The majority of them, I think about 90%, are single moms.
Most of them with three to four school aged children.
So they're trying to juggle their kids, their finances, most
of them have at least one part-time job if not two,
although most of those are actually below the minimum wage
line. A lot of people wonder what do
our borrowers actually do with $1,500 which seems like a tiny
amount of money. And there's a huge spectrum.
The majority of our borrowers are running salons or food carts
or doing sort of like an AVON model.
One of my favorite success stories that we talk about is a
woman who came to us, and she was one of our first borrowers
in 2008. And she had a part-time job that
was below minimum wage, and she was sort of just scraping by.
She had two kids, she was married and she lived in Jackson
Heights. And she came to us and she had
been working at children's birthday parties making cupcakes
and cakes and stuff like that. And she said, hey, I'd really
like to buy an industrial mixer. And she had her group of five
and everybody had their own individual businesses and so we
gave her a loan for just under a thousand dollars.
So her first purchase was an industrial commercial sized
mixer that she put in her home kitchen.
And she started growing her business day by day and
eventually, we're now at three years later and she's on her
fourth loan, I think, and she's been able to leave her part-time
job, open a store front in Queens, she has her own bakery,
I mean it's tiny, it's maybe like the size of this area.
So it's not a huge bakery, but she's got a store front.
This is her main job. She's employing two people and
this is her entire business and she's done this all starting
with like a $900 loan, which is amazing, and that's one of our
wonderful success stories that we like to brag about.
And for a lot of people it takes a lot longer to pull yourself
out of that poverty line. So certainly we have borrowers
that have been with us since 2008 and they're still taking
loans and they're still growing their businesses.
There's a spectrum of success, but if you really are dedicated
to the process, and sometimes it's just luck, but you can
really make your business grow and then all the sudden you've
got your kids graduating from high school and they're going to
college and it's just this long trajectory of poverty
alleviation. So that brings us to our current
operations. As we said, we started in 2008
in Jackson Heights, Queens. We've since expanded to four
different locations. So we're in Jackson Heights,
Queens, we're also in Brooklyn, New York, and we're in sort of
upper Manhattan which is also servicing the south Bronx.
So we've got three branches in New York City.
We've also opened a fourth branch in Omaha, Nebraska, last
summer, summer of 2009. We've grown to nearly 5,000
borrowers in just under three years.
We've lent out about $11.5 million in loans,
and we've collected savings or our borrowers have deposited
savings of just over $600,000. So this is what we've done in
just a couple of years. So we can't wait to see kind of
what happens over the next five years as you guys get to know
microfinance and get more excited and help to spread the
word. This is just a different form of
showing kind of our success. Jobs created is another really
exciting thing that we look at in terms of every borrower, some
borrowers hire one person and some don't, but in this economic
recession it's really exciting to see that our borrowers are
actually growing their businesses to the point where
they need additional employees. So they really are becoming the
small businesses of America. So what Seema and I really kind
of wanted to talk you to guys about was this idea of social
business. Has anybody heard of social
business before or this new concept?
Yes? No? Maybe? So Professor Yunus is really, he
initially really pushed this world of microfinance, but what
he wants to push now is the idea of social business.
So social business is what essentially Grameen America is
on track to be where you can make a profit from your
business. He's not saying everybody has to
be a 501(c)(3) and everybody has to be a nonprofit, but the idea
is that you take investors that want to give you money so you
can help build your business. And they can certainly take
their initial investment out when we're able to pay it back,
but they're not going to take dividends, they're not going to
make a profit off of their investment.
And then as a social business, as Grameen America, once we
become sustainable we're not going to start paying dividends,
we're not going to go public like a lot of other microfinance
organizations are starting to do but what we're going to do is
with the interest that we charge we're going to first cover our
operations which makes us sustainable and second all the
profit we make on top of that is actually just going to be folded
back into our business so we can expand, so we can come to places
like Madison or we can open in the San Francisco Bay area.
There's a huge demand across the country for services like
microfinance. And once we become sustainable,
that's when we'll be able to expand.
So some of our challenges to becoming sustainable, and this
is why we love to engage with you guys to see if you have any
ideas, is it's really a scale question.
So the faster we scale, the faster we can become
sustainable. So in sort of this microfinance
world we actually want our loan money out in the world because
if our money is out, it's making money, it's gaining interest.
So that's what we want. And in order to get more money
out in the world, we have to reach more people.
And how do we do that effectively is something, it's
certainly a challenge to us in the US, and we're on track to be
sustainable within the next 12 to 18 months which is great
news, so that would be probably around year five in total, but
how do you make that happen even faster.
Some of the ideas that we're exploring and some of what
Professor Yunus talks about is how to become sustainable in
terms of becoming a bank. So one of the big differences
between Grameen Bank in Bangladesh and Grameen America
is that Grameen Bank is actually a deposit-taking institution.
So they can loan out that savings and those deposits that
borrowers are making. Whereas, we as Grameen America,
right now we aren't a deposit-taking institution.
And that's really just because it's a complete challenge in the
United States. Regulations are obviously
different here than they are overseas.
We haven't been able to tackle that, but it's something we're
looking at. Other pieces, other ways to
become sustainable is to actually take those deposits,
those savings deposits that our borrowers are depositing into
Citibank and Capital One, how can we leverage those savings to
actually loan those back out into the world or loan those
back out. So these are a lot of the
challenges that we're facing, and what we love to get you guys
to start thinking about is how do you reach scale?
Even whether it's microfinance or how do you start a social
business? What Grameen Bank has done in
Bangladesh is they have tons of social businesses.
So they have Grameen healthcare, they have Grameen education
programs, they have Grameen agricultural programs and
they're all social businesses. And it's this idea of you can
make a profit and you can start a business that actually solves
the world's problems and makes the world a little bit better
place. So hopefully we'll have some of
you guys starting social businesses soon.
Do you have any questions?
[INAUDIBLE] >> I know that we
had a question down here.
Hi, guys. Thank you so much from coming
all the way from New York. It's a real pleasure to have you
here, and on behalf of the class I just want to say thank you.
My question for you is I noticed on your website that Grameen
America is a 501(c)(3) and that you guys are taking donations
from the public, but you guys are also making interest on all
of your loans, which do you see as being more important for your
business and which do you see being more important like 10-15
years from now? >> Seema Gohill: Sure, I guess
I'll tackle that. I think it's actually a
combination of both. So Katherine talked about
sustainability. Until we get to that point,
which is basically year five, where when I say sustainability
it's actually at the point where the interest covers our
operations. So today our largest operational
cost is actually the salaries of our loan officers.
They're actually the face-to-face person with the
borrowers. They're the people that are
working out in the community, and so it's basically covering
their costs and covering the costs of that lending model.
It takes about five years for each branch.
Each branch is about 4,000 borrowers.
So for each branch to become sustainable or for the portfolio
to generate enough interest income takes about five years.
Until we get to that point, we will need donations and we will
need to rely on grants, but after that point we can
definitely, like Katherine said, reinvest in the community and
continue to scale from there. >> I have a question.
I was wondering if you could just address the things that are
different about promoting this model in the United States
compared to places, like why did people say that it wouldn't be
able to work in the United States?
Katherine Rosenberg: Sure, so I think sort of what we were
trying to touch upon is the idea this peer lending system
is really a community-building exercise.
And everybody looked at New York City and said there is no way in
the world that you're going to get, first of all, one person to
find four other people, second of all that those five people
are going to actually meet every single week.
For some reason in Bangladesh that just seems like such a
simple idea. Although, that was like 30 years
ago. Whereas now, people just never
thought that this peer lending model would take off.
And that's one of the interesting pieces of the peer
lending model is that there are a lot of organizations that have
brought microfinance and a peer lending model to the United
States, and they claim that they're doing a peer lending
model, which they very well may do, but they say, hey, we
actually don't think this is actually going to work, it's
only going to be groups of three and we're only going to meet
every other week and they tweak all of these pieces of the
model. And those are the groups, I
forgot to mention sort of one of our most important pieces which
is that we have less than a percent default rate.
So if you think of that and the world commercial banks,
especially with the financial crisis, banks are like, I don't
even know, like 80% or 20% default rates, 15% default
rates. So there's something that's
working, and I feel like the proof is sort of in the numbers.
But people were really skeptical of whether we would be able to
get individuals working together in these community systems.
And then one of the other cool parts about the community system
is that there is this microeconomy that's going on.
So people aren't going to the Gap and J Crew, they're actually
buying from each other. So you've got this group of five
and Seema says to Victoria, hey, I really need to get my hair
done and Victoria says, oh, there's this other Grameen
borrower who just started a salon service.
So then Seema goes to that salon and it just kind of happens all
the time. They're recycling and they're
doing their own marketing, and as the Grameen community grows,
it's just building this kind of microeconomy that's at the base
of the pyramid, really. >> Katherine I'm going to hand
the mic off to a student in just a second.
As you were talking, and this seems to be a good segue to this
question, I was thinking, do you ever facilitate helping find
those five people or is it truly five people that they've already
known, worked with, in some way engaged with?
Katherine Rosenberg: We never put five together.
Especially in the beginning when we start in new markets, we'll
have one person or two people walk in together in the morning
and then three people in the afternoon and while it seems
really common to us that you would just lump that group of
five together, Yunus really found that that doesn't work
because it is really based on trust.
And people need to know one another, and they need to have
that cohesive group from the beginning as opposed to
strangers. One of the pieces of the group
model is that it's a very public repayment system.
So if I'm late repaying my loan one week, Seema is going to know
that I'm late repaying my loan. And Seema is not financially
responsible at all for my loan, but she's going to say,
Katherine, why do you not, what's going on with your
business? Were you sick or did something
happen? And maybe it's a marketing issue
and she's going to say, you shouldn't be selling ice cream
on 181st and Broadway because there's that Haagen Dazs across
the street. You should really be selling it
on 191st because I saw this other guy who was on 191st and
he was making a killing. So we never put people together.
And then there's just so many pieces to the model that it's
hard to get it all in one conversation, but one of the
reasons, our biggest complaint from our borrowers is that we
haven't given them enough money. So $1,500 really isn't a ton,
although it's enough to get businesses started, but
everybody wants more money. About 95% of people, of our
borrowers that take a first loan, take a second loan.
And the way the group model is built is that if I, as an
individual, or Victoria or Seema, if these guys repay
perfectly after the first year, you can get up to 10% more on
your second loan. If your entire group of five
repays perfectly, you can get up to 15% more for your second
loan. And then what we do, not to
complicate things even more, but we actually put multiple groups
of five together. So we have centers meeting every
single week, and if that center repays perfectly, you can get up
to 20% more on your second loan. So there really is, I like to
call it peer support, but it's really just a peer pressure
system that everybody knows when you're late and nobody wants you
to be late because everybody wants more money.
I think you might have just answered this question, but you
said it was a maximum of $1,500 for your first time loan, is
that for the whole group or just for one person, like each person
can get that much? And if it is, why $1,500 and why
a group of five? >> Seema Gohill: She gives me
the hard questions. The $1,500 is individual.
So each person can actually get $1,500, and each person has to
have their own business and has to have their own business idea.
And then the group of five, it's not a magic number.
I think they looked at groups, this was when they were
developing the Grameen model actually, they looked at
groups of two as two small, three could have worked, and
then they looked at seven and nine as too large,
and then so the five number was kind of the magic number that
fell out of it which is the history, I guess, behind five.
And then, sorry, what was the final part or was that it?
I think that was it. >> Okay.
Hi, I'm Monique. I just wanted to know, I saw in
the intro video it looks like that your program is empowering
a lot of women, do you see that as a major step as for women
getting a say in what they do? >> Katherine Rosenberg: So
there's been, actually that's are really great question.
There's a lot of research in the world of microfinance and sort
of women's empowerment that when you actually give, no offense to
all the men in the room, but when you give to the money the
woman, the money actually goes and any profit made actually
goes back to the family. So it goes back to the kids in
the form of education. It goes back to themselves in
terms of maternal care and healthcare for the entire
family. Whereas, unfortunately, and
again I am just the messenger, but when you give it to men it
goes more, they'll stop and buy cigarettes along the way, and
then they'll buy some alcohol, a couple beers or whatever, and
then by the time they get home it's like they only have half
the profit that they made. So our program in America is
not, it is 100% women but it's really just the nature of who
wants to go through the program. So we've certainly had men walk
in our door and say, hey, I want a loan like I heard you guys are
giving loans at really low interest.
And we'll say, that's great but you need a group of five and you
need to meet every week and you need to spend an hour with that
group every week, and they're like no, no, no this is not
happening. But in turn, they sometimes
there actually send their wife which isn't a bad thing because
then it becomes this family loan and the money goes to the woman
and then all those awesome things in theory happen.
Seema Gohill: 90% of our borrowers are single mothers.
So that's actually, I think just for the program in the US,
that's actually been very empowering for them as well.
Hi, I'm Marnie. I'm actually from New York City,
and I see, so you guys are helping mostly women open these
small businesses like hair salons, etc.
I see constantly like living there, every week maybe
a hair salon goes up or a little boutique goes up,
I'm from Washington Heights, or a bodega goes up but then
it falls down within like a few months.
And your program is catering to uplifting poverty globally,
but how are you helping for these people who are able
to open these small businesses but then don't really have
success? What does the aftermath
look like for you guys? >> Seema Gohill: Sure.
I think one of the unique parts and one of the reasons that a
lot of these small businesses fail, and not just in the $1,500
range but even the larger businesses in the $20,000 range,
is because they don't have the support.
And I think the peer model actually provides them with that
support. So having a group of five people
or having four other people that you're constantly meeting
every week, you can go through some of those challenges,
you talk to people about it. What we found is all of our
borrowers didn't have any support before.
So if they had an issue with licensing, they didn't know who
to go to before. Now they not only have four
other people that they can rely on for that knowledge but they
also have our center managers to rely on.
So our center managers we actually provide them with the
resources so they know who to go to if there is a licensing
issue, whether it's the city government or who in the city
government to talk to. If it's other solutions like
marketing plans, we will provide them resources for the New York
City small business solutions. So we can actually connect them
to a lot of different partners and resources across the city
that they on their own wouldn't have known.
So that actually gives them a lot of support and that actually
helps their businesses succeed. So like Katherine mentioned,
Patricia was one of those people who without the support, I'm not
saying she couldn't have done it, but I think the support of
the program actually really did help her succeed.
And over the course of the next five years we're hoping to see a
lot more of those success stories.
Katherine Rosenberg: I want to add to that, and I think it
ties into again a little bit of the mortgage crisis, but we're
not giving somebody $25,000 on day one to open a bodega.
We're really starting them from the smallest, smallest possible
rate. So we're going to give them
$1,500 and maybe they'll be able to buy a food cart
or an ice cream cart. We're on 207th street in
Washington Heights. So we can appreciate what you're
thinking. And they start small.
And then with that second loan maybe they get a bigger food
cart. So I think one of the problems
is people want immediate gratification and they want to
open something today and they want it to be big.
But what we're forcing people to do with these small loans and
with this peer lending model is that you need to start small and
you need to grow your business. And you know what, if your
business fails and you only $1,500, that's a lot better than
having a $50,000 loan from a loan shark charging 300%
interest rate and your bodega just kind of went under.
We also help to make sure one of the processes of vetting with
the borrowers is that if a borrower comes in and she says
to her group, hey, I want to be a tailor and everybody says you
have no idea how to sew, that's the worst idea ever.
And that happens a lot. So it's really people
understanding within their community who's good at what and
who could be a great entrepreneur in a food business
or in a salon type service. >> I've had the opportunity to
chat with Katherine and Seema not only today but actually over
the course of the year prior to their coming, and we've been
talking about how Grameen America will grow and expand
over time. I noticed that in the course of
your talking about where you're located it was New York,
New York, New York and Omaha. Why Omaha?
Seema Gohill: That was a result of somebody in Omaha
actually wanting the program there.
The family actually stepped up and fully funded the project
there. So for us to actually open in a
new market it's a little bit of a challenge currently is to be
able to fund-raise for that. So to the extent that we do have
the funds available in a market, we can try and replicate the
program there as well. So Omaha was one of those.
One of the other things that Katherine and Seema and Grameen
America are doing is developing a partnership with the
University of Wisconsin. They're going to be here over
the course of the next couple of days celebrating global
entrepreneurship week and actually meeting with another
class that is doing a project with you right now.
Can you describe that project just briefly so that students
have some context of where we're moving in terms of our
partnership with Grameen America?
Katherine Rosenberg: Sure. We have a great brand name,
which we're really proud of, and we oftentimes get phone calls of
people wanting to bring us to new cities.
And what we've found is that in any urban environment there's
certainly always demand. And one of our first steps in
terms of that demand is to really take a deeper dive and to
do a market analysis. One particular organization has
asked us to focus on the Native American community, and this is
something that is brand new to us.
So this is nothing like New York City.
They've asked us to look at reservations and what a Grameen
type model would look like on a reservation.
So Seema and I work in a very small office so what we've
actually asked the students from University of Wisconsin to do is
take a close look at what a Grameen peer lending system
would look like on a Native American reservation.
And one of the reasons we've stayed in urban areas is because
of that population density. So, again, I feel like I keep
saying peer lending model but the idea is that you've got this
group of five, and in Bangladesh you've got this rural village,
it might be a thousand people in it and it's in kind of the
middle of nowhere, but you've got five groups of five
or ten groups of five. So when a center manager goes
out to that village he can actually meet with 50 people
over the course of an hour, an hour and a half.
And then he gets on his Moto and he goes another five miles and
he meets with another hundred people.
So at the end of the day he's met with a hundred
to two hundred people. So that's why in New York City
we've really focused it, and in Omaha, we've really focused it
on these urban areas because we know we can work with densely
populated populations where we can't get a hundred people in a
New York City apartment but we can certainly get 20 to 25 and
then you walk five blocks and then you've got another 25.
So that's why the idea, this concept of working on a Native
American reservation is really something that we don't want to
jump into without knowing too much about it.
So we've had our Wisconsin team do a market analysis,
talk to a lot of local leaders in the Native American
communities and see whether this is something they want,
and whether it would actually work in a population like that.
And, of course, we're talking about Grameen about other
projects that Wisconsin students will have the opportunity to
work on, not necessarily just in a class but, in fact, there is a
microfinance club on campus that is also going to be meeting with
you to talk about what they want to embark on next semester.
We've talked a lot about Grameen America and the domestic
version, and obviously that's what you represent.
I don't want to put you on the spot, but I'm wondering in
looking at the map of the world and where else Grameen is now
situating itself, are there other anecdotal stories that
you're finding coming out of China or Zambia or the others
places that you're opening up operations that are interesting
lessons to learn? >> Katherine Rosenberg: I think
the most interesting is that it works no matter where you go.
And that's everybody's challenge is that just because it worked
in Bangladesh and it worked in East Africa, it's never going to
work in New York City. And we're like, okay, we'll go
to New York City. And then all the sudden it's
working in New York and it's working in East Africa, Zambia,
it's working Bangladesh. And now we're working in Kosovo
which is amazing. So you've got these completely
different cultures that everybody says it won't work.
And so we're going to step by step and we're saying we'll just
take it slow and we'll prove you wrong as we go because people
are people and it's just really a social experiment.
Seema Gohill: I think that ties into the entrepreneurship
concept as well. Because if you think about it,
every country in the world has budding entrepreneurs.
Whether it's at the $1,500 level or it's at the larger levels,
there are people all over the world who want an opportunity.
So I think that's one of the biggest lessons is that whatever
country you go to you're going to have a lot of people that
will embrace the opportunity, and that's all that they're
asking for. I think one of the things is
also the concept of sustainability and charity.
I think one of the reasons that we can't work or this question
of the Native American communities came up is because
we want to be sustainable. So you could, from a charity
perspective, you could service that area, but will it ever be
sustainable to be able to do that is the question that we're
struggling with and that's what the students are helping us out
with. >> I'll ask one final question
unless I see a hand. I hate to make this sound ageist
but you're both very early in your careers and you're working
for, as you said, a very highly branded nonprofit organization
that obviously you both have significant responsibilities
with that, what do you think helped you get to what you're
doing today? We have a lot of students in
this group that are interested in social entrepreneurism and as
well as working in nonprofit organizations.
So from your perspective, what helped you in moving maybe out
of an industry or where you were into this role?
Seema Gohill: I'll start. I think it's persistence.
I think one of the things that, just looking around over the
last few years, one of the things that I'm inspired by is
the entire social business movement I think is amazing.
And there are so many people that now from an age perspective
that I'll look over across the table and say, wow, you just
graduated a couple years ago but you suddenly have this business
that you're running and that's very inspiring to me.
From a personal standpoint, I did go down the corporate route
and I did do that for a few years, and what I always found
was that I wanted more responsibility, I wanted to take
a very entrepreneurial approach to things.
And sometimes I felt that in a corporate world you kind of get
lost in that shuffle. And so I did look to,
microfinance was always a passion of mine and so I did
look to that. It was really persistence that
gets you in the door. I think you kind of have to
narrow it down what you're interested or at least the broad
industry that you're interested in and then look at players out
there and then just really go after it.
I don't think, there's a lot of organizations out there that do
great work and I think everybody is really looking for talent
and I think that is very helpful too.
Katherine Rosenberg: I totally second what Seema said.
I also think you can kind of, whether you're going to be an
entrepreneur and you're going to start your own business or
you're going to be your own best advocate, you need to walk into
an interview or identify a company and say, hey, this is
what I think you need, whether that's a job posting or not and
you need to kind of sell it. So one thing, Seema and I work
in a very small office in terms of the headquarter office but
one thing that we always say is that if there's a project in our
office and you're coming to interview and you're coming to
talk to us, if there's something you see that needs to be done,
let us know because Seema and I don't have time to do but if you
guys want to do it and you're a social entrepreneur and you can
sell yourself and sell that project, that's the best way to
sort of work into that field. And you really are your own best
advocate. >> Your final slide suggests
that maybe you'd like to say more about how students could
get involved. >> Katherine Rosenberg: Yeah.
So we just launched this really fun Grameen university campaign
which is a grassroots project. We've currently got about
25 universities signed up across the country.
And we're really engaging with those universities, and we have
a Madison representative to talk about microfinance and to talk
about domestic microfinance. I think one of the things that
we didn't really talk about was just this broad scope of
domestic microfinance or microfinance in general.
And we'd love to kind of talk to you guys more about it and have
you guys be our ambassadors on the campus or as you get out
into the working world and talking about, not only Grameen
America because we're just one piece of the puzzle, but get to
know what social business is, get to know what microfinance is
and obviously talk about Grameen America.
But if you guys are interested, you can certainly talk to me and
I can connect you with Megan who is the leader on campus.
All right, well I know the students join me thanking you
very much for traveling in to talk with us.
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