Innovation in Microfinance. 25 th Rural Community Economic Development Conference: Revitalization and Development Opportunities March 5, 2014

Transcription

1 Innovation in Microfinance 25 th Rural Community Economic Development Conference: Revitalization and Development Opportunities March 5, 2014

2 AEO: Who We Are National trade association for US microfinance and micro business >450 nonprofit community lenders and business service providers across the country Based in Washington, DC since 1991 Mission: Create economic opportunity for underserved entrepreneurs

3 AEO: Our Work Initiatives Micro Capital Task Force Industry Strategic Plan Building Capacity in the Southeast Strengthening Statewide Networks Re-Imagining Technical Assistance Collections Services Program Green Opportunity for Micro Core Functions Communications Policy & Advocacy Knowledge Sharing & Community Research National Campaign Multi-Stakeholder Alliance Product, Service & Capital Solutions

4 Research Report Release:

5 Bigger Than You Think Business that employs the owner and up to 4 others 20% of the labor force = ~26 million direct jobs $4.87T in direct, indirect and induced economic activity 92 percent of all businesses The largest segment of small business If one in three microbusinesses hired a single employee, the US would be at full employment!

6 Source: The Economic Impact of U.S. Microbusinesses, Insight Center for Community Economic Development, April 2013, p. 8.

7 Microbusiness in Illinois 1,094,782 Microbusinesses ~89 percent of all businesses 21.7% of the labor force = ~1.38 million direct jobs 20.0% of rural workforce employed by microbusinesses $122.3B in sales/receipts, 8.0 percent of total business sales/receipts Source: U.S. Census Bureau, 2011 Non-Employer Statistics. Source: U.S. Census Bureau, 2011 County Business Patterns. Source: U.S. Dept. of Commerce, Bureau of Economic Analysis, Full-time and Part-time County Employment Statistics, 2009.

8 What Does All of this Mean? Good News Mixed Results Room for Improvement Need to Innovate

9 Barriers to Start and Grow Businesses Confidence Capacity Connections Capital

10 The Problem: Main Street Business Owners* Don t Get What they Need to Succeed 8,000 small and micro business owner credit applications declined each business day** How many more aspiring entrepreneurs don t even turn to a bank? *Solo, micro and small business owners **Treasury Secretary Jacob Lew, 10 June 2013

11 Opportunity for Change Demand for Capital & Services Unfulfilled Demand remains strong, even growing Old Paradigms misaligned to New Reality

12 What are We Seeing? Innovation is flourishing! Financing Mechanisms/Capital Financial Products & Services Services Policy

13 Innovations in products, services and delivery models Streamlining Processes Automate Manual Redundant/Rote Tasks Enable Investment in Valued High-Touch Activities Big Data Improving Ability to Predict, Assess & Decide Optimize the Use of Scarce Resources

14 Financing Mechanisms / Capital Need for Scale AND Risk Mitigation Appalachian Community Capital Central Bank-like for development lenders across Appalachia DreamFund Wholesale lender seeking to make gov t loan programs accessible to micro/small biz lenders CDFI Bond Guarantee Innovative and promising source of patient capital, but not ready for business lending

15 Financial Products & Service Microloans Capitalization less than $50k Average loan size for most lenders is $13k Starter loans as low as $500 for credit building loans Generally term loans 2-5 years; however working capital loans becoming more popular

16 Financial Products & Service Uses for Microloans Working capital Inventory or supplies Furniture or fixtures Machinery or equipment

17 Financial Products & Service Lenders Community Development Finance Institutions Mission Driven Lenders SBA Micro Loan Program (ACCION Chicago) Fin-Tec Crowd Funding Kiva funding goes thru field partner to borrower Kiva Zip funding goes directly to borrower Kick Starter creative project Internet Based On-Deck Biz-2-Credit Kabbage

18 Financial Products & Service EZ Pay Product Opportunity Fund: technology to underwrite small business loan linked to credit card payments Promise Loan Product ACCION Texas: utilizes alternative data to assess prospective borrower s credit worthiness Lending Circles Mission Asset Fund: traditional zero-fee, zero interest social loans from lending circles, integrate in credit reporting and technology to standardize and the streamline organization of the groups

19 Support Improves Outcomes Source: AEO analysis

20 Services Coaching/Mentoring e.g., MicroMentor Technology utilized aggregate and match mentors to entrepreneurs in need of mentors Training Khan Academy, Small Biz U Self-directed learning on the Web and APPs Business subject specific Financial Management e.g., Intuit s Quicken Range of services/products to prepare financials and transaction management activities

21 Policy Shift from Following to Leading Use of data/mapping to demonstrate need and impact driving more compelling messaging and advocacy Micro Capital Task Force Assembling stakeholders across nonprofit and forprofit community to identify innovative capital solutions State Microbusiness Association Coalitions becoming more inclusive intersecting with wider economic development community

22 If one in three Main Street microbusinesses hired just one employee, the country would be at full employment

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