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Small Loans Make a Big Difference


A growing number of not-for-profit groups in the United States are providing the capital to help people break out of poverty. They're making business start-up loans of as little as $500. It's called micro-lending. In America's Pacific Northwest, for example, single moms, refugees and ex-convicts are using these small loans to start a wide range of enterprises.

A squeaky toy keeps Fergie, the dog, looking at the camera as Jamie Pflughoeft does a photo shoot at the Seattle Center. "I've always wanted to work with animals since I was a little kid," she confides.

The playful scene is a far cry from where the 34-year-old was a few years ago. Then, the freshly minted college grad was barely making a living. She scraped by as a part-time dog walker. Her idea for getting ahead was to borrow enough money to start a pet photography business.

"I'd been a member of my credit union for about ten years," she recalls, but "they turned me down. I applied for a personal line credit. I applied for a credit card and they turned me down due to lack of income. So I wasn't making enough money to apply for a loan."

An acquaintance suggested Pflughoeft approach a Seattle non-profit called Washington CASH. The group helped launch Cowbelly Pet Photography and Pet Art with a tiny loan. "Five hundred dollars doesn't sound like very much money, does it?" Pflughoeft marvels. "How do you start a business with $500? What I did was purchase a digital camera. It was about $600."

Pflughoeft paid back her first loan on schedule. Then she borrowed $1000 to buy brochures, postcards, and art materials. Repaid that. Now she's on her third loan and has all the business she can handle. That makes Pflughoeft a success story for the domestic version of an international anti-poverty strategy.

Melany Brown runs the non-profit that supported Cowbelly's start up. "We're not a Third World, and yet we have immense poverty in this country," she points out. "And we're having more and more poverty."

The inspiration for Washington CASH was the Grameen Bank, a private micro-credit program launched in Bangladesh 30 years ago. It's since been replicated in many countries, including the United States. "What's so exciting about micro-lending in the United States is that it's a generational solution to poverty," Brown says. "It's not a stand-alone -- we solved it [solely] for one woman or one man. But their children see them as strong engaged citizens in our communities and, therefore, then their children become that."

Brown sees steady demand from low-income entrepreneurs. She makes loans to borrowers with no collateral -- customers no bank would deal with. Even so, Brown says the credit risk is not that great. "Our loan repayment rate fluctuates of course over time. But right now it hovers around 90 percent."

Micro-lenders around the Northwest have backed a wide range of new enterprises - from a plumbing franchise to an organic vegetable farm to a catering business.

As she whips up a pasta salad for a festival booth, Juli Woods, 49 - a recovered drug addict - says, "I just like cooking and I like seeing people happy eating my food. I mean, that warms my heart." This month, she'll make a presentation for her second micro-loan. It'll be for $1000 to buy a portable fryer machine.

Woods is thinking ahead about helping others who face the same hurdles she did. "What I'm going to do in my restaurant and in fact, I will be starting now in my next catering jobs and stuff, we're going to go to the drug treatment centers and hire people from there to help them get back into society and stuff. That's a hard part in people's lives, when they come out of prison or drug treatment to try to find a job and everything in society."

Interest payments on the tiny loans people like Juli Woods take out don't cover the lenders' costs. The American micro-credit industry relies on donors to keep their operations going. Analysts at the Aspen Institute, a private social policy research group, are urging the roughly 240 U.S. micro-lending organizations to consider merging or consolidating, so that they can achieve some of the business efficiencies enjoyed by micro-lenders elsewhere in the world.