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Microloans aim to give vulnerable groups more ‘financial mobility’

Conn. woman’s fashion dreams coming true with help from microfinan­ce giant

- By Veronica Del Valle

Jennifer Marie Lopez was supposed to intern for fashion giant Betsey Johnson, but life got in the way. Lopez scored the internship offer through a technical school that folded before her first day.

“She’s my idol to design with because she does happy-looking patterns, and she’s really expressive,” Lopez, 35, said from her New Haven apartment.

That brush with a longtime dream typifies the kind of missed opportunit­ies that Lopez has seen over and over. She attempted to enroll at the Fashion Institute of Technology in Manhattan after her time at technical school, but high costs and personal responsibi­lities drove her out.

Fashion design ultimately became a dream deferred; Lopez focused on making money as a nurse and security guard, taking care of her four sons and putting her family ahead as best as she could.

But a shot at the career she always wanted is finally in reach, and this time, it’s on her terms.

In August, Lopez received a $2,000 loan from the nonprofit Grameen America, which is expanding its reach into Connecticu­t and making financial capital available to help lowincome residents.

She’s using that money to kickstart her own business: A kitschy fashion line inspired by her family.

Grameen America’s foray into Connecticu­t marks a new era for the microfinan­ce giant that until now focused its efforts primarily on urban centers instead of entire regions.

The problem with accessing money while poor

Borrowers of limited means historical­ly have been able to get loans from local banks, but many local banks have been absorbed by conglomera­tions. And those local banks that have remained small have to follow legislatio­n passed after the 2008 banking crisis that put restrictio­ns on how much risk they can take in giving out loans.

This has meant that getting a loan has become harder, especially for people who traditiona­lly have had a hard time borrowing — women, people of color and low-income individual­s.

It’s this group of people that Grameen is hoping to help with its expansion into Connecticu­t.

“Our mission is to provide financial mobility to our members and to bring about financial inclusion in multiple aspects, because we do know that the most vulnerable population­s are the ones that are left out by the banking system ... or any formalized financial system,” Grameen Vice President of Strategy Rajitha Swaminatha­n said.

Grameen says it focuses on a specific slice of that vulnerable population: The nonprofit only gives microloans to women living in poverty, and the amounts start small.

Initial loans range from $500 to $2,000, according to company

Communicat­ions Director Jason Grobstein. Borrowers have 26 weeks to pay off their loans at 18 percent interest, though interest declines weekly during the loan period.

That’s different from traditiona­l lending organizati­ons, which even for non-loan-seeking customers can charge overdraft fees, debit card swipe fees, ATM withdrawal fees and wire transfer charges.

The financial add-ons often keep low-income people out of the traditiona­l banking sector, according to experts like banking law professor Mehrsa Baradaran, author of “How the Other Half Banks.” The Federal Reserve in 2019 estimated that 22 percent of Americans either have no bank account at all or primarily use cash and credit cards to make purchases.

Those without abundant access to financial services must rely on other sources to access the funds they need to stay afloat. Without typical loans, researcher­s have observed that low-income people turn to payday lenders, auto title loans and cash-checking outlets, where the barriers to cash are low and interest is high.

For example, the Federal Reserve Bank of St. Louis reported the average interest on a payday loan is 391 percent. In contrast, the average credit card charges around 17.8 percent in interest per month, according to consumer financial services company Bankrate.

Statistics show that the alternativ­e loans oftentimes cause a spiral of problems for borrowers. Progressiv­e think tank the Center for American Progress estimates that 80 percent of payday and auto title loans will be “rolled over or followed by an additional loan” after two weeks. Borrowers on average stay in debt for six months.

Bridging the gap

Microlende­rs like Grameen America say they aspire to bridge the gap between what exists for middle- and upper-class Americans and what is currently available for less affluent customers.

For one thing, the loans they give aren’t to an individual: Grameen America uses a “group-lending” model pioneered by its sister organizati­on Grameen Bank. To qualify for a loan, individual­s must form groups of five, plus go through five days of financial training that teaches basic tenets of business and finance.

Even after the initial classes, borrowers must meet with their cohort and staff members to create a bond within the center and learn from each other as each woman develops her business, company spokesmen said.

“We are very, very high touch. We meet them every single week,” Swaminatha­n added. Members must pay on their loans every single week, too.

Does microlendi­ng work?

Grameen has for decades lauded microcredi­t for its ability to lift people out of poverty. The philosophy was what gave Grameen Bank founder Muhammad Yunus a Nobel Peace Prize in 2006.

Critics, however, argue that microcredi­t can do more harm than good. Some studies of microcredi­t and its effectiven­ess found that, at best, the small loans had a “modestly positive” effect on people living in poverty.

Simultaneo­usly, researcher Milford Bateman, who wrote “The Rise and Fall of Global Microcredi­t,” argued that “the global microcredi­t industry had effectivel­y been taken over by greedy individual­s, opportunis­tic so-called ‘social entreprene­urs,’ aggressive private banks and hard-nosed investors.”

But those qualms are exactly why Quinnipiac University Professor Mohammad Elahee said he believes in the power of Grameen’s specific strategy for microcredi­t lending. For one, Grameen America is a nonprofit. According to Grobstein, Grameen’s communicat­ions director, all the money earned by the company funds overhead expenses at their centers and future expansions.

That strategy, Elahee said, is an implicit acknowledg­ment of microcredi­t’s limitation­s.

If “I’m a microlende­r, I will never actually make money,” he said.

A community-based approach toward lending is also important to microcredi­t’s success, according to Elahee. He said he thinks the loans are most effective within groups with strong shared experience­s.

“It can work, but not for a college graduate who just wants to start a new business and take microcredi­t,” he said. “People who are at the lowest rung from an economic point of view, who do not have any credit history, who do not have access to regular lines of credit — for them, a microloan is like a new lifeline.”

While Grameen is lending to low-income women specifical­ly, Elahee can also imagine successful outcomes among refugees, recent immigrants and formerly incarcerat­ed people — three groups that often face barriers when trying to find work in the United States.

Grameen America comes to Connecticu­t

Though the local strategy involves anchoring itself in communitie­s where the population is dense and financial need is high, Grameen said it plans to establish a presence in six cities. The company already serves residents in New Haven and Bridgeport, but it plans to expand into Stamford, Waterbury, New Britain and Hartford.

At its first two centers in Connecticu­t, the average Grameen loan was about $1,844, but loans get bigger as the businesses grow. Nationwide, the average Grameen America loan is about $4,500. Like Jennifer Marie Lopez from New Haven, many of its members run businesses in the fashion sector.

Years after her bid at Betsey Johnson fell through — and about four months into her loan — Lopez is steadily picking away at her own dreams. Jenna Line Customs, she said, is only the start. “I just want to open a school in New Haven for fashion,” she said.

There isn’t a dedicated fashion school in New Haven currently, and Lopez said she wants hers to be full-service. Not only does she want to teach students how to design clothes, but she also wants to show them how to model and market their crafts.

“I’m going to do my best to get there,” she said. “I’m gonna work as hard as I can. And hopefully, I could do it.”

 ?? Arnold Gold / Hearst Connecticu­t Media ?? Jennifer Marie Lopez with holiday aprons she designed and sewed in her home business office, Jenna Line Customs, in New Haven on Nov. 15.
Arnold Gold / Hearst Connecticu­t Media Jennifer Marie Lopez with holiday aprons she designed and sewed in her home business office, Jenna Line Customs, in New Haven on Nov. 15.

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