Microlumbia: Microlumbia Visits ACCION

Microlumbia Visits ACCION

In November, twelve members of the Microlumbia community visited the offices of ACCION USA. ACCION USA’s mission is to empower low-to-moderate income business owners with access to capital and financial education. They believe that with economic opportunity, these entrepreneurs — often minorities and women — can build assets, better provide for their families and strengthen their communities.

Erica Dorn, ACCION’s Kiva and Volunteer Coordinator, walked the team through some key facts about ACCION USA. Since 1991, ACCION USA has lent over $117mm. When combined with its extended network of ACCION West, this figure is increased to over $250mm. The average loan granted is $6,300 in size, but loans can range from “credit-builder” loans of $500 to larger loans up to $50,000. The distribution of client base consists of 85% Spanish speakers and 40% female. Clients come to ACCION for a variety of reasons, be it a lack of credit score or no credit score, or lack of documentation or formal business structure. Additionally, these clients may have been rejected by commercial banks because their loan was too small, their business was considered high-risk, or simply due to language barriers.

The domestic microfinance market differs in several ways from the international market. First, the average loan size for international loans is $700 vs. the US average of $6000. Second, the international microfinance system utilizes a group-lending method which has not gained much traction in the US because of differences in community structure. “It simply doesn’t work as well to have group lending in the US as you have to try to put together a group of women who may not know each other which doesn’t allow them to trust each other in the process,” said Ms. Dorn. The third difference relates to the organizational structure as most international MFIs strive to reach self-sufficiency and as a result may charge higher rates, whereas US MFIs offer lower subsidized rates because they use grant money and donations to fund their businesses.

Four Key Steps to the Loan Process

Client contacts ACCION – typically the clients call or come into the office in person after being referred to ACCION by a bank, community organization or simply by word of mouth.
Client completes loan application – this stage consists of gathering the proper documentation such as bank balances or business statements. Additionally, 40% of applications require a cosigner due to credit score minimums or lack of documentation.
Prequalification of application – at this stage, the loan officer uses a risk screening scorecard to prequalify the applicant before sending the application to the underwriting team. The scorecard takes into account the applicant’s credit history, character (using references), cash flows, and purpose of the loan.
Underwriter review – at the final step, the underwriter approves or declines the loan and determines an interest rate using the scorecard produced in Step 3.

On average, each loan creates two new jobs and since inception, ACCION USA has created 11.500 new jobs through its loans. For more information, check out ACCION’s Impact Study to be published this month. Default rates remain low, with a current 90% repayment rate.

The current environment presents two main challenges for ACCION USA. The first challenge relates to capacity as ACCION turns away more people than they can fund due to liquidity constraints. The second challenge involves their ability to compete with predatory (also known as “payday”) lenders. To do so, ACCION provides financial education and “webinars” to both clients and non-clients.

Lastly, there are several ways of getting involved with ACCION, including reading their blog, joining the ACCION USA Microfinance Council, following ACCION on Twitter/Facebook, volunteering or interning at ACCION, or joining the lending team on Kiva.org.

For more information, log onto www.accionusa.org or email EDorn@accionusa.org.