NEW YORK — Grameen America, a nonprofit microfinance organization that specializes in providing small business loans to low-income women, may seek to adopt a credit union structure.
Founded in 2008 by chairman Muhammad Yunus, the Bangladeshi microfinance pioneer who received the Nobel Peace Prize for having formed the Grameen Bank organization in his native country, Grameen America currently operates in 11 U.S. cities, and is expanding in southern California.
The 501(c)(3) organization has been issuing uncollateralized loans, beginning at $1,500, the majority of which have six-month terms and carry a 15% interest rate.
Since its 2008 opening, Grameen America stated it has provided about $200 million in microloans to nearly 38,000 low-income, mostly women entrepreneurs. Grameen America is an independent entity, not affiliated with Grameen Bank, but uses a similar lending model that proved largely successful among poor villagers in rural Bangladesh.
In southern California, where it provides small loans primarily to low-income Hispanic women in the Los Angeles County area, Grameen America wants to ultimately invest more than $650 million in 91,000 businesses partly through the help of donors, philanthropic organizations and partnerships with some large established commercial banks. So far, Grameen America has disbursed more than $4.2 million to more than 2000 women-owned businesses in the Los Angeles area and has enjoyed a 98% repayment rate.
But since Grameen America is not a bank, it faces some operations struggles in the U.S. lending marketplace.
To remedy that, Andrea Jung, the former chief executive of Avon Products Inc. and current president of Grameen Bank said in an e-mail that the "long-term prospects of Grameen America considering a credit union structure could be of strategic benefit to our members." Jung added that Grameen America's goal it to "become sustainable on an organizational level so that in the future we will no longer require philanthropic support."
Indeed, a CU structure may be more feasible than becoming a bank. At a conference in Los Angeles in late November, Yunus dismissed the possibility of Grameen America converting into a bank due to costly regulations involved.
Becoming a credit union, however, may also prove challenging.
Marvin Umholtz, a credit union consultant, noted that a credit union regulatory regime would not be any less rigorous than that of a bank.
The current regulatory environment, noted Dennis Dollar, an Alabama-based credit union consultant, requires the same level of compliance for a small start-up credit union as it does for much larger credit unions with far more resources.
"Additionally, a credit union charter carries with it certain membership eligibility limitations that don't seem to fit Grameen America's business model," Umholtz said. "Operating a credit union can be as expensive or even more expensive than operating a bank, depending on the circumstances."
But Dollar held out some hope for Grameen, citing that the people running the organization could make the case that their purpose is consistent with the CU mission of "serving persons of modest means."
"If they can get the capital base established with a definable field of membership, they might be able to pull it off," Dollar said. "After all, professional athletes and [even] the marijuana industry have both gotten credit union charters in the past year and neither has won a Nobel Prize over the past decade as have the Grameen folks."
One big believer in the possible conversion of Grameen America into a credit union is Martin Eakes, who runs the Durham, N.C.-based Self-Help Credit Union, which began life as a lender to low-income borrowers in rural North Carolina (there are two Self-Help CUs: the state-chartered credit union has assets of $670 million, while the federally chartered entity has about $546 million, both are run by Eakes).
"I think it would be a terrific idea for Grameen America to become a credit union,"Eakes told Credit Union Journal. "In fact, I advised them to do just that a few years ago."
Eakes noted that his organization differed from the original Grameen of Bangladesh in that it issues small-business loans valued at tens of thousands of dollars (unlike the $1500 or so that Grameen handed out to low-income rural women).
Admitting that it would be difficult to start a new credit union, given high start-up costs and tough regulations, Eakes nonetheless insisted that he is confident that an organization like Grameen — one of the most well-known nonprofits in the world — would be able to raise the financing for such an endeavor.
Kevin Wack contributed to this report.
