Talk about a transformation.

Terri Ludwig is president and CEO of Accion New York, making loans of as little as $500 in New York's largely unbanked ethnic neighborhoods.

Just four years ago she was on Madison Avenue advising clients on international capital markets as director of global foreign exchange for Credit Suisse First Boston.

Today, instead of wining and dining institutional depositors with multimillion-dollar portfolios, she uses the promise of Community Reinvestment Act credits to entice bankers to lend Accion New York sums of money smaller than some investment bankers' yearend bonuses. Then her group slices it into even smaller portions and lends it out again, often to immigrants with no credit history and no experience with financial institutions.

And she couldn't be happier.

"We know there are a lot of microentrepreneurs in New York whose needs are not being served by banks - people whose businesses are so small that they don't show up on a bank's radar screen," she says. "Eighty-three percent of our customers have never had bank loans."

Ms. Ludwig sees her job not just as infusing small doses of capital into local communities, but as raising the overall "financial literacy" of a population that is frequently too intimidated by the financial world even to walk into a bank.

"We see ourselves as a professional, multicultural organization that takes an interest in the dreams of the entrepreneur, so that they feel we are on their side," she says.

After more than 10 years in the financial services industry, first with Merrill Lynch and then with Credit Suisse, she began to feel something missing from her life. "At one point, I just said to myself, 'I wasn't put on this planet to do banking,' " she remembers. "I decided that I was supposed to be doing something different."So Ms. Ludwig enrolled in Harvard's John F. Kennedy School of Government and received a master's degree in public administration. A few months later she was back in New York City, but on the Brooklyn side of the East River in her decidedly noncorporate offices. (Located in a three-story walk-up, her office is so close to the elevated subway tracks that the J and Z trains interrupt her conference calls and the maintenance workers can peer in her window.)

Ms. Ludwig's story is not uncommon at Accion New York.

Her senior loan officer, Leslie Barcus, is a former international banker from Citibank. Another loan officer got her training at the former Chemical Bank in Mexico, and still another was a former teller at a nearby Chase Manhattan branch.

All joined the organization at least in part because of its connection to Accion International - one of the world's oldest and most successful microlending groups.

Founded in 1973 as a means for individuals with no credit history to receive small business development loans, Accion did most of its early work in Latin America and now has 25 affiliates in 14 countries there. The group's international headquarters are in Somerville, Mass. In 1998, Accion affiliates disbursed $577 million in loans averaging $764 each.

Accion New York was founded in 1994 and by yearend 1999 had an active portfolio of $1.2 million in loans. Last year revenue from interest and fees paid 45% of Accion New York's operating costs, with the remainder covered by grants.

In the United States, Accion's strategy is to partner with local banks, whose involvement with the organization through loans, grants, and participation on the Accion board can help them comply with the three parts of the Community Reinvestment Act: lending, investment, and services.

"Depending on what we are doing, there are three ways in which we benefit," says Janet Thompson, Citibank's vice president of global community relations.

By making below-market-rate loans to Accion, Citibank can satisfy part of its lending requirement. Ms. Thompson's service on the Accion board of directors and the participation of other Citibank personnel in training and advising Accion staff helps meet the service requirement.

Finally, direct grants from Citibank to Accion count toward the investment requirement.

But, Ms. Thompson points out, banks gain more than just CRA credits from working with Accion.

"We're getting a broader understanding of the kinds of communities they work in, and an understanding that there are expanded criteria for making a decision about a loan," Ms. Thompson says. "Nonprofits have successfully worked with banks to say that you can take more risk in a particular kind of neighborhood or a particular kind of family."

Involvement with Accion is also a form of customer development, says Gustavo Buitrago, vice president of the small business group at Banco Popular, a Puerto Rico-based institution with branches in New York.

"Banco Popular has a presence in many of the communities where these lower- and moderate-income self-employed men and women have their businesses," he says. But for many reasons, "our commercial lending [officers] cannot provide micro-loans." For example, many of the borrowers have no credit history or financial statements, and making loans for a few thousand dollars is not cost-effective for banks.

But as these borrowers grow, Mr. Buitrago says, "it is going to be in their best interest to get bank financing." The hope is that when that time comes, they will turn to banks they know are associated with Accion.

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