Grameen America is looking for banks and social impact investors to help fuel significant growth in its microlending effort.

The plan is to double the size of its loan portfolio, and lend a cumulative total of $2 billion, over the next five years, David Gough, its chief financial officer, said in an interview.

But the nonprofit will need a lot more capital to achieve that goal, so it is making a foray into impact investing.

Gough said the target for this year alone is to raise $16 million of additional capital, which it will use for lending to low-income female entrepreneurs in underserved areas across the United States.

A big chunk of that new money is coming from a fund that the organization recently created to capitalize on the growing trend of impact investing. The hope is for banks and other supporters to make up the remaining gap. "We're looking to meet that need from wherever the market will be interested in helping us to meet it," Gough said.

The inaugural Social Business Fund — which Grameen America expects to be the first in a series — is going to allow the nonprofit to move away from relying so much on philanthropy. The high-net-worth individuals and foundations participating in the fund essentially have become investors in Grameen America's portfolio of microloans.

The targeted return is 3% interest annually, with the principal being given back after five years. The fund is structured with a 20% first loss guarantee.

Impact investments — now a $114 billion sector overall, according to data cited by Grameen America — are meant to deliver positive social and environmental benefits while also providing a financial return.

By tapping into the large demand for such investments, the microlender aims to diversify its funding, attract new supporters it might not have been able to reach otherwise and give existing supporters another option for helping fuel its growth.

"It's a way to appeal to impact investors who are interested in this kind of concept as opposed to pure philanthropy — where they just give you the money and you take it and it's a one-off," Gough said.

"This is a sort of a recurring relationship that we have, whereby our value proposition to the investors is, hey, invest this money for five years and at the end of the day we'll give it back to you and we'll give you an annual rate of interest in the meantime."

David Gough
Grameen America hopes its Social Business Fund will create long-lasting relationships with investors, said David Gough, the nonprofit's chief financial officer.

Grameen America's average loan size is $2,700. Because the loans are only for a short term — 26 weeks — the money raised through the fund will get recycled repeatedly, with new loans being made as older ones are repaid.

Thanks to this recycling, the $11.15 million in capital that the fund is providing ultimately will result in 59,000 loans being made over the coming five years. "That'll translate into $140 million disbursed," Gough said.

Grameen America, which opened in New York a decade ago, now has 20 branches in 13 cities. Its borrowers use their loans for all kinds of small enterprises, like tailoring, pet grooming and housecleaning. They attend weekly meetings to make payments on the loans and receive financial training.

Of the $820 million Grameen America has lent to nearly 98,000 borrowers since its inception, 99% has been repaid, Gough said.

Banks provide the microlender with much of its funding, and even with the social impact investors coming in, the need for bank participation is only going to increase in coming years, he said.

Grameen America raised a total of $10 million last year, and Gough estimates that 80% of the money came from banks. They range in size from small community banks to megabanks.

The opportunity to earn Community Reinvestment Act credit is only part of the attraction.

"What we're seeing with our banking relationships is that they tend to be multipronged," Gough said.

Often the relationship starts with a grant made through a corporate social responsibility program. "Then they kind of learn institutionally what we're doing," and the ability to get CRA credit sparks the interest of others at the bank.

"And now what we're finding is that many of the relationships are actually maturing, so they look at us as a standalone credit," Gough said.

"A lot of the commercial banks see us as a great conduit to be able to reach communities that they can't necessarily reach through their retail operation."

One way Grameen America measures its success is by jobs created, and its current tally exceeds 100,000. That is a stat any banker or social impact investor can appreciate.

Bonnie McGeer

Bonnie McGeer is the executive editor of American Banker. She oversees its monthly magazine and chairs the Most Powerful Women in Banking and Finance program.