In replicating the for-profit microlending model that has worked for its namesakes in Bangladesh and six other developing countries, the start-up Grameen America Inc. faces several challenges.
Though the venture's founders hope eventually to get a banking license, they are still trying to figure out which charter best suits its business plan of making unsecured loans of about $500 mainly to immigrant entrepreneurs. Grameen America also acknowledges that it will incur higher labor and operating costs in the United States than its overseas predecessors must bear, and observers say the U.S. economy is in some ways inhospitable to the small businesses that microlenders incubate.
In the short term, Grameen America plans a partnership with an existing bank while it figures out the regulatory hurdles. The start-up plans to use technology to control costs, and it will draw on the experience of managers who have done microlending for the Bangladeshi bank and its brethren.
Though other microlenders operate in the United States, Grameen America apparently would be the first that is run for profit. It is also being set up at a time when U.S. banks are increasingly vying for pieces of the underbanked and immigrant markets, using products like prepaid cards, money transfers and credit cards for the undocumented.
A year and a half ago, Vidar J. Jorgensen, a Boston entrepreneur who founded and is chairman of several companies that research health issues and plan conferences on them, came up with the idea of bringing to the United States the practices developed by
Mr. Jorgensen, who is investing in Grameen America, said he has been asking corporations and foundations for additional funding and has received "good indications." (Grameen Trust, which oversees the model's expansion outside Bangladesh, would own at least 51% of Grameen America, and investors would own the rest.)
"I don't think the biggest problem will be funding," he said. "It will be cost management and also compliance with regulations."
One goal of Grameen America is to get a "full banking license" so it could offer both savings and credit products to customers, Mr. Jorgensen said, but the lender will initially operate as a nonbank.
Last month he recruited Philip J. Philliou, a lawyer, consultant, and former executive of MasterCard Inc. and American Express Co., to be the chief executive of Grameen America. Mr. Philliou said he has been talking to potential bank partners but would not disclose names.
"Eventually we'll figure out some kind of banking platform ourselves as opposed to going through someone else," he said.
Mr. Philliou said he would prefer a federal depository charter that would preempt states' rules. However, he has reservations about the cost of a national bank charter, and so is leaning toward a thrift, he said.
A thrift charter would also give Grameen greater latitude to avoid compliance with state laws. (Courts have repeatedly ruled that the Office of Thrift Supervision enjoys far more preemptive power under the Home Owners' Loan Act than the Office of the Comptroller of the Currency does under the National Bank Act.) But thrift charters impose requirements unconducive to microlending: 65% of a thrift's assets must be home mortgage-related, and no more than 20% can be commercial loans. (Some thrifts have satisfied the home-loan requirement by loading up on mortgage-backed securities.)
Mary Houghton, the president of ShoreBank Corp., a community development bank in Chicago, said that Grameen America would be the first microlender in the United States to operate for profit. (See related story, "
Its success, she said, will depend on efficiency.
Because of high labor and operating costs, many microlenders in this country have failed, she said, so Grameen America "would need to deploy technology to be cost-effective."
Mr. Philliou said Grameen America intends to do so; for instance, it could zap monthly statements to customers' mobile phones instead of mailing them.
Ms. Houghton also cautioned that small businesses in the United States face challenges not found in poor countries.
"Everyone in the U.S. … can get into a car and drive to a Home Depot or a Wal-Mart and have extraordinary selections at low prices. In Bangladesh, there are no Wal-Marts or Home Depots, and the local business can get that business," she said.
Mr. Philliou said he has no illusions about how far $500 goes in this country (especially in New York, where the first Grameen America office is to open) but that for many it could be a start. Ragui Selwanes, a partner in Mr. Philliou's consulting firm who is helping him start up Grameen America, said customers "could be someone starting a day-care [center] from their home or a cooking service for the elderly or people who can't cook for themselves."
Grameen America would follow Mr. Yunus' practice of placing borrowers in groups of five; if one person in the group defaults, further credit is denied to the whole group.
To further motivate borrowers to repay, Mr. Jorgensen said, groups of 30 borrowers would meet at least twice a month. "It's the Weight Watchers model applied to banking," he said.
The lender would generally rely on church, social, and immigrant groups for clients and to pool borrowers, Mr. Philliou said. It has not yet figured out what rates it would charge, he said. The largest microlender in the United States, the Boston nonprofit ACCION International, charges an average rate of 12% and says 93% of its loans are repaid.
Mr. Jorgensen said that Grameen Bank's more than 30 years of experience in Bangladesh and its success in exporting its model to six countries on four continents would be valuable.
Just as in other cross-border start-ups, several managers from Bangladesh are to spend three to four years in the United States to get the enterprise up and running.
A team is awaiting its U.S. visas, and Mr. Jorgensen said he expects the managers here in three months. As project coordinator, Habib Ahsan Shah Nawaz, a veteran of the Guatemala start-up who is fluent in Spanish, "will do the actual lending and do the work on the ground," Mr. Jorgensen said.
