The Clinton administration plans to supply money for financial institutions to lend to businesses in low-income areas.
At a meeting of the U.S. Conference of Mayors last week, Treasury Secretary Robert Rubin said President Clinton wants his department to launch the project through its Community Development Financial Institutions Fund.
The agency also will create an award program for outstanding microenterprise lenders. The award criteria will be released this spring.
Microenterprise loans are generally made without collateral in amounts from as little as $100 to $2,000. As an example, Mr. Rubin said, a lender might make a character loan to a tailor to buy a new sewing machine.
The new program would help kick-start small businesses in low-income areas, Mr. Rubin told the mayors.
"Microenterprise lending puts money into the hands of individuals - often very low-income individuals - who need very limited amounts of capital to get started," he said.
Kirsten Moy, director of the Treasury's community development fund, said her office is still figuring out how to funnel capital to banks. No starting date has been set for the program, she said.
Ms. Moy added that the development fund would coordinate similar loan programs being run by other federal agencies, such as the Department of Housing and Urban Development and the Small Business Administration.
Bankers active in microenterprise lending applauded the Treasury's plan.
"It's very helpful that the administration is drawing public attention to this as a tool to develop low-income areas," said Paul Ostergard, president of the Citicorp Foundation, through which Citibank makes community development and education grants.
A decade ago, the foundation started making grants to Accion, a Boston- based microenterprise lender that offers small start-up loans in Latin America for everything from bakeries to bicycle shops, Mr. Ostergard said. Since then, Accion has opened microenterprise loan offices in the United States. The foundation recently completed plans for a $1.5 million grant to help Accion securitize its loans.
Despite the fact that these small loans are not secured, the repayment rate tends to be above 96%, Mr. Ostergard said.
"That's in part because there's a strong incentive for them to pay these loans back because, once they do, they become eligible for even larger loans," he said.
The seed of the idea for a federal program to encourage microenterprise lending was planted when First Lady Hillary Rodham Clinton took a goodwill tour through southern Asia last April.
While visiting India, Ms. Clinton said she hoped to duplicate in the United States a program of the Grameen Bank in Bangladesh, which makes character loans to low-income people with viable business proposals.