Replicating Microfinance in the United States: Opportunities and Challenges

In developing countries, microfinance has been the darling of the development community, and in developed countries, microfinance fits well with Third Ways ideas. What are the challenges and opportunities for the attempt to replicate microfinance in the United States? This paper attempts to sketch some answers. Two factors color much of the discussion. First, compared to the Third World, the structure of the U.S. economy makes the hurdles to starting small-businesses much higher in the United States, and, second, the microenterprise sector itself is much smaller. The two aspects combine to make business training a far more important component in the United States than in the Third World. They also limit potential demand for microfinance and drive up costs. With costs well above revenues, U.S. programs are far from achieving financial self-sufficiency. With continued reliance on donors, U.S. programs will have to work toward justifying their place among other subsidized anti-poverty interventions, including education and community-building initiatives. This suggests that serious, regular cost-effectiveness analyses should become a much higher priority than it has been. Our second broad conclusion is that developing inexpensive saving services for the "unbanked" appears to have greater potential for cost-recovery in the United States, and this could open up opportunities for millions of poor households that are poorly served by existing for- profit and non-profit financial institutions. The current focus on microlending in the US echoes the initial focus on lending in Third World programs, but those programs are increasingly recognizing the importance of also developing facilities for safe, convenient savings.