On Monday, Jason wrote about his experiences at a recent Small Scale Developers Boot Camp, hosted by John Anderson and his team at Incremental Development. It got me thinking about other small-scale, incremental ways we can build Strong Towns.
One of those ways is through microfinance. A lot of people, when they hear the term “microfinance” or “micro loan,” think of women in third world countries receiving loans to start small businesses (craft, farming, etc.) and, while these are impactful and transformative ventures, it’s important to know that microfinance happens all over the world, including in the United States. Its mission remains similar no matter where it is implemented: to help underserved, underbanked communities like minorities, immigrants, women and the poor access the capital and resources they need to achieve small business success.
Microlending is defined as loans under $50,000, usually given to businesses with five or fewer full-time employees. Small retail ventures, creative businesses, or restaurants might be eligible for these sorts of loans, as would some small-scale development efforts.
I asked Leslie Hoffman, Principal at LEH Consulting Group, which specializes in economic and community development, and has a particular expertise in microfinance, to share her perspectives on the intersections between microfinance and building strong towns. Here’s what she said:
Microlending can help with community resiliency in a number of ways. From an economic development perspective, microfinance provides access to a set of financial tools and resources that enable a really important part of a local economy—its small business sector—to be able to grow.
In particular, small communities can sometimes experience challenges in economic resiliency because they may have only a few levers that impact economic health: just one large public sector employer, or one or two large corporations. When you’re able to create a strong small business sector, you alleviate that financial risk that comes from having just one big economic driver.
Ms. Hoffman also added that microlending is about more than just providing funds to small businesses:
There’s also a capacity-building component to microlending […]; it helps not only at the individual level but also has an aggregate effect on that community’s ability to grow economically. Microlending is designed to be not only about the financial products themselves, but also about providing a set of support services to the loan recipient including technical training and business development.
I asked Ms. Hoffman about how microfinance might help small scale developers and she said there were a number of ways that could occur. First, a small scale developer could go to a microlender to get a loan as a business-person, meaning his or her development efforts would be for the purpose of rental or sale (either residential or commercial), and not exclusively personal use. Depending on the size and expense of the project, microloans might be a good option.
Second, resources for small-scale developers also fit under the broad umbrella of Community Development Finance Institutions (CDFIs) which encompasses credit unions, community development banks, community development loan funds, and community development venture capital funds. As the Opportunity Finance Network describes them, “CDFIs are profitable but not profit-maximizing. They put community first, not the shareholder.” CDFIs are certified by the U.S Department of Treasury. Specific CDFIs do housing, mortgage and real estate lending. Most are locally based, so look for one in your area if you’re interested in getting started.
Even if you’re not looking to do a development project or start a small business, you can use your finances to make a positive impact on your town. Credit unions are an excellent example of a financial institution keeping money (and power) within a community of people united by their location, profession and/or background. You can also participate in the microlending process by becoming a lender.
Please share in the comments section if you have seen micro financing and/or CDFIs have a positive impact on building strong towns in your community.