The term ‘microfinance’ may conjure up images of loans to the very poor in Africa and Asia, but it’s also on offer in Western countries. Whilst not widespread in the United States, microfinance does have a foothold in some areas. In the state of Illinois, ACCION Chicago has found a formula that seems to appeal to small-scale America.

ACCION International is a non-profit organisation that works to spur business growth via micro-lending and training. In 1994, ACCION Chicago was set up to provide credit to small businesses with no access to financing from US banks. It offers so-called ‘credit builder’ loans of between 200 and 2,500 US dollars. Jessica Horn is a senior loan officer at ACCION Chicago. She says her clients have many reasons for seeking her out:

“We may have a client who comes to us who doesn’t have a credit score. Maybe a recent immigrant [who] maybe has distrusted banks in the past… or maybe has some damaged credit and they are really trying to improve upon it.”

Listen to the RNW interview with Jessica Horn

Micro life-line
In the United States, four national credit-reporting agencies collect various data (bill payment histories, for instance) into credit files on each person who applies for a loan. The agencies analyse the information in the files and produce a numerical representation of a person’s creditworthiness, called the credit score. Banks and other lending institutions use the credit score to determine whether they will extend credit to an individual. People with low credit scores find it difficult to secure loans. According to Jessica Horn, ACCION Chicago can be a life-line to entrepreneurs with bad credit:

“In the United States a lot of people file for personal bankruptcy and it’s very difficult to get credit, even to re-establish credit after that has been taken care of. So we have a lot of those people who come to us. We don’t have a credit cut-off score, which is something that makes us pretty unique and different from banks.”

Repairing credit
Micro-financing is rare in the United States. Americans have access to a myriad sources of financing from banks, including personal loans, small business loans and credit accounts. There are also numerous credit card companies and even pay-day loan services. But the wide availability of credit means many Americans make poor financial decisions and ruin their creditworthiness at a young age. Then, later in life, they’re unable to find a bank willing to lend them money. Jessica Horn says ACCION’s credit builder loan has special appeal for Americans:

“I think that in the United States, which is very much an individual kind of society, … it has worked for us … to have an individual lending-model, where we tie the loan to one person and to their business specifically. Group-based lending has not worked too well, which is what typically people think about when they think about international micro financing.”

After ACCION Chicago’s clients repay their credit builder loans, they can either apply for another micro-loan or they may have repaired their credit to the point where they can seek more traditional financing at a bank.