Interview: Gina Harman uses small loans to combat big recession
When the U.S. economy took a nose dive, and banks cut back on lending, many small American businesses turned to a credit source typically associated with the developing world: microfinance. Microlender ACCION USA, which has lent close to $120 million since 1991, was well positioned to help meet the demand (which remains high even in the current relative upswing). We recently caught up with President and CEO Gina Harman at her office in New York City, where she described some of ACCION’s latest ideas and the winding road that led her to this work.
Dowser: ACCION USA provides small scale loans to small business owners that mainstream banks dismiss as too risky. So who are ACCION USA’s typical clients?
Harman: Over 90% of our clients are immigrants and/or minorities. They have an enormous entrepreneurial spirit, an interest to do better and to apply creative thinking to solve problems. The problem for many of them is how to take care of themselves and their families.
And what distinguishes microfinance from traditional poverty alleviation efforts?
One of our clients said to me that he used to think of himself as poor, but now he knows he’s not poor—he’s a businessman. That transformation happens for the vast majority of our borrowers. In the end, that’s what makes microfinance so different from other programs that help people rise up out of poverty. It’s about empowerment and perfecting the tools so people can take control of their lives.
What have been the most important innovations in U.S. microfinance over the last few years?
An automated online application and a credit-scoring model that quickly allow an application to go into the system and determine the likelihood that an applicant will receive a loan. We now lend in 47 states, while we only have brick and mortar offices in four.
Is the online application typical in U.S. microfinance?
There’s a lot of innovation in the lending process and in the way in which organizations find their referrals, but because of the scale of ACCION, and national brand awareness, we’ve been able to get the support of lots of organizations and institutions to go beyond what other microlending organizations can do. I think there are 470 microlending organizations in the United States and ACCION is far and away the largest nonprofit microlender.
Microfinance has been around since the 1970s, but only recently became a hot topic in the U.S. media. Why is that?
Dr. Muhammad Yunus won the Nobel Peace Prize and as a result, there was a rush of articles and information on microfinance, and a change in the awareness about it and its applicability in the U.S. When Grameen America opened a microfinance organization in New York, journalists from all over arrived to talk about microfinance in the U.S. as though that were the dawn of it, even though ACCION USA has been in business since 1991.
Anything that’s been frustrating during your time at ACCION?
With so much awareness on the international front and a fascination that Americans have with alleviating poverty overseas, it’s difficult to get attention paid to the circumstances in the U.S. Secondly, we are working with the riskiest borrowers— people who won’t qualify for financing from a traditional financial institution and are often subject to predatory lenders, including payday lenders.
What’s a payday lender?
A provider of cash advances on the basis of future paychecks or automatic access to a bank account. A $300 loan can carry as much as $45 in fees for a one-week period. Because the loan period is so short, the APR is roughly 400%.
Do you have a business plan to mitigate the current credit crisis?
Typically, our average credit score was below 600; now we’re seeing a greater number of applicants with credit scores above 650. To protect ACCION’s portfolio against increased risk, we established a 575 threshold for the first time in the organization’s history. If we and others who are working hard to protect small businesses aren’t effective, it’s going to make this recession linger far longer than anyone is willing to acknowledge.
How has ACCION helped prevent foreclosure?
We called every one of our borrowers who had adjustable rate mortgages because those were the ones in need of remediation immediately. Then we called every one of our borrowers to make sure they knew what their rights and options were and where they could go to get some assistance.
It wasn’t all selfless—we wanted to make sure we got paid. We’re in the business of helping people to manage their debt; we do preventative work.
Let’s talk about ACCION’s strengths. What makes you proud to work there?
The people. When I first came here I interviewed every one of ACCION’s 50 employees one-on-one for at least an hour. There was not a soul who could not tell me what our mission was and why it brought them to work here.
How did you find your way to ACCION and was it a big career change for you?
Huge. I spent the first third of my professional life as a community and union organizer. Second was a 20-year career in the private sector. After September 11, I was determined to do something that was going to have an effect in the U.S. I joined ACCION’s board. We were searching for a new president and I decided it was a good time for me to leave the corporate world and come home, in the sense of working in a manner that’s consistent with my social values and having an impact on lives other than my own and those of my children.
Was it hard leaving the private sector?
The corporate experience was long, productive, and fortunately very successful, but it was not a perfect fit. This feels like a perfect fit.
What important events in your life have lead you on your path?
As a college freshman in 1968, I was a child of the Women’s Movement, the Anti-War Movement, and the Civil Rights Movement. I came from a middle-class suburb, a white family. My parents created a sense for my three siblings and me of how important justice and equality are, and I became a political activist and opposed the war in Vietnam.
And in your adult life?
Bill Drayton, the founder and CEO of Ashoka, is a long-time mentor. His world view and what’s happening in the nonprofit sector reengaged me intellectually, and helped me figure out what I wanted to do next. I’m inspired by the people who work at ACCION, and overwhelmed by Barack Obama’s election.
How about a success story from ACCION?
We have two young Russian women who decided to open a business in Queens. Being businesswomen was not what was expected of them, and they were rejected by everybody they went to for money. ACCION gave them a small startup loan. Their business, AromaNet Café, is a place for women to be on the Internet and have coffee. It’s become a social center. These two women mention frequently that nobody believed they could do it. They are role models for young women in their community.
This interview was edited and condensed.
Photo: ACCION USA