Charlotte is a bank town – known for banks in the traditional sense – like Bank of America and Wells Fargo that offer checking accounts, credit cards and loans, if you can qualify. But in the last week, a very different kind of bank opened in Charlotte offering what's known as microloans to small businesspeople who couldn't qualify for a traditional one.
The Grameen Bank makes loans no larger than $1,500 and borrowers pay them off in weekly installments of about $40. This microlending concept originated in developing countries as a way to lift people from poverty by giving them just enough money to start a business.
But why does Charlotte - which has no shortage of banks or money - need a Grameen Bank?
WFAE's Julie Rose put the question to former Charlotte City Councilman John Lassiter who led the effort to bring Grameen America to Charlotte.
LASSITER: Well, one of the critical characteristics of Grameen America is that it provides entrepreneurial capital to folks who live below the poverty line and are unbanked – no banking relationship, no access to credit, they don't have family or friends with money, don't have a credit card. So they don't have the kinds of tools a traditional startup business might be able to lean on to get going.
And their needs are relatively small in the sense that somebody in the catering business would have to buy a professional mixer to make more cakes at a time. Somebody in the tailoring business would have to buy a better sewing machine. They just don't have that startup capital to get their business going.
ROSE: And why would – why should – a bank take a risk on this kind of borrower who can't qualify for other kinds of loans – and for some good reasons?
LASSITER: Well that's the uniqueness of the Grameen model. When Professor Muhammad Yunus was traveling in Bangladesh in the 1970s, he saw women in poverty and they were being taken advantage of by payday lenders and folks forcing them to pay more than they could for services to kind of control the marketplace.
And he said, "What if I loaned you $27, could you pay me back?" And the first woman he went to said, "Yes I can. I'll pay you back with interest every week." And she was able to begin to change her life.
So he built what we know now as Grameen Bank. And he developed a strategy that utilized a peer model – that is you don't borrow by yourself, you come in with five other people and each of you has to build up your business plan. You go through a fairly rigorous training program that teaches you about credit and planning and access to banking institutions. Then you meet on a weekly basis with your group – talk about your successes for the week, pay down part of your loan and put money in a savings account. And that model has flourished.
ROSE: You led the effort to raise, over the last three years, about $2 million to start up this bank in Charlotte. How did that go? What was your pitch and how did people receive it?
LASSITER: Our pitch was pretty straightforward: It's a model that's been proven effective internationally and in the United States. The secret sauce is the sustainability of the model. Once you get your original operating capital – which is about $2 million – the payment by the borrowers sustains the model and it requires no more new money.
ROSE: So, the interest payments - borrowers pay about 15% interest – that sustains the future of the organization?
LASSITER: Correct. Grameen America is a 501c3, which means all the dollars stay within the nonprofit. The dollars that are paid back on a weekly basis go back into funding the local branch and they're reused.
We issued our first four loans on Friday – they ranged from $1000-$1,200. As they pay off their loans on a weekly basis, those dollars go back into their peer group and more peer groups that have a business idea that needs funding.
ROSE: And those peer groups – you're required to attend support groups, basically, every week – so the idea is a little bit of peer pressure? You don't want to default on your loan when your fellow borrowers are there?
LASSITER: Sure. I'm a small business owner. I have banking relationships. I can't imagine having to every Thursday afternoon sit down with my banker and tell him how I did for the week. And they have to not only tell their banker – they have to tell their friends who, if they're not doing well, it restricts the ability of folks within the group to have access to loans. So literally the boat's lifted by the support of the entire group.
The concept of Grameen is both an idealistic viewpoint, but it's also very pragmatic. It says "Let's find a way to open the door to success to folks who have a lot of doors closed to them all the time. And do it in a way that is sustainable, that is long lasting."