Financing immigrant women businesses
December 19, 2011 § Leave a comment
By Yumna Mohamed and Lilian Tse
Fauzia Abdur-Rahman’s food cart on 161st Street and Sheridan Avenue in New York is fully equipped with a grill, electricity, and running water. She starts every morning at 9 a.m. by firing up the grill. Then she decides what she would like to cook for her customers that day.
“I don’t have printed menus because I decide what I am going to cook each morning,” she said. “I think food is exciting, so I enjoy changing the menu every day.”
The jovial 49-year-old’s mind rushes through her menu ideas, from her native Jamaica’s famous jerk chicken, to Mediterranean salads, to German chocolate cake, a favorite among her customers. By 11 a.m. her hand-written menu goes up on the front of her shining silver cart and customers start to trickle in.
Abdur-Rahman has been running this cart for 16 years. Six years ago, she decided to take out a loan to upgrade her cart but couldn’t find a bank that would provide her with a small loan. Eventually, she was able to secure a $16,000 loan from ACCION, a microlending institution.
Immigrant women like Abdur-Rahman are one of the fastest growing groups of entrepreneurs the United States, according to a 2007 report by Ewing Marion Kauffman Foundation of Missouri. This group has been recognized by local and international microfinancing organizations that are increasingly choosing to invest their money in women.
The Kauffman Index of Entrepreneural Activity reported that immigrant women started businesses at a rate 57 percent higher than American-born women, and their likelihood to start their own businesses has led many organizations to lend their financial support.
While financing is a tough challenge for women entrepreneurs, immigrant women also face many additional family burdens.
Abdur-Rahman came to New York for summer vacation when she was 20-years-old. She knew then that she wanted to remain in the country and set about starting a life here. She admitted that while being her own boss has its perks, it also had its challenges in the beginning.
“For 10 years I would wake up at 6:30 a.m. to take care of my children, start cooking at 8:30 a.m., serve my food until well into the afternoon, and will not arrive home to sit down until late at night,” she said.
Navigating the U.S. credit system is not always logical for immigrants. Paul Quintero, CFO of ACCION USA, explains that ACCION is more than just a lending organization. The biggest cultural difference between most other countries and the United States is the emphasis in this country on credit.
“We try and help immigrant entrepreneurs establish a credit history and educate them on the credit process. Many immigrants come from a culture where borrowing is bad and this is the fundamental difference. Here, you need a credit history to show that you can borrow and that you can borrow responsibly,” Quintero said.
ACCION starts off with small amount of credit so they can see the benefits and avoid the detriments. Once lenders have a good credit history, they begin to quality for loans in traditional banks and can benefit from lower interest rates.
Gwendolyn Bonilla, the Intake officer at ACCION, explains that the organization provides term loans of up to $300,000 and start up loans for up to $100, 000.
“While our branch of ACCION does not specifically target immigrants, a large portion of their lenders are immigrants from Latin America,” said Bonilla.
To cater for the immigrant clients, ACCION has Spanish-speaking loan officers and only requires lenders to provide their Individual Taxpayer Identification Number (ITIN). IRS issues ITINs to individuals regardless of immigration status.
“We never ask our clients whether they have the documentation to be here or not. Anyone with a ITIN is eligible to apply,” Bonilla said.
Another popular microfinance organization is Grameen America. The Grameen Bank, a microfinance enterprise that provides small loans only to women, was founded by 2006 Nobel Peace Prize recipient Muhammad Yunus. They started in New York in 2008 and it was their first international operation outside of Bangladesh.
Many were skeptical about whether Grameen could apply a financial model from the Third World to the First World. But since 2008, the organization has disbursed over $16 million to more than 5,500 members living below the poverty line in the United States. Immigrants making up most of the borrowers at Grameen.
Grameen focuses on providing loans to very small businesses, such as women selling trinkets on the street or baked goods from their homes. This type of women-run businesses have the most difficult time securing loans, since they have no credit history, no savings and no business experience. The organization disburses small loans between $500 and $3,000. First-time loans are a maximum of $1,500. Borrowers need not have collateral, a bank account or credit history, but must be living below the poverty line.
While the interest rate of about 15% of the microfinance loans may be high, microfinance firms do not require collateral and often provide support to empower women.
“Grameen’s model allows women to form support groups, so they are not alone. Every microfinance firm has a different approach, but everyone wants to make sure their borrowers are empowered,” said Noor Shams, a former employee of Grameen.
Grameen America has extended its reach to a number of locations in the United States since its establishment, including opening a branch in northern Manhattan on 2009. In 2010, the Upper Manhattan Empowerment Zone Development Corporation closed on a $500,000 loan and $125,000 grant to allow Grameen America to expand its platform in Harlem, Washington Heights and Inwood.
“For nearly 15 years, our organization has been lending much-needed financial and other assistance to new and existing small businesses in upper Manhattan which we believe are the backbone of our city’s neighborhoods,” said the group’s CEO, Kenneth J. Knuckles. “That’s why we were pleased to provide this funding to Grameen America which shares our goal of providing loans to those businesses which are too often considered ‘unbankable’ by many of the traditional commercial banks.”
This branch has grown to nearly 400 borrowers with a growth strategy to increase to over 4,000 borrowers over the next five years according to Knuckles. He added that most of the borrowers have used their loans to start food carts, hair salons, as well as home-based child care services and selling beauty products door-to-door.
Borrowers form a group of five people who go through a five-day business training program and open a savings account after which they can take out their loans. Once they start generating an income, they begin repaying loans and deposit savings. Once they have fully repaid their loans, they have the option to take out another.
Chan Xue Liu has lived in New York for 25 years. But the only English words she knows are “Hello,” “Goodbye,” “How much?” and a few basic numbers. Chan lives in Flushing and has insulated herself within the Chinese community.
Chan immigrated from Hong Kong with her two children and husband in the mid 1980’s. With only a high school degree, the only job she could find was in a textile factory. After a few years of living in Flushing, some of Chan’s best friends decided to venture into mid-town Manhattan during a Saturday afternoon. Chan visited a shopping mall for the first time. “I was browsing through the clothes, and I was shocked to see the clothes I helped to make were sold at more than $100 dollars each. I only got $2.25 for each piece of clothing I made. I knew I had to stop working at the factory,” she said.
Chan decided to make some Asian style clothing in her own home and sell them to local stores in Flushing. With barely any savings, she turned to her family to borrow money. She managed to borrow $1,000 from her family, but that was not even enough to buy a good sewing machine. Chan tried to apply for loans from a traditional bank.
“I got the application form and I couldn’t even understand the questions on the form. It was intimidating and I walked out of the bank within 5 minutes,” Chan said.
Chan pawned off some of her wedding gifts and also turned to local Chinese money-lenders to borrow money.
“The interest rate of these money lenders is really high, sometimes more than 100%. But I had no choice. I don’t speak any English, so I can only rely on the Chinese community,” she said.
Chan has never heard about microfinance, and doesn’t think that she would borrow from outside the Chinese community because she “just doesn’t know who to trust.”
While the microfinance movement has gained significant traction around the world, many immigrants still choose not to rely on microfinance firms. Jeffrey Ashe, the director of community finance at Oxfam America, explains that while the microfinance movement is growing, there are simply not enough microfinance firms to serve immigrants.
Also, many immigrants tend to just rely on their own communities for borrowing money for their businesses. This stems from immigrants’ lack of trust with organizations outside of their community, as well as being intimidated by the language and cultural barriers.
Rotating Savings and Credit Association (ROSCA) are a thriving way for immigrant communities to save and lend each other money, Ashe said. ROSCA is an informal program initiated by group of individuals who agree to meet for a few months in order to save and borrow together. Each member contributes the same amount at each weekly or monthly meeting, and the whole sum is lent to each member until all members have received the fund. At that point, the club is disbanded to minimize risk. The simplicity of the program makes it suitable for immigrants with low levels of literacy.
“ROSCAs are popular among all types of immigrant communities in the U.S. from Nepalis to Bolivians. They are informal devices that they bring back from their home countries to the US,” said Ashe.
ROSCAs were very popular in the Asian America community before World War II and have continued to flourish in the US among different ethnicities. This form of borrowing and saving money is mainly used for helping immigrants to start-up their funds, but can also be used for other large investment needs.
The movement for financing women immigrant businesses has not only been left to non-profits. Across the United States, various state governments have been launching loan programs for women immigrants as a critical tool to create jobs and stimulate the economy. The Wisconsin Housing and Economic Development Authority has a loan subsidy program that is dedicated for minority women businesses. The Ohio Department of Development has targeted 50 percent of their Minority Direct Loan funds program exclusively for minorities and women.
Ashe is currently working on helping disadvantaged communities save, rather than provide loans.
“In the U.S., only 10 percent of people are self-employed. You can only reach a small group of disadvantaged by focusing on providing loans. By focusing on savings, you can reach everyone,” Ashe said.
Abdur-Rahman’s cart was nominated by New Yorkers for the Vendy Award, an award given to the best street vendors. She was nominated for the Vendy Award because the food was “fresh” and “the healthiest thing ever eaten from a street cart.”
However, the long lines – even on rainy cold days – suggest that the food sets it apart from the rest.
One of the customers in the line during a cold December afternoon said, “I’d cry if she wasn’t out here.”