Lost in Translation?

An important element of microfinance was lost in the trip from Bangladesh to Philly. Maybe it can still work.

by E. James Beale

the charitable impulse

Sean Caldwell (center) with Infitainment associates. (CLICK IMAGE FOR LARGER VERSION)

Standing about 5 feet 8 inches with fashionable jeans, Reeboks and a starched, white, untucked oxford shirt, Sean Mitchell Caldwell tries to explain the marketing strategy of his newly licensed do-everything limited liability company, Infitainment: "Right now it's what I call 'guerrilla marketing,'" he says. "Basically we just run up on you and sell our product."

The people he's talking to, about two dozen fellow aspiring entrepreneurs who are gathered in the Bourse Building overlooking Independence Mall, accept this as a viable strategy, but are more apprehensive about the products he wants to push. Caldwell promotes clubs and jazz, hip-hop and poetry artists. He designs and sells T-shirts, posters and CDs. He films and produces commercials. He writes for a local newsletter. If you've ever bought a specially designed T-shirt in Philly, there's a decent chance it was once in his hands.

The other entrepreneurs, including the owner of a small rental properties business, prod Sean with questions. "What part is the most successful? Are you a promoter who sells shirts or a designer that promotes local artists?" Finally, he relents and admits that filming a documentary can take away from time he should be using to develop and track the Infitainment customer base.

This group is together because the Philadelphia Development Partnership (PDP) offers the promise of small loans, regardless of collateral or credit rating; all you have to do to get one is take a course on small-business management, and create a viable business plan.

PDP is the city's sole provider of microloans, a concept pioneered by Nobel Peace Prize winner Muhammad Yunus. Yunus' Grameen Bank, founded in 1976, has loaned about $6.5 billion in U.S. dollars to some of the world's poorest people, and boasts a repayment rate of 98 percent (your bank's rate is closer to 70).

This success has turned conventional wisdom about banking on its head — it was once believed that people in poverty couldn't be given loans — and has made people think hard about the meaning of charity. Yunus believes that a loan provides the borrower with more than money: By successfully paying one off, a borrower gains not only capital and improved credit, but pride, strength and confidence in her abilities. It also makes the lending program self-sustaining: The Grameen Bank hasn't accepted donor money since 1995.

And yet, PDP, which was founded in 1989, hasn't embraced the Grameen model — only 20 percent of the nonprofit's clients end up choosing to take a loan. Instead, PDP invests in development services — technical assistance, computer space, accounting, — which it provided to 400 clients last year. And it is almost completely reliant on donors. It's a classic charity.

Not that it's alone among microfinance institutions (MFIs). PDP Executive Director Leslie Benoliel estimates that there are 500-600 such outfits throughout the United States. How many turn a profit? "Here in the U.S.? None," she says, her tone suggesting there may be something ridiculous about the question.

Is this of necessity? When asked if Grameen-style microfinance could work in a place like Philadelphia, Yunus has expressed optimism, telling City Paper in February: "You would have to tailor your program to those who you want to help ... [but] if it makes sense to you, and it makes sense to me, why not?"

Keith Weigelt, Wharton professor and microfinance expert, takes a softer line. "It's possible," he says, "but I'm not sure that that is the direction that microfinance wants to go." He thinks that the for-profit model probably can work in Philadelphia, but wouldn't be as good for borrowers as in the Third World.

For one thing, starting a business in Bangladesh and starting one in Philadelphia are not similar propositions. In Bangladesh, you can buy a fishing net and start a fish store. Here, a would-be entrepreneur can't just sell fish out of the Schuylkill; he has to deal with tax codes and registration requirements.

What's more, Weigelt says, the interest rates that MFIs would need to charge to turn a profit in the U.S. would be extremely high. Even in the ideal situation — an entrepreneur requests a small amount of money to pursue a well-thought-out endeavor — the lender has to review her application, approve the request and make sure the individual receives and pays back her loan. This makes the cost of delivering the loan greater than the loan itself, and, indeed, those nonprofits that have tried to be self-sufficient have ended up charging 80 percent to 100 percent interest rates on small loans. This not only means that someone would be paying back $1,000 on $500 they took out to buy supplies for, say, a cleaning business; it means, as Weigelt says, that it would be hard for the lender to remain "more focused on social justice than making money."

Years ago, Sean Mitchell Caldwell heard a local hip-hop group that he was sure would be big. He pressed 1,000 CDs of their music and went to Columbus, Ohio, to sell them. Several months later he returned with his tail between his legs, having sold a total of three.

PDP may not end up lending Caldwell money, but it's working to make sure he has a viable business plan before he drives to Ohio again. And while PDP's version isn't the "microfinance" most people know — the form used by Yunus — that doesn't mean it's not helpful. It's just that, for once, the American version of something is a little softer, a little less profit-driven than the foreign model. And, frankly, though organizations like PDP have strayed from Yunus' original vision, there is an important theme of his work they continue to reflect. "You can have another orientation" besides the profit motive, he said in that February interview: "How to do good."

(e.james.beale@citypaper.net)