GRAMEEN LENDING METHODS SUCCESSFUL IN CHICAGO

A combination of peer support and peer pressure can make lending to members of a group much safer than lending to an individual, even if the group has to be constructed first. This, at least, is the experience of the Women's Self-Employment Project (WSEP) in Chicago which was set up in 1986 by three professional women and a foundation to help single mothers on welfare with no credit records break out of poverty through self-employment. "52% of the Chicago homes where mothers are raising children alone are below the poverty line" says Connie Evans, executive director of the project, "and in 1992, when a charity, the United Way of Chicago, studied the city's needs, it reported that loans to emerging businesses or start-ups of under $10,000 were virtually non-existent. That was for all social groups so the chances of the sort of women who participate in our program getting a loan was, realistically, nil."

WSEP uses an approach to lending developed by a former Bangladeshi economics professor, Mohammed Yunus, who became concerned about starvation among people marginalised by the economic system during the 1974 famine in his country and went out on to the streets to try to find out just what the barriers to their re-incorporation were. He met a woman who was being paid just over a penny a day by a shopkeeper to make bamboo stools. She would have been able to earn a great deal more had she sold the stools herself but could not afford the cost of the materials - around a pound. Within a few days, Yunus met 41 other people whose lives could also have been greatly improved if they had been able to borrow trivial sums of money - the total amount they needed was just £20. His first reaction was to give them the money himself but then he realised that, while his gift would help those he had met, it would do nothing for millions of people with similar needs. He had to help change the system. When he approached a bank to see if it would lend to his group, the idea was treated with scorn. "The poor are not creditworthy" he was told. He persisted, however, and the loans were eventually granted on the basis of his personal guarantee. The Grameen Bank was born. Over a million loans later, and with a 98% repayment rate, Yunus has proved the conventional bankers' view wrong. "The Wright brothers demonstrated that humans could fly" he says. "Grameen has demonstrated that the poor can borrow. Our statistics show that the poor are more creditworthy than the rich."

Grameen's secret is the use of borrowing circles. In Chicago, self-selected groups of five women from the same neighbourhood, each of whom wants to borrow to set up or continue a small business but who must not be related to each other or be in business together, attend part-time courses lasting six to ten weeks. During these they develop a sense of commitment to each other and are taught business skills and how the WSEP Full Circle Fund works. They also open accounts at banks where the WSEP has negotiated special low- or no-cost terms for them so that they can manage their money better and have a place to save. When the women are judged to be ready, the group is recognised as a circle, selects a name for itself - examples include Ladies of Success, Imani Five, and Too Blessed - and chooses two of its members to receive the first loans, which may not exceed $1,500 each and are repayable over a year. The interest rate is 15%, which Connie Evans believes is not excessive in view of the high administrative costs lending this way involves.

The circle then meets for about three hours every second week 'for continuing support and assistance'. In districts in which several circles exist, the meetings are arranged so that after each has finished receiving loan repayments and discussed any new loan applications, it can join three or four other circles in what is termed a Center to discuss issues of interest to them all. "The neighbourhoods in which we work have not only been drained of economic resources but also of many of the institutions which exist in healthy communities" Evans says. "Through these meetings, the Full Circle Fund is evolving into a vehicle which enables women to begin replacing them.".

One center has set up several committees to handle its members' needs both as borrowers and members of the wider community. "One of these committees helps people prepare well-thought-out loan applications. Another concentrates on arranging the types of training the women feel they want. A third is concerned with crime and violence and has developed a plan to put decals in their front windows so that children in the community can recognise a 'safe' house if they run into trouble on their way to and from school" Evans says. All the districts in which WSEP works are crime blackspots: one of them, Englewood, was described in The Wall Street Journal as 'a neighbourhood where every block has a boarded-up building and two inches of bullet-proof plastic separates workers from customers at Kentucky Fried Chicken.’ Another journalist said of the same area that 'the most conspicuous entrepreneurs were the ones dealing drugs on the corners'

Repayments on a circle's first two loans begin two weeks after the money is received and, if the three fortnightly payments are made on time, another two of its members qualify for their loans. The final member gets her loan after a further six weeks, provided all her colleagues' accounts are in order. This is the key to the circles' success: if anyone falls down on her repayments, the four other members of her circle will be unable to get their loans or additional ones: she will have let down her friends. "Peer support and peer pressure really serve as a good way to lower credit risk" Evans told me in 1995. "Each year we make 100-125 loans totalling $250-300,000 through the Full Circle Fund and have 17 circles in two centers in operation. The repayment rate is 97% and we estimate that about 600 businesses have been started since the program began, 85% of which are still operating."

When a circle member has successfully repaid her first loan she can apply for a another one, this time of up to $3,500, and each time she pays off a loan, her credit limit increases by $2,000 until she reaches the Full Circle Fund's $10,000 ceiling. The WSEP does not rely solely on pressure from other members of the circle to see that these larger loans are repaid - most are also 50% backed by some form of collateral, although frequently this takes an unconventional form. One borrower was allowed to offer her dining table and chairs as security for a loan, while others have used paintings and craft items. "Almost anything the women value can be accepted", Evans told me. WSEP is not just going through the motions - it will seize whatever is pledged if the loan turns sour. The woman who pledged her table saw it taken away and sold.

"We also give make loans tailored to a woman's business needs, such as 30-, 60- or 90-day short-term loans and revolving lines of credit for the purchase of stock." Evans says. Besides collateral, access to these further funds is usually conditional on the prospective borrower's successful completion of one of the courses WSEP runs such as its Entrepreneurial Training Program which involves attendance at a weekly two-and-a-half-hour class for a period of twelve weeks at a cost of between $8 and $52 weekly depending on the woman's means.

WSEP classes are therefore not cheap, but then neither is running the program, which with its four full-time workers, costs about two-thirds as much as the annual amount of money lent out. Most of its costs are in fact covered by grants from government agencies and foundations.

WSEP was not the first Grameen-type programme in the United States - "Besides Grameen, we also modelled ourselves on WEDCO in Minnesota and we helped a similar programme in Los Angeles get started" Evans says. "There are probably twelve of more organisations using lending circles now." One of these is the Lakota Fund on the Pine Ridge Indian Reservation in South Dakota which made 68 individual loans in 1987 and found that half the repayments were late and 28% of its money had to be written off. It then established borrowing circles and the default rate has dropped to 7%.

Evans believes strongly in the importance of what WSEP is doing. "The employers in the neighbourhoods in which we work are usually large companies and fast-food and retail chains which offer women low-wage and service-oriented jobs which do not provide them with the experience and opportunities necessary for their personal and economic advancement. Self-employment can be a way of escaping these limitations. It gives women a chance to provide their children with positive role-models, to increase their own self-esteem and to raise the quality of life of their families. It also keeps economic resources within the community. Profits gleaned from local money do not end up reinvested in some other neighbourhood, city or state."

Mohammed Yunus thinks that work should not be separated from the ownership of the means of production. "We have to instil in everybody's mind that each person creates his or her own job" he wrote in the Grameen Bank newsletter, Grameen Dialogue in 1994. "The more we can move towards home-based production by the self-employed masses, the more we can come close to avoiding the disasters of capitalism."

2002 Update on WSEP by Caroline Whyte

Since 1996, WSEP has moved from providing group loans to individual micro and small business loans. Wanda White, the current President of WSEP, explained the reasons for this change to me in an e-mail in September 2002.

WSEPtional Woman Award 2002: WSEP's 2002 Unsung Shero Award Winner Deborah Pierce (middle) with Wanda White, President of Women's Self-Employment Project (left), and Judy Barr-Topinka, Treasurer of the State of Illinois(right).

She writes that "while the model [of lending circles] promoted the peer to peer exchange and fostered the development of bonds between the women, it did not result in women actually borrowing from the circles but rather utilising the circles as "women support circles"... Women required more technical support that was not possible through a model of "Peer Support Leaders" [who] were great organisers but poor business specialists."

"Additionally (White writes), it is my belief that the culture of the United States is quite different in that we grow up in a very individualised society and tend not to practice co-operative economics. So while we talk about co-operative economics there are very few models in the states where it actually takes place relative to the entire population. Of course I hope that we will be able to study this further when we have the opportunity to look back at our work and that of others in this area. What we have retained from the circles are the "Peer to Peer" exchange and a culture of facilitation rather than teaching - ie, recognising that every one has something to contribute that aids success, not just the business specialist in the front of the room. We also learned a great deal about character based lending and the step lending process that, while it has changed, still remains a central component to how we make capital available."

The individual and micro-enterprise loans that WSEP now makes range from $500 to $75000 and average approximately 50 per year.The loans have a repayment rate of 91%, and WSEP has an active database of 662 businesses, mostly in the retail and service sector. White comments that "in the past 85% of the businesses have been home based and today 60% operate their businesses outside of their homes."

White emphasises that "over its 17 year history WSEP has always recognized the importance of asset accumulation as a wealth creation strategy necessary for women to obtain economic security". To this end, the project now operates a financial education and savings programme that educates women on the importance of financial management, saving and investing in assets. Income eligible women can, upon completion of a six week financial education course, open an Individual Development Account which is a two year matched-savings programme. For every $1 that is saved, WSEP will add another $2.50. In this way, participants can acquire enough funds for a home purchase down-payment , the creation or expansion of their own business, or post-secondary education and vocational training.

For $25 per year, women can become members of the WSEP's Money & Markets Programme, which provides technical assistance and useful contacts for small business owners.

WSEP members receive training from various industry professionals to help ensure they are getting the most accurate and comprehensive information available.

Three years ago Wanda White and Connie Evans, along with the WSEP board of directors, embarked on a planning process to create an institutional model, the WSEP Family of Companies, whose purpose is to generate additional earned income in order to increase the scale and impact of WSEP. White explained that "functioning as a holding company, WSEP Futures is currently comprised of two non-profits: the Women's Self-Employment Project and WSEP Ventures. WSEP Ventures operates two companies, a wholly owned for-profit subsidiary, CLW Foods, and the WSEP Consulting Group, a market-based strategy and management consulting firm."

WSEP also has an advocacy branch. It seeks to educate public policy decision-makers on such matters as provision of good quality employment by means of incentives for employers of small businesses, (since some of the WSEP businesses are now big enough to have employees), and quality childcare.

WSEP is one of a growing number of Community Development Financial Institutions, or CDFIs, in the USA. These CDFIs benefit from a government programme, the CDFI Fund, which was established in 1994 and which has made more than $534 million in awards to community development organisations and financial institutions in the past eight years. WSEP is a member of the CDFI Coalition , which includes micro-enterprise development programmes such as WSEP and community-based banks such as ShoreBank. Information about other micro-enterprise programmes in the US, Canada, Japan, the UK, Ireland and the Philippines can be found at the website for the Association for Enterprise Opportunity.

When asked what future plans WSEP has, White commented that "the aftermath of September 11th has been devastating for this country and not for profits as funders contend with declining investments and government budgets are focused on 'homeland security'". She advises people who wish to establish organisations similar to WSEP that "[these] organisations must be innovative, entrepreneurial and strategic, recognizing that we are applying market-based concepts in order to bring about positive social change for our customers. With innovation we can provide cost effective services, with entrepreneurial operating principles we always remember the customer is first and finally being strategic allows us to embrace change while maintaining high value products and services."

Wanda White, Executive Director, Women's Self-Employment Project, 11 S. LaSalle Street, Suite 1850, Chicago, IL 60603, USA. Tel. 312-606-8255, fax 312-606-9215, e-mail info@wsep.com

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