Small Change

Micro-finance, credited with spurring economic development in some of the world’s poorest places, is catching on here in Alberta too

by Wes Lafortune

A petite French bakery tucked into a nondescript strip mall in northwest Calgary might seem an unlikely spot to discover a small business founded through the support of micro-credit. Far from the slums of Bangladesh from whence the micro-finance movement emerged, Philippe Poncet is an example of a successful entrepreneur who is making it work right here in Alberta.

“I always dreamed of opening a café or bakery,” says Poncet, who opened Éclair de Lune in May 2008. Equipped with plenty of motivation but not much money, he approached Momentum, a Calgary-based economic development agency. Formerly known as the Mennonite Central Committee, it operates a micro-lending program aimed at Calgarians who, for a variety of reasons, might not qualify for a traditional small-business loan.

“I phoned them on Friday and was enrolled in the course by Monday,” Poncet says. “Without Momentum, I wouldn’t be here.”

Rather than doling out money to people with big dreams, Momentum asks participants in search of business financing to first take a business development program, a very practical crash course in writing a business plan, budgeting and financing their ambitions, often from multiple sources. “The first part was very intense,” recalls Poncet. After successfully completing the six months of entrepreneurial training, he applied for and secured a $5,000 loan at prime plus 1.5%, which he is required to pay back within two years. “I needed that money to start,” he says. “As little as it was, it was essential.”

Over at Momentum’s headquarters, Uzo Enyi, a loans facilitator and one of the key contacts for entrepreneurs in training at the agency, says the differences between micro-lending and borrowing from a traditional banking institution are significant. “I came from a banking background,” she says. “I worked as a financial representative. This is a whole shift from working at a bank.” Poor or no credit histories, lack of business experience and an acute shortage of cash are the common ingredients of those enrolled at Momentum. The participants may have a credit history but not a great one. Half have a net worth of less than $1,000.

“They have many barriers,” Enyi continues. “A bank wouldn’t even look at them. In a bank system, you input numbers and it shoots out answers, whereas this is really people-focused, people-centred.”

The essential idea behind micro-finance is that character is every bit as accurate a predictor of a borrower’s likelihood of repaying a loan as collateral or credit rating. Given the dysfunction gripping the mainstream financial markets where the latter criteria rule, the movement’s proponents might be onto something.

The patron saint of micro-finance is economist Muhammad Yunus. In the 1970s Yunus took ideas applied successfully by ShoreBank, a community investment institution that had helped revive inner-city neighbourhoods in Chicago, and founded the Grameen Bank in his native Bangladesh. Today Grameen has nearly eight million borrowers, 97% of them women. To date the bank has disbursed more than US$8 billion with the surprising loan recovery rate of 98% (compare that to the United States housing market, where one in 16 mortgages is in default). Due to his efforts to lift the poorest of the poor out of poverty, Yunus (along with Grameen Bank) was awarded a Nobel Peace Prize in 2006. But the movement has taken root in poor countries and enclaves around the world. All told, micro-credit is estimated to benefit more than 100 million families.

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