One guiding principle of the National Urban League's recently released "Opportunity Compact" is the opportunity to prosper.
We contend that every individual in America who possesses entrepreneurial vision, ingenuity, drive and desire should have access to the resources needed to establish and grow a viable business enterprise. The importance of minority-owned businesses to urban economic development is well documented.
They're more likely to be located in urban communities, so they're more likely to hire local residents and use minority-owned suppliers, thereby lowering local unemployment rates and boosting business growth. Despite these benefits, minority entrepreneurs continue to face major obstacles to their start-up and growth, including lack of financial capital, among others.
A 2005 U.S. Small Business Administration's Office of Advocacy report found that minority business owners are less likely to get bank loans of any kind and that African American and Hispanic owners face loan denials at a higher rate than that of White males. In 2002, minority-owned businesses represented 18 percent (4.1 million) of all firms, grossed 8 percent of all annual gross receipts ($668 billion), and employed 9 percent of all paid employees (4.7 million), according to the U.S. Census Bureau.
In that same year, there were 1.2 million African American-owned firms in the United States employing 754,000 Americans and generating $89 billion in revenue. A little more than 30 years ago, economics professor Muhammad Yunus launched an experimental project to reduce poverty by lending very small sums of money to landless peasants in remote rural villages of Bangladesh to help them start their own businesses. Within a decade, it grew into a formal bank known as Grameen Bank, which had roughly 1,100 branches in Bangladesh and loans in excess of $2 billion by 1996. Loans were repaid at a rate of 90 percent, serving more than two million clients, according to a 1998 Federal Reserve Bank report.
Wages rose, borrowers increased their savings and school enrollment went up. In 2006, Yunus received the Nobel Peace Prize for his efforts. In 2004, the nation was home to nearly 23.5 million micro-enterprises — firms with less than five employees — employing nearly 30.2 million — or 18.2 percent of total non-farm employment, according to the Association for Enterprise Opportunity. Of Black-owned businesses in 2002, roughly 70 percent could be considered micro-enterprises, according to the U.S. Census Bureau.
In the 1990s, several federal government programs in the United States emerged to advance micro-entrepreneurship. Since the beginning of the decade, they've been under constant threat of budget cutback or elimination. One of the most comprehensive is the U.S. SBA's Microloan Program, which provides a combination of technical assistance and loans for micro-entrepreneurs. Since 1992, roughly 22,000 loans – totaling more than $254 million — have been made.
In 2006, the nation's largest microlender, ACCION USA, disbursed $5.65 million in loans, serving 1,031 clients — 61 percent Hispanic, 27 percent African American and 40 percent female, with a repayment rate of nearly 96 percent. Since 2000, the group has made nearly 5,000 loans totaling $18.6 million.
Microlending in the United States hasn't seen the success that it has in developing countries, but it still shows some promise in improving the lot of struggling entrepreneurs. Because the risk associated with micro-loans is much lower than that of traditional bank loans, the sting of failure isn't as lasting or as devastating.
As the Federal Reserve Bank noted in 1998: "Even when microlending is not used strictly as a poverty alleviation strategy, it can play an important role in making opportunities available to those who have the desire and determination to try their entrepreneurial hand."
It offers hope to scores of would-be minority entrepreneurs by breaking down some of the barriers faced by them in starting businesses. The Aspen Institute has suggested that microlending is a less expensive way of boosting business development than traditional public policy mechanisms such as tax breaks, public subsidies — up to one-tenth as costly. For a minimal public investment, microlending would be a helpful way to put low-income entrepreneurs on the road out of poverty and toward fiscal independence.
Marc Morial is president and CEO of the National Urban League.
