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Dr. Tamaara Morris-Tresvant offers dental services to kids in low-income parts of Chicago.

The good side of capitalism: Businesses built through microfinance

by Ryan Craggs
March 15, 2010

Ryan Craggs/MEDILL

This big red truck hauling trailers around Chicago has a driver you might not expect.

Related Links

Interactive map of Acción's clientsAcción ChicagoNational Health Service Corps

Some numbers to consider

Five or fewer

·         The number of people employed by a microbusiness


·         The amount of start-up capital required for a microbusiness

17.4 percent

·         The percentage of people in Illinois employed by microenterprises


·         The total number of microbusinesses in Illinois


·         People employed by microbusinesses in Illinois

$2.06 to $2.72

·         The estimated returns on each dollar invested in microbusinesses

18.2 percent

·         The amount of Americans employed by microbusinesses


·         Total Americans employed by microbusinesses

Data courtesy The US Census Bureau and Department of Commerce

National Health Service Corps

While many have never heard of it, the National Health Service Corps has a lot to offer—both to young professionals and to the people they can serve. 

The NHSC employs some 3,800 doctors, dentists and health care clinicians.  By offering scholarships and  loan repayment programs, the organization allows health care providers to work in jobs that the crushing debt of student loans would otherwise preclude them from pursuing.

In 2009, the NHSC received $135 million in government funding, allowing it to give out money to 39 new scholars and 977 new loan repayors. 

In addition, it received $300 million in stimulus money, which will be used to fund 114 new scholars and about 3,300 new loan repayors over the next two years.

These scholars and debt repayors help provide essential health services to people who otherwise wouldn’t be able to afford quality health care—most of them without insurance. 

About 4 million people rely on the NHSC’s beneficiaries for their health care needs. 

Domestic economies are a lot like houses: Some big, some small.  Think of the world as a neighborhood, and the American economy as the biggest house on the block.  Some neighbors share tools; some compete for the best-manicured lawn.  Home values are intrinsically tied.  The metaphor goes on and on.

But shoddy construction endangers even the most outwardly beautiful homes, and foundations are of utmost importance. 

While a concrete slab offers unsurpassed stability, damage to that slab threatens the entire residence.  On the other hand, brick homes offer great stability along with the potential to repair or replace individual bricks rather than the whole structure.

The most solid homes are some combination of concrete and brick—in the economic sector, think large corporations mixed with small businesses.

For every Microsoft, there is a microbusiness—many, in fact. While you might get cash out of a Chase ATM, some sole proprietor likely takes the stains out of your shirts.  But no matter the size of the business, one constant runs throughout: A need for financing.

In this recession-addled economy, credit is sparse. Banks make fewer loans to small businesses.  As Nobel Laureate economist Milton Friedman once said, “The poor stay poor because they have no access to capital.” It’s as vicious a cycle as any.   

Enter microfinance.

The idea is simple: Lend in small amounts to modest businesses, hold them accountable and allow them to grow.  In time, many can benefit from accumulating wealth.   

“I look at it in many ways as empowerment,” said Jonathan Brereton, chief executive and lending officer at Acción Chicago.  “We’re giving entrepreneurs an opportunity to start a business that the for-profit industry won’t.”

In Chicago, Acción stands at the forefront of microfinance. 

The nonprofit provides a range of services for small businesses, but most important, it provides loans ranging from $500 up to $25,000 to get businesses started or to help them expand.   

It’s helping rebuild the country’s foundation, one microloan brick at a time.

“It’s ultimately creating jobs, specifically in low-income communities,” Brereton said.  “The vast majority of our clients are low-to-moderate income.  The vast majority are minority entrepreneurs.  They have to make the most of it.”

Last year, the US Department of Commerce gave Acción an $800,000 economic development administration grant as part of the federal stimulus.  With the money, the organization was able to lend to more businesses as a greater amount of credit became available.  They helped more than 1,200 clients, about 170 of whom received loans.

While a great number of the businesses that receive funding from Acción are in the service and hospitality industries, a slew of different enterprises have gotten money.  It has helped everything from a hot sauce production company to a hookah lounge to a vintage sci-fi and horror memorabilia store.

“Some of them seem totally strange,” he said.  “They’re not things that you would think would be that successful, but they find a little tiny niche and they figure out how to exploit that niche and they can be very successful.”

A mobile dentist qualifies as a pretty niche market.

Dr. Tamaara Morris-Tresvant runs Tresvant Dental Group, which offers school-based preventive care and dentistry to low-income area daycares, foster homes and at church events.  She found her niche through the National Health Service Corps, which provides scholarships and loan-repayment programs in exchange for providing health care services in underserved communities.

“Part of our commitment when they pay for your tuition is spending allotted time in an underserved community,” she said.  “I knew then that that’s where I wanted to focus my energy.”

And while she provides a variety of services to the underserved, Morris-Tresvant does so in an even less traditional way—from a closet in her apartment rather than an office.

Most banks wouldn’t think about lending to a young black woman who plans to take dental equipment around in her SUV to low-income communities.  But that’s why Acción exists.

“I was ecstatic for $5,000,” she said.  “It took care of a machine and supplies to start treatment with the kids.  Every little bit helps.  We wouldn’t do it if there wasn’t a need for it.”

Morris-Tresvant has enjoyed the work so much and had enough success thus far that she extended her contract with the NHSC for another two years and actually sees her business expanding.

Her story mirrors that of many microfinance borrowers.   

Surprisingly, the track record of microfinance comes from the Third World. 

Jane Harrison, a graduate student at Oregon State University, volunteered a few summers ago in La Paz, Bolivia, for Pro Mujer, a non-profit specializing in microfinance and improving the lives of impoverished women in Latin America.

“All kinds of slum towns were created around city centers,” Harrison said.  “We focused our work in those places. Traditionally, women weren’t able to get credit.  Banks wouldn’t serve them.”

She continued: “Our loans would range from $100 to $1,000.  Women were typically by themselves.  Their husbands often worked in salt mines, with the women taking care of their kids.  A lot of the women had fruit stands, little taquerías.  A lot of crafts, like clothing or putting together materials, that kind of stuff.  Smaller-scale things.”

On top of its lending, the organization offers social services, computer and health classes and even babysitting for its clients.  Essentially, its goal is the same as Acción’s: Help people help themselves.

“It’s awesome,” Harrison said. “It should be an opportunity for people here in the US as well.”

Microfinance, at its core, functions with a triple bottom line: Financial profit, community development and environmental improvement.  It’s about more than just making money.

“No one wanted to lend to the poor because it wasn’t worth their while,” said Keith Weigelt, professor at the Wharton School of Business at the University of Pennsylvania. “Turns out that microfinance is a pretty profitable venture. If you look at returns of microfinance institutions, which are not in the banking system, their returns on assets are usually higher – and the variance in the returns are lower – because they’re protected from these macroeconomic systems.”

Weigelt explained that microfinance institutions have a loan loss rate of only 1 to 3 percent, whereas commercial banks usually hover between 5 and 7 percent. That means fewer people default on loans and everyone benefits.   

Of course, commercial banks are trying to get in on the action, though Weigelt expressed concern for them ignoring the social aspects of microfinance in search of an insatiable bottom line. 

Still, he said if commercial banks enter the competition, the result could be lower interest rates.

“Microfinance is like the good side of capitalism if used the right way” he said. “We’ve seen the bad side, which is the financial crisis.”

With the recent economic storm tearing through so many homes, microfinance could be the way to rebuild the neighborhood—and to make it stronger than ever.

“Microfinance helps people pull themselves out of poverty,” Weigelt said. “The mission is to help communities grow.”