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Devin D. Thorpe

Devin Thorpe

Microfinance is Instrumental in Alleviating Financial Hardship in the United States – Early Results of an MDRC and Grameen America Study

Press Release – NEW YORK, NY – Nonprofit research organization MDRC and Grameen America, the fastest growing nonprofit microfinance organization in the United States, today released the early results of a research study, Microfinance in the United States: Early Impacts of the Grameen America Program. The study, funded by Robin Hood, is the most rigorous, independent, third-party evaluation of group microfinance in the United States, assessing Grameen America’s program, a microfinance model that provides small loans to low-income women entrepreneurs in the United States seeking to launch or expand a small businesses.

This first-of-its-kind random assignment study examined 1,492 women (in 300 loan groups) who applied in groups of five to the Grameen America microlending program in the Union City, New Jersey branch. Applicant groups were assigned at random into two groups: those eligible to receive Grameen America loans (the program group) and those not (the control group). The outcomes of the two groups were compared over time. Random assignment studies, often called the “gold standard” of evaluations, use the same rigorous methods as pharmaceutical trials.

Highlights from the early early findings of the evaluation of the Grameen America program include:

  • More than 94 percent of Grameen America members reported that their financial situation is better than it was the previous year, a 13-percentage point increase over the control group average.
  • The Grameen America program produced a 22-percentage point increase in the attainment of a credit score – a VantageScore — at 7–12 months after participants enrolled in the study, and a 6-percentage point increase in the attainment of a Prime credit score, the top tier of creditworthiness. Credit scores are linked to access to mainstream financial markets, lower interest rates, and better employment opportunities.
  • Grameen America members were 13 percentage points more likely than their control group counterparts to report that they could afford to buy the things they needed.
  • Over 95 percent of Grameen America members reported operating their own businesses 6 months after joining the program, an increase of 11 percentage points over the control group average.

“Our goal in embarking upon this rigorous study was to determine whether the Grameen America model leads to the alleviation of poverty for borrowers,” said Gordon Berlin, President, MDRC. “The early results are promising. The Grameen America program produced reductions in measures of financial hardship and increased the likelihood of having established a credit report and score, including the top tier of prime scores — all of which put the program in a position to increase income and reduce poverty, the ultimate goals of Grameen America, down the road.”

“Though often associated with the emerging markets, the need for microfinance loan programs in industrialized countries like the U.S. is severely understated. Safe and affordable access to financial services transcends borders and politics. It is the chief force behind economic mobility, empowering people to save, borrow, and invest. Unfortunately, financial services are not readily available for a large swatch of the population, often women in the lowest income brackets,” said Andrea Jung, CEO, Grameen America.

Jung continued, “The early results of MDRC’s study provide encouraging evidence that microfinance programs can be a sustainable, scalable solution to help close the financial inclusion gap in the U.S. Microlending not only empowers women to launch businesses, lessening their reliance on having one primary employer, it has the potential to transform entire neighborhoods and communities.”

According to Grameen America, the unique group lending model of their microloan program, which requires that women create a group of five in order to be eligible for a loan, strengthens both loan meeting attendance and repayment rates, providing an environment of encouragement, support and motivation. Overall, Grameen America has invested over $1 billion in microfinance loans to over 110,000 women across 14 U.S. cities, and has achieved a 99% loan repayment rate. Grameen America continues to expand its operations to new U.S. cities.

The early results of the Grameen America program evaluation are the first set of preliminary results in the long-term study conducted by MDRC. The roadmap of the study intends to analyze results at the 18-month and 36-month mark, with an eye to go as far as a 5-year evaluation. Future reports from the Grameen America evaluation will present longer-term impacts on a much wider range of outcomes, including overall income and earnings, which are the ultimate goals of the Grameen America program.

Microfinance in the United States: Early Impacts of the Grameen America Program was made possible by Citi Community Development.

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