Microfinancing for Small Businesses and Entrepreneurs

by Traci Elder | Apr 03, 2013
| 9 Comments

Summary:

THE IDEA – MICROFINANCING FOR SAINT PAUL RESIDENTS
Thriving communities find their lifeblood at the intersection of small business entrepreneurship, multicultural expansion, and a vibrant arts scene. Yet, nearly all entrepreneurs, specifically minorities and women, have the same lament: Getting the Funding to Get Going. Imagine the civic pride and economic development we could inspire by bringing crowd-funded microfinance to our city, inspiring both borrowers and lenders in Saint Paul to imagine a more dynamic and entrepreneurial city.

HOW?
We would use the $1 million to build a partnership with an existing national microfinance organization (i.e., Kiva Zip) that allows the general public to fund (via small donations) the loans they like/believe in. This would enable Saint Paul-area entrepreneurs to access capital at zero percent interest, providing them with the opportunity to turn their small business dreams into a reality. With the Forever Saint Paul prize money, we would create a fund to match the 0% interest loans provided by lenders, thereby amplifying the amazing impact of this program. Finally, we would use a small portion of the money to drive public awareness for the program to ensure its success.

WHY?
The Twin Cities have a well-documented and successful history of philanthropic giving. This program would enable an expansion of that civic-minded spirit, making a huge impact by connecting local entrepreneurs, who have had trouble gaining access to the capital needed to propel their business ideas forward, to a strong community of civic-minded lenders both in the Saint Paul area and around the country.

About You

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About You

First Name

Traci

Last Name

Elder

City

Minneapolis

County

Hennepin

Country

United States, MN, Hennepin County

Website (if you have one)

Names of others who helped contribute to my idea

Little & Company Design Team (Jaye Peterson, Jamie Parker, Kris O'Malley, Barbara Jarvis, Roland Eidahl, Kathy McGrath)

How did you hear about the Forever Saint Paul Challenge?

Newspaper

About Your Organization (if applicable)

Organization Name (if applicable)

Little & Company

Organization Website

Organization Phone

612-375-0077

Organization Address

920 Second Ave South, Suite 1400

City

Minneapolis

Organization Country

United States, MN, Hennepin County

Your idea

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Title of your idea

Microfinancing for Small Businesses and Entrepreneurs

Give us the highlights of your idea for making Saint Paul great (2,000 characters maximum or approx. 250 words)

THE IDEA – MICROFINANCING FOR SAINT PAUL RESIDENTS
Thriving communities find their lifeblood at the intersection of small business entrepreneurship, multicultural expansion, and a vibrant arts scene. Yet, nearly all entrepreneurs, specifically minorities and women, have the same lament: Getting the Funding to Get Going. Imagine the civic pride and economic development we could inspire by bringing crowd-funded microfinance to our city, inspiring both borrowers and lenders in Saint Paul to imagine a more dynamic and entrepreneurial city.
HOW?
We would use the $1 million to build a partnership with an existing national microfinance organization (i.e., Kiva Zip) that allows the general public to fund (via small donations) the loans they like/believe in. This would enable Saint Paul-area entrepreneurs to access capital at zero percent interest, providing them with the opportunity to turn their small business dreams into a reality. With the Forever Saint Paul prize money, we would create a fund to match the 0% interest loans provided by lenders, thereby amplifying the amazing impact of this program. Finally, we would use a small portion of the money to drive public awareness for the program to ensure its success.
WHY?
The Twin Cities have a well-documented and successful history of philanthropic giving. This program would enable an expansion of that civic-minded spirit, making a huge impact by connecting local entrepreneurs, who have had trouble gaining access to the capital needed to propel their business ideas forward, to a strong community of civic-minded lenders both in the Saint Paul area and around the country.

Website address (if applicable)

Innovation

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What makes your idea different or unexpected? (4000 characters maximum or approx. 500 words)

GETTING THE BIGGEST BANG FOR OUR $1 MILLION DOLLARS
Instead of building a microfinance effort from scratch, we plan to partner with a successful organization that is already engaged in micro-lending both locally and across the U.S: Kiva Zip. By securing this partnership, we would effortlessly leverage the experience, relationships, and technical infrastructure this non-profit has already built.

THE PUBLIC DECIDES
One unexpected aspect of this idea is that the general public votes with their pocketbook as to which loans are funded. While the loan applicants for this program must be Saint Paul residents, loans could be made by lenders from any location.

HOW IT WOULD WORK
1) $1 million prize is awarded to a local Saint Paul foundation/non-profit for initial management of the “Saint Paul Small Biz Juicer” program.

2) A full-time Saint Paul-based community organizer is hired by the Saint Paul non-profit to get the “Juicer” up and running. (Ideally a person with a non-profit/economic development, partnership creation, and public awareness-building background).

3) The Juicer Community Organizer forms a partnership with Kiva Zip. Kiva has a successful history in microfinance both domestically and internationally. Kiva Zip’s website facilitates crowd-sourced microfinance loan funding and repayment via PayPal. Additionally, Kiva’s Zip’s existing infrastructure would enable Saint Paul-area borrowers to gain access to tools to help them reach their fundraising goals as quickly as possible while also giving them the opportunity to tap into a network of prospective customers.

4) The Community Organizer would then work with Kiva Zip to set up the fund for loan matching and transfer the amount decided upon by the Foundation/Community Organizer to Kiva Zip. Kiva Zip then ensures that each $25 loan made to a Saint Paul-area entrepreneur is matched with $25 from the matching fund, doubling the amount of each individual loan until the matching fund is exhausted.

5) The Community Organizer then works with Kiva Zip staff to identify and sign up “trustees” via a streamlined online application process. Trustees are local business development non-profits and influential individuals plugged into the entrepreneurial fabric of the city in Saint Paul. These individuals identify entrepreneurs who are in need of capital, vouch for their credit-worthiness and the basic viability of their business plans, and often also provide some small business training to the entrepreneurs. The trustees do not bear any financial, legal, or fiduciary risk. To begin, each organizational trustee may endorse up to three borrowers for loans of $5000 each. Individual trustees (who are not necessarily affiliated with an organization) may endorse up to three borrowers for $2500 each.

6) Trustees help each of their endorsed borrowers apply for their loan through the Kiva Zip site (zip.kiva.org). At that time, the borrower and Kiva Zip agree on a grace period, length of repayment period, and frequency of repayment period.

7) Lenders (i.e., people like you and me) log onto the Kiva Zip website (zip.kiva.org) to review Saint Paul-related loan requests and lend money, starting with amounts as low as $25.

8) Trustees, borrowers, and passionate lenders use word-of-mouth and leverage social media networks to promote loans to individual projects.

9) Once a loan request meets 100% of requested funding, the funds are immediately transferred to the borrower via Paypal.

10) After the grace period has ended (if applicable), the borrower begins to make zero-interest payments via Paypal to Kiva Zip for the full amount borrowed.

11) When the loan amount is repaid in full, lenders can recycle their original loan into funding for another microloan or choose to withdraw their money via a PayPal account. Upon repayment in full, the matching funds would also be replenished and could then be used to match another loan via the Kiva Zip program.

Impact

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This Entry is about (Issues)

How will your idea make a difference in Saint Paul? (4000 characters maximum or approx. 500 words)

SMALL DONATIONS WITH BIG IMPACT FOR UNDERSERVED POPULATIONS
As many small business owners would attest, it sometimes just takes that little capital jumpstart to get a project off the ground. Microlending has received huge press internationally for its ability to bring entrepreneurial financing to populations in need but currently underserved by financial institutions – specifically, women and minorities. Yet immigrant populations, women just starting out in businesses, and many others simply do not have the credit established to qualify for existing small business loan programs.

Muhammad Yunus, founder of the Nobel prize-winning international microfinance organization Grameen Bank, said this in an interview with the NY Times on April 17, 2013: “With microcredit, all I was trying to do was help a few people in one village so they didn’t have to go to loan sharks and lose everything in the process. That’s how social business begins. Everything starts with solving a very tiny slice of a problem.”

As small businesses grow, succeed, and multiply, jobs are created, lives are transformed, neighborhoods flourish, families thrive, and good mojo and PR rain down on the city.

Sustainability

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Why do you think people will recognize or remember your idea after it comes to life? How might it inspire others to do something similar in their community? (4000 characters maximum or approx. 500 words)

KEEP ‘EM COMING BACK
Through Kiva Zip’s website infrastructure, lenders would get email updates as they receive loan repayments and would also have an opportunity to interact with the small business owner s/he is helping to fund via online messaging capabilities. When the lender’s original loan amount has been repaid, the system will trigger another email communication stating they have sufficient funds to help finance another small business loan for someone in need. This facilitates a continual “pay it forward” model that leads many lenders to keep the giving going. Kiva Zip’s infrastructure also allows lenders to provide encouragement directly to the borrower and learn more about the business he or she is lending to in the event he or she can become a customer.

SEE IT, USE IT
We would also like to create a Saint Paul Small Business Juicer / Kiva “certificate” for display in the entrepreneur’s place of business. Whether in the window of a store or on the side of a food truck, customers familiar with the program will recognize the brand and perhaps be enticed to at least check out the establishment, become a patron of the business, or possibly even participate in the next loan round if the opportunity becomes available.

SOCIALLY-SUPPORTED GIVING IS CONTAGIOUS
As Kiva’s success shows us, communities get jazzed when rallying around projects and people they believe in. Everyone wants to give deserving, talented, and driven folks a chance… especially those who have great ideas but do not have access to opportunities. Facebook, Twitter, Instagram – one can just see the funding requests and campaigns springing to life. Soon, people across the nation would have a pet “Saint Paul” project they’ve funded. For the price of a few cups of coffee, who wouldn’t give it a try? It’s easy to imagine another community being inspired by this program’s success and seeking to implement it in their city!

Again, from Grameen Bank’s Muhammad Yunus and the New York Times: “You have the creative power, alone yourself, to change the whole world. Start believing in it. When you believe in it, you start finding out how you’re going to make it happen. And always start small. Nothing will change overnight. But you start the process… If you bring it down to the individual, you’ll see how doable it is to solve it… Solve one person’s problem, then five people’s problem.”

Additonal Questions

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For your idea, what does success look like? (4000 characters, approx. 500 words)

SHORT-TERM SUCCESS
In the first 12 months, logistics abound. Off the bat, it is imperative that the right Saint Paul non-profit / foundation to oversee the program be selected (e.g., the Saint Paul Foundation, MN Philanthropy Partners, the Bush Foundation). That organization will then need to hire the “Juicer” Community Organizer (full-time). His or her non-profit building abilities, commitment to both microfinance and the City of Saint Paul is crucial to this program’s ongoing success. Next, the relationships I’ve kicked off for Saint Paul with resources at Kiva’s home office in San Francisco should be formalized and expanded. The Saint Paul trustee network would also need to grow so that the number of qualified Saint Paul entrepreneurs aware of this program is as large as possible.

Community awareness will be key. Through on-site presence at Saint Paul events to an ongoing awareness campaign, the people of the Twin Cities need to know that this program exists, and how they can be a part of it as a lender, trustee or borrower.

LONG-TERM SUCCESS
After the first year, we can start using metrics in earnest to measure success. Kiva has the capacity to provide comprehensive program impact analytics, including:

• How many loans have been funded? How much loan value has been disbursed to Saint Paul small businesses?

• What are the borrower demographics (by gender, race, age)?

• What’s the average loan repayment rate? (Currently, Kiva Zip has an 84.9% repayment rate for loans made domestically. Saint Paul, with the community awareness of this program, should be able to beat that!)

• How many lenders choose to re-lend to another borrower after their first loan has been repaid in full?

In a broader sense in the long-term, we’ll be able to see if “the Juicer” is succeeding when jobs and opportunities are created across the city. This type of program will help put Saint Paul on the map as a city known for its deep entrepreneurial spirit, one that is friendly to small-businesses and welcoming to hard-working newcomers. Saint Paul is already renowned for the pride its citizens take in being from Saint Paul. A successful program like this – one that helps deserving individuals make better lives for their families and employees – will cultivate that pride and empower Saint Paul’s citizens to give back to their beloved city.

What are the top three things that would likely need to happen in the first year to get your idea started? (4000 characters, approx. 500 words)

POTENTIAL TIMELINE

Months 1-3: Establish the right relationships to kick-start this program (the local non-profit/foundation, Community Organizer, Kiva Zip, trustees). Fully flesh out the logistics of this idea with the participation of all parties: determine the appropriate allocation for a matching loan fund; determine appropriate employee compensation & benefits; budget funds for increasing public awareness; and craft a launch strategy.

Month 4: Trustees identify borrowers and help them through the loan application process. The initial group of trustees and borrowers should include particularly dynamic individuals who are comfortable interfacing with the media.

Month 5: LAUNCH! Public awareness campaign in full swing: Facebook, Twitter, national and local media campaigns spread the news about the Kiva Zip opportunity and increase patronage to small businesses funded by the program.

Month 6: Host a Kiva City event in Saint Paul to take our local public awareness to the next level. Check out how President Bill Clinton kicked off the Kiva City event in Little Rock, Arkansas a few months ago: http://tinyurl.com/mdga3ze

Months 7-12: Review and refine – what have been our key findings? How can we improve Saint Paul’s approach to crowd-funded microfinance? What have we learned? What’s going well? Where are our opportunities? Make modifications to the model and expand!

Which organizations, groups, and/or people might be involved in implementing your idea? Why do you think they would be a good fit? (4000 characters, approx. 500 words)

IT’S ALL ABOUT WHO YOU KNOW
Kiva Zip has already expressed an interest in expanding their presence in Saint Paul – and this program would simply add fuel to that fire. A formula for success:

Kiva Zip
+ a local non-profit to help spearhead the program locally
+ an energetic full-time community organizer to be the feet on the street
= we’re headed for something special.

Additionally, trustee organizations will be absolutely vital to this program’s success – established groups like the Neighborhood Development Center, Women Venture, African Economic Development Solutions, the Asian Economic Development Association, and the Latino Economic Development Center, just to name a few. In the past month, I’ve reached out to many of these organizations and learned, 1) they’re very interested in helping out with this idea, and 2) many are already in the process of becoming Kiva Zip trustees. Check and check.

Ideally, we’d also find a great communications partner to help us build community awareness for the project. Funding for this partner could be provided via the $1 million prize and via ongoing donations to the program.

As for a personal role, this entry is an idea that a group of co-workers and I designed together. We have no background in non-profit management and more than anything just want to see this program succeed for Saint Paul. To achieve success, we know the importance of bringing in experts who do this work well every day. Individually, we’d continue to spread awareness about the program, and act as lenders and core supporters of the program.

llhjl hlhj said: Business will always starts small and as you can see if it works that is the time that it will grow. - Nationwide Relocation Services about this Competition Entry. - 2536 days ago read more >
Hamilton Scott said: Make comprehending the advantages of knowing your neighbor important in your life. By doing so, you will reap the benefits of a happier, ... about this Competition Entry. - 2694 days ago read more >
Traci Elder said: Hi Brooke - I couldn't agree more :) about this Competition Entry. - 2771 days ago read more >
Traci Elder said: I agree, Kate. I like the midwestern aspect of it, too... people lend a hand, you work hard, you pay them back. Cheers, Traci about this Competition Entry. - 2771 days ago read more >
Traci Elder said: Thanks, Curt! Appreciate the feedback. I think entrepreneurs and lenders would both be excited about this model for St. Paul. ... about this Competition Entry. - 2771 days ago read more >
Brooke H Brown said: I love the spirit of this entry - more ideas, more local businesses and more diversity in the mix. It would be a proud moment to see our ... about this Competition Entry. - 2772 days ago read more >
Kris Kelsey said: Smart and local. Helping to grow the St Paul city now and for the future about this Competition Entry. - 2773 days ago read more >
Kate Durkin said: I love how neighborly this idea is. Locals helping locals. It's "Minnesota Nice" in action! about this Competition Entry. - 2773 days ago read more >
Curt Baker said: Awesome idea! Allows philanthropists to give to something very immediate in their community that they can watch grow (and even get their ... about this Competition Entry. - 2773 days ago read more >

Traci Elder updated this Competition Entry. - 2856 days ago