Micro-Loans: A Lending Hand

Single mom Claudia Segovia started her home business selling hand-sewn dolls to help pay for her son’s $800-a-month speech therapy. When the market of family and friends had been tapped, she decided to buy table space at a major yearly craft market.

She needed a mere $1,200 – but where does a woman with no credit history go for a business loan?

One answer is micro-lending, where small loans are given to just about anyone with a small-business plan, regardless of credit. Segovia did get the money and sold about 30 dolls a day over five days for $40 apiece, earning enough to pay back the loan and buy a new sewing machine.

The lender, Vancity, financed her through its Peer Lending program. Now in its 10th year, the program has so far lent to more than 1,000 people, says Catherine Ludgate, Vancity’s manager of community business programs. About 96 per cent of the loans are paid back, but the program doesn’t make a profit. Despite this, managers are working to expand it. “While we’re proud of the program,” says Ludgate, “it’s very small; we’re not reaching a lot of people.”

The program is designed so that a group of usually three to six entrepreneurs make a moral pledge to support each other in lieu of collateral. Each member starts with a $1,000 loan and when all of them have paid it back, they all qualify for bigger loans. In March the program got new dedicated funding to help it expand and now draws from a savings plan Vancity offers to its customers where a portion of the proceeds is invested in social and environmental programs.

The next step is expanding the scope of the loans. Ludgate and her colleagues at Vancity are experimenting with bigger loans to help new immigrants gain skills and certification. One of the first recipients used to be a judge in Sri Lanka and now works as a cashier for minimum wage in Vancouver. He borrowed $4,000 to get certified as an immigration consultant, a job that would make good use of his legal skills and help him to earn a better wage.