El Paso, TX
An unusual bank that helps to fill the funding gap while promoting the economic self-reliance of individuals and families.
El Paso residents have, since 1996, been reaping the rewards of one of South America’s most influential exports – microlending. Microlending is a means of filling the funding gap. People with low- to moderate-incomes who wouldn’t typically be approved for a bank loan are granted a small loan to stimulate an entrepreneurial business. In 1961, Joe Blatchford founded Acción International to facilitate such loans to South Americans for start up businesses, the average loan being around $500. The first U.S. affiliate, Acción NY, was set up in Brooklyn in 1991. Five years later Acción El Paso opened.
Acción El Paso is an atypical loan institution with atypical clients. Loan officers work out of free space in local bank branches. There work involves going out into the streets to pitch their services to seamstresses, vendors, and artisans. Some of the people they encounter become clients. By approving loans based on character rather than collateral, Acción violates many of the guiding rules of banking. Yet they are very successful. The Accion network has an average annual payback rate of 97%. That means only 3% of recipients default. This tremendous rate of return is achieved by keeping the loan size small and the interest rate moderate to high (usually around 16%).
In addition to loaning money, all Acción affiliates, including Acción El Paso, also provide advice on how to create a budget and business plan, how to establish a good credit history, and how to manage money. Loans are often made to groups so that peer pressure will provide added incentive for paying back money. Group members have also provided financial and advisory support when other members experienced business downturns.
In El Paso, Acción has funded myriad endeavors, from a flavored popcorn business, to a meat distribution service. Entrepreneurial activities may be full or part time. And formal or informal. The program offers loans between $250 and $25,000 for working capital, the purchase of equipment, and other business purposes. Many clients that apply have either a poor or no credit rating, and no collateral. Acción is their last chance. Initial loans are small, but increase in size with timely repayment, thereby providing committed entrepreneurs with an ongoing source of capitol and business assistance until they are able to access bank credit. After two loans, Acción El Paso clients take home an average of 38% more pay.
Acción El Paso is designed to promote the economic self-reliance of individuals and families with small entrepreneurial activities. The program operates on a “hand-up” rather than a “hand-out” principle. Because of their effort, job strengthening, job creation, and increased incomes have become a vehicle for community revitalization.
For more information on this program: The Polk Arts Alliance