NR 96-33

                            Remarks by

                         Eugene A. Ludwig
                   Comptroller of the Currency

                            Before the

                 Women's Self Employment Project
                  Breakfast Meeting for Bankers

                          March 14, 1996

Good morning.  It's a pleasure to join you this morning in
celebrating the tenth anniversary of a remarkable institution --
The Women's Self-Employment Project.  For a decade, WSEP has worked
relentlessly to open the doors of opportunity for thousands of
families in this city, reaching into some of Chicago's poorest
communities, and helping individuals and neighborhoods alike to
become more self-sufficient.  You've kept the American Dream alive
through trying times and in difficult places ... giving urban
entrepreneurs a reason to believe in the free enterprise system,
and the support they need to see dreams realized.

WSEP has involved remarkable leaders from the very beginning --
Mary Houghton and Ron Grzywinski, who first envisioned the Project
. . . Muhammad Yunus, who developed in his native Bangladesh the
peer lending methodology that WSEP has adapted to Chicago realities
. . .  and Connie Evans, the founding executive director who has
wisely guided the organization over the past decade, and who has
been honored with nationwide leadership roles, including a
Presidential appointment to the advisory board of the new Community
Development Financial Institutions Fund. 

I am very pleased to see this turnout of so many Chicago bankers
interested in microenterprise finance and development.  The past
few years have shown a noticeable shift in bank support of economic
development -- as a necessary complement to affordable housing
efforts, and even as the leading edge of truly sustainable
community development.  These new economic development efforts
include micro-finance and other small business lending, business
training and technical assistance, job training, business
incubators, and business-to-business mentoring.

Much has been accomplished, yet we all know that community
revitalization and development is an unfinished work.  It is a work
of progress, that remains a work in progress.  So I applaud all of
you who are committed to helping our citizens become economically
self-sufficient through innovative methods of lending, training,
and asset building and, in the process, helping to rebuild and
revitalize Chicago communities. 

The Democratization of Credit

As we all know, there are many parts to the puzzle that must be
solved to provide economic opportunity to all our citizens.  I am
here today to talk about the one piece of that puzzle that I know
best -- credit and banking services.  This morning, I'd like to
focus on a historical process in American banking and finance that
I have talked about for several years: the democratization of
credit.

The credit democratization process has brought the American people
vastly enhanced opportunities.  Yet, it is essential that we all
work hard and in partnership to ensure that this process continues,
because equal opportunity for all Americans is dependent upon the
continued democratization of credit.

Today, Americans enjoy access to credit and financial services that
earlier Americans could never have imagined.  Just consider this --
if the credit terms of 1776 still applied today, only a handful of
people in Chicago would qualify for a bank loan.  Even 125 years
ago, it was still anathema for national banks to make home mortgage
loans.  

Before World War I, and even for many years thereafter, consumer
lending was viewed as disreputable -- as were those who sought such
loans.  Loan sharks and pawnshops were the main source of consumer
credit, often on extortionate terms.  But that was before the
American consumers proved their creditworthiness.  Bankers learned
that it was good business -- and good public policy -- to expand
their portfolios of consumer loans.  And to the surprise of most
bankers of the time, consumer installment loans outperformed
business loans during the Great Depression, providing an unexpected
saving grace for many.  Interesting, isn't it, that a market that
banks deemed risky and considered untouchable proved -- not only to
be profitable -- but became their market of the future.

Consider the parallels to low-income lending today.  I think the
most recent HMDA data demonstrate how history is repeating itself.

Between 1993 and 1994 alone, there was a 27 percent increase in
conventional home purchase loans to low-income households.  Loans
to African-American families rose 55 percent, and mortgages made to
Hispanic-American families made a 42 percent jump.  That's
significant, particularly at a time when the market as a whole was
growing at about 18 percent. 

National bank investment in community development corporations and
CDC projects has quadrupled since I began my term as Comptroller
three years ago.  Last year alone, national banks made more than
$400 million in CDC investments, which will leverage over $1
billion in additional resources.

And to their credit, banks have stepped up to the mark.  Clearly,
banks are embracing this market with increasingly open arms.  I'm
proud of the banking system in achieving these goals, working to
build partnerships with groups like WSEP, and making these
commitments to our communities.

These examples emphasize how banks that are both responsible
lenders and innovators remain dedicated to the credit
democratization process and devise sound programs that will
strengthen both their bottom lines and the communities they serve. 

In addition to mortgage lending, the democratization of credit
throughout this century has brought advances in areas such as auto
loans and credit cards.  And it is not just individuals and
families that have benefited.  We also know that consumer loans are
one of the major sources of credit for the very small businesses of
America:  28 percent of all home equity lines are used for small
business purposes, and over 40 percent of all small businesses with
fewer than five employees -- or with less than $100,000 in annual
sales -- use personal credit cards for business purposes.

Increasingly, innovative banks are taking advantage of new
technology -- the Internet, home computers, credit scoring
technology -- to marry new methods of consumer lending with those
for small business lending.  Five years ago, we saw very few large
banks offering small business loans of less than $50,000.  Now,
increasing numbers of banks provide certain segments of the small
business market with loans of $5,000, or even less.  Many of the
pioneering banks have already found these relationships generate
solid profits.  

And once a bank has begun to service a new market segment, or
expand its product offerings, or test a new kind of product, it can
learn from that experience.  Its enhanced understanding can yield a
succession of new financial services at lower development costs
than for those banks that hesitate to enter the market.  These
pioneer banks can gain a competitive edge, and can be better
positioned to offer the market a succession of even better new
financial services. 

Community lenders:  R&D laboratories in the democratization of
credit

But let us not lose sight of the fact that banks are not alone in
new financial product development.  Community lenders such as WSEP
have been true leaders in the work of extending economic freedom
and opportunity to more Americans.  They have continued to develop
and provide loans and other financial services to under-served
neighborhoods that bankers have not yet figured out how to serve. 
Community lenders then work unstintingly to improve the efficiency
and usefulness of these services.

This process continues ceaselessly, so that at any point in time,
community lenders are probing to find new ways to service still
under-served groups, to open up opportunity for still more
Americans, where others have given up.  WSEP and other
microenterprise lenders are the R&D laboratories of community
development finance.  Their new financial products empower
communities with the resources needed for growth and jobs, which
permit the hard work and determination of people to pay off.

In fact, WSEP embodies the three essential truths of the
democratization of credit.  First, the importance of character. 
WSEP's work demonstrates emphatically that character is almost
always more important than wealth in determining good credit risk. 
Character is at the very core of its lending methods, including the
innovative group lending method WSEP borrowed from the Grameen Bank
and adapted to its own Chicago customers.

Second, the timeless power of a vision.  WSEP's use of innovative
methods such as step-up lending has created low-risk ways of
extending credit to tiny businesses owned by individuals who were
not previously served at all by the financial system.  They are
proving before our eyes that credit can be extended well beyond
what our current skeptics deem feasible.  

And WSEP continues to innovate.  They are a pioneer in introducing
Individual Development Accounts: long-term savings accounts that
give the poor a stake in the system, and a route out of poverty. 
IDAs are, even now, beginning to demonstrate that poor
women, provided with appropriate products, will do what they can to
invest in assets, and thereby a hopeful future of home ownership,
business ownership, and secure retirement.

As Professor Michael Sherraden of Washington University has put it:
 
     "Income only maintains consumption, but assets change
     the way people think and interact in the world.  With
     assets, people begin to think in the long term and
     pursue long-term goals.  In other words, while incomes
     feed people's stomachs, assets change their heads."
     
Third, the strength of partnership and community.  WSEP has created
a spirit of partnership and cooperation among its clients, the
women who own these small businesses and encourage and push each
other, each to do her best.  WSEP also operates in partnership with
prominent local banks, such as we've just heard from the Harris
Bank.  Through such partnerships, WSEP links some of the major
banking organizations of this great metropolitan area with the
individual women who, despite remarkably few resources, struggle
every day to maintain hope and to succeed.

Encouraging community development partnerships

Fortunately, WSEP is not alone in its recognition that more can be
done by building community than by people working apart.  All
across the country, microenterprise lenders are forming
partnerships with banks, linking some of the high-tech capabilities
of banks with the micro-lenders' new methods of outreach, loan
underwriting and collection technologies, and programs for asset
development.  These partnerships are breaking new ground and yet --
in a sense -- they are offering the same route to the American
Dream that people have trod for many years now: through small
businesses. 

These partnerships combine the strengths of banks with the skills
of microenterprise organizations.  Banks are pros at raising
capital in the marketplace, local and national.  They provide much
of the financial raw material -- often at market rates, sometimes
even secured with loan guarantees -- to micro-lenders, which then
on-lend the funds in small amounts to their own customers.  Many
banks provide the micro-lenders with indirect access to technology
that drives down costs of processing and monitoring loan
repayments.  Daily modem or fax transmissions enable the micro-lenders to carry out very good
management practice at very low
cost.  Banks also allow their employees to serve on micro-lenders'
boards, or on their loan committees.  Particularly after these
bankers have learned the micro-lending methodologies, they provide
valuable support in overseeing the organization's management, or in
reviewing their larger loans.

In turn, micro-lending organizations provide the essential
training, ongoing technical assistance, and loans to the
microenterprises that banks still cannot -- or have not yet figured
out how to -- take on as customers.  The micro-lenders are able to
reach well into poor and disadvantaged communities to identify good
prospective clients that banks don't yet serve.  Microenterprise
organizations continue to develop and refine their training and
lending methodologies that, every day, transform the previously
worthless promise of poor Americans into a credible promise -- and
that help to build a public credit record that will gain these
customers wider access to credit in the future.

These partnerships of micro-lenders, banks, and other businesses
are also working together to create new breakthroughs and to extend
economic opportunity further.  Some are designing alternative
credit scoring models to help systematize and improve our
understanding of microenterprise credit risks; others are
developing methods for better measuring the costs of each step of
the credit delivery process to guide the development of profit
centers; and still others are exploring the possibilities of
packaging and securitizing micro-loans, with the aim of eventually
creating a secondary market for small business and microenterprise
loans.  In these and other ways, bankers and community lenders have
become allies in the process of product innovation.

Conclusion

Today, we all have increased responsibilities to keep the pace of
change and innovation going in a safe, sound, responsible manner. 
Because the democratization of credit's momentum can be slowed if
we fail to act responsibly -- as banks, as community lenders, and
as regulators  

I believe that the OCC has a role to play in democratization of
credit process by helping to create community development 
partnerships that build on the bedrock of safety and soundness. 
That is one of the reasons the OCC has hired community development
specialists in all of our district offices.   Many of you have
already met Roosevelt Washington, who works out of the OCC's
Central District in Chicago.  Roosevelt, please stand for those
here who have not yet met you. 

You've come to this breakfast honoring WSEP because you want to be
partners and leaders for the cause of  greater economic opportunity
today and tomorrow.  Leaders must have the vision and the
conviction that a dream can be achieved.  And leaders inspire the
power and energy to get it done.  This morning, let all of us renew
our commitment to discover new ways to extend credit to
creditworthy borrowers and into neighborhoods of all types and
income levels.   

                               # # #