FDIC Quarterly 33 2011, Volume 5, No. 1

businesses employ just over half of all private sector 

employees and have generated 64 percent of net new 

jobs over the past 15 years.2 Small firms also tend to fill 

underserved niches in the labor market that often have 

higher rates of unemployment. For example, compared 

with large firms, small firms employ a higher percentage 

of individuals with a high school degree or less, teens 

and people age 65 and older, disabled workers, Latinos, 

and rural residents.3

Like other firms, small businesses have been significantly challenged by current macroeconomic trends 

such as high unemployment, low consumer confidence, 

and volatility in consumer spending as households 

deleverage and repair their balance sheets. In two 

recent surveys, small business owners cited depressed 

sales as the principal operating problem with the 

current economic environment. The National Federation of Independent Business (NFIB) Research Foundation found that 51 percent of small business owners 

cited slowing or lost sales as the most important immediate problem facing their businesses.4

 Similarly, the 

National Small Business Association (NSBA) found 

that 64 percent of survey respondents reported a net 

decrease in sales in 2009, the most recent full year of 

data available.5 These surveys also showed that small 

business owners are concerned about many other issues, 

including uncertainty in business conditions and access 

to affordable credit.

2

 SBA, Office of Advocacy, FAQs: How important are small businesses 

to the US Economy? http://www.sba.gov/advocacy/7495/8420. 3

 Brian Headd, “An Analysis of Small Business and Jobs,” SBA, Office of 

Advocacy, March 2010, http://www.sba.gov/advo/research/rs359tot.pdf. 4

 William Dennis, Jr., “Small Business Credit in a Deep Recession,” 

NFIB Research Foundation, Washington, DC, February 2010. The Gallup 

Organization collected data for this survey between mid-November and 

mid-December 2009 from 750 firms with no fewer than one employee, 

in addition to the owner, and no more than 250 employees.

5

 NSBA, 2009 Year-End Economic Report, http://www.nsba.biz/docs/

10eoy_survey.pdf. This survey was conducted between December 14 

and 31, 2009, and indicates that 450 small business owners were 

polled. The size of the firms interviewed is not detailed in the report.

Introduction

Entrepreneurship is commonly viewed as an avenue to 

personal and national economic prosperity in the 

United States. Encouraging entrepreneurship through 

small business formation and expansion is a prominent 

public policy goal, as small businesses provide the 

majority of new jobs. During periods of high unemployment, many individuals turn to self-employment. 

Others view self-employment as a pathway out of 

poverty; it can provide cash flow and the opportunity 

for income growth that may not otherwise be feasible.

This article begins with a background on small businesses and small business lending and the challenges 

small businesses face in the current economic environment. It then focuses on the poverty alleviation aspect 

of entrepreneurship through microenterprise development. Microenterprise development refers to helping a 

segment of small business owners—low- and moderateincome (LMI) individuals, those who lack full access to 

mainstream financial services, and other disadvantaged 

people—create or expand a small business.

This article describes the scope of microenterprise 

development and the benefits to small business owners 

and their communities, and includes case studies of 

organizations that participate in microenterprise development activities. It also describes the benefits to banks 

of participating in microenterprise development, including how they may receive positive consideration under 

the Community Reinvestment Act (CRA) for microenterprise development activities.

The Current Economic Environment Is Difficult for 

Small Businesses

Of the estimated 27.8 million businesses in the United 

States in 2007, 27.7 million were small businesses, 

which the U.S. Small Business Administration (SBA) 

defines as firms with fewer than 500 employees.1 Small 

1

 US Small Business Administration (SBA), Office of Advocacy, Statistics of US Businesses and Nonemployer Statistics, http://www.sba.

gov/advo/research/data.html#us.

Feature Article:

Microenterprise Development: A Primer

Authors’ Note: Examples of banks, companies, nonprofits, and products are used in this article for illustrative purposes only. 

The FDIC does not endorse specific entities or products.
FDIC Quarterly 34 2011, Volume 5, No. 1

easing of C&I loan standards for small firms as the 

economy began to recover.7

In addition, as evidenced by sharp increases in bank failures and problem banks, the recession has negatively 

affected the ability of some individual banks to lend as 

they focus on correcting existing problems. Further, 

balance sheets of small business owners have been 

adversely affected by the cumulative effects of declining 

sales as well as falling real estate values, which can restrict 

borrowing capacity; 95 percent of small business owners 

own real estate.8 Depressed sales and profits also have 

contributed to a decline in small business loan demand. 

Indeed, loan officers have reported declining demand 

for small business C&I loans since fourth quarter 2006.9

7

 Information about loan officers’ views regarding lending standards 

was derived from the Board of Governors of the Federal Reserve 

System (Federal Reserve Board), “Senior Loan Officer Opinion Survey 

on Bank Lending Practices,” October 2010, http://www.federalreserve.

gov/boarddocs/snloansurvey/. The survey defines small businesses as 

those with annual sales of less than $50 million.

8

 Dennis, “Small Business Credit in a Deep Recession.”

9

 Federal Reserve Board, “Senior Loan Officer Opinion Survey,” 

October 2010.

Small Business Lending

Banks are the largest source for small business credit, 

including term loans, credit cards, credit lines, commercial mortgages, and capital leases.6

 Responses from an 

NSBA survey question—“What type of financing has 

your company used within the past 12 months to meet 

your capital needs?”—show that for the approximately 

four out of five respondents who use credit to finance 

their businesses, dependence on bank credit is high, 

although less than in the recent past (see table).

Bank Call Report data show that the general category 

of commercial and industrial (C&I) lending has 

rebounded somewhat to $1.2 trillion as of third quarter 

2010 but remains significantly lower than two years ago. 

With respect to small business lending, no single 

measure directly demonstrates trends. Banks do not 

report loans to small businesses separately on Call 

Reports, but they do report on business loans less than 

$1 million and farm loans less than $500,000. Using 

these data as a proxy for small business lending suggests 

that small business lending by FDIC-insured financial 

institutions has declined (see Chart 1).

A number of interrelated reasons account for the 

decline in small business lending, including the general 

dislocation in overall credit availability related to the 

recent mortgage crisis. The ensuing tightening of credit 

terms by banks adversely affected virtually all credit 

types, including small business lending. Loan officers 

reported tightened C&I loan standards for small firms 

in 2007 through 2009. At perhaps the peak of the crisis, 

in fourth quarter 2008, nearly three-quarters of loan 

officers reported tightened standards for small business 

loans. In 2010, loan officers began to report a slight 

6

 Congressional Oversight Panel, “The Small Business Credit Crunch 

and the Impact of the TARP,” May 13, 2010. 

Chart 1

0

100

200

300

400

500

600

700

800

2006Q2 2007Q2 2008Q2 2009Q2 2010Q2 2010Q3

Agriculture Loans

Commercial and Industrial Loans

Loans Outstanding

Billions of Dollars

Small Loans to Businesses, Originated by Banks,

Have Continued to Decrease

Source: FDIC.

Notes: Agriculture loans are less than $500,000, and C&I loans are less than $1 million. 

FDIC Call Reports were modified to collect these data quarterly beginning in 3Q10; 

however, the latest year-over-year data available are from 2Q10. 

Banks Are the Primary Source for Small Business Credit

Funding Source August 2008 December 2008 July 2009 December 2009 July 2010

Credit Cards 41% 49% 43% 41% 39%

Bank Loans 50% 44% 53% 46% 43%

Vendor Credit 22% 27% 29% 24% 20%

No Financing 17% 22% 16% 21% 21%

Private Loans (friend or family) 12% 16% 20% 18% 19%

SBA 5% 3% 4% 4% 4%

Source: National Small Business Association 2010 Mid-Year Economic Report.

Note: Response data do not sum to 100 percent because respondents could choose more than one answer.
FDIC Quarterly 35 2011, Volume 5, No. 1

Microenterprise Development

•	 State Small Business Lending Programs – Various 

states also have enacted laws and policy changes to 

encourage more small business lending and investment, by, among other things, increasing guarantees 

and streamlining access to state loan funds, establishing loan loss reserve pools for banks participating 

in state-sponsored small business lending programs, 

and directing deposits and other state-funded investments to qualified small business lenders.13

In addition to government policies and programs, 

bank regulatory agencies have taken the following steps 

to encourage banks to continue making sound small 

business loans and working with financially distressed 

borrowers:

•	 Examination Guidance Regarding Small Business 

Lending – Bank regulators issued guidance on 

underwriting standards for lending conducted pursuant to the $30 billion SBLF and on promoting 

prudent small business lending and workouts of 

problem loans.14

•	 FDIC Forum on Overcoming Obstacles to Small 

Business Lending – Held on January 13, 2011, this 

forum explored ways to make credit more accessible 

to the small business sector by bringing together 

policymakers, regulators, small business owners, 

lenders, and other stakeholders to identify key issues 

and focus on solutions. Speakers included FDIC 

Chairman Sheila C. Bair; Chairman of the Board of 

Governors of the Federal Reserve System, Ben S. 

Bernanke; Senator Mark R. Warner; Thomas D. Bell, 

Jr., Chairman of the U.S. Chamber of Commerce; 

and Karen Mills, Administrator of the Small Business Administration.15

13 Congressional Oversight Panel, May 13, 2010. This report cites 

examples of small business lending programs and policies in Colorado, Delaware, Illinois, Maryland, Michigan, New Jersey, New York, 

Ohio, and Virginia.

14 See FDIC, the Federal Reserve Board, the Office of the Comptroller 

of the Currency (OCC), and the Office of Thrift Supervision (OTS), 

“Underwriting Standards for Small Business Loans Originated under 

the Small Business Lending Fund Program,” December 2010, 

http://www.fdic.gov/news/news/financial/2010/fil10090.html; and 

FDIC, Federal Reserve Board, OCC, OTS, National Credit Union 

Administration, and Conference of State Bank Supervisors, “Interagency Statement on Meeting the Credit Needs of Creditworthy Small 

Business Borrowers,” February 5, 2010, http://www.fdic.gov/news/

news/press/2010/pr10029.html. The February 2010 guidance also 

references other guidance issued in 2008 and 2009 that broadly 

addresses prudent lending and loan administration, including for 

small business borrowers.

15 FDIC Forum on Overcoming Obstacles to Small Business Lending, 

http://www.fdic.gov/news/conferences/sbl.html.

Efforts to Spur Small Business Lending

Multiple efforts have been under way to counter the 

many issues facing small businesses. For example, several 

banks have made public pledges and announced specific 

programs with the goal of increasing small business lending.10 In addition, the government has initiated various 

policies and programs specifically to spur small business 

lending and investment, including the following:

•	 The American Recovery and Reinvestment Act of 

2009 (Recovery Act) – Enacted on February 17, 

2009, the Recovery Act, among other things, 

attempted to make small business lending under the 

SBA’s most popular 7(a) and 504 loan programs 

more attractive to banks and borrowers. Specifically, 

the Recovery Act temporarily increased the maximum guarantee for 7(a) loans from 85 percent to 

90 percent and eliminated borrower fees for the 7(a) 

program and both borrower and lender fees for the 

504 programs.11

•	 The Small Business Jobs and Credit Act of 2010 

(Jobs Act) – Enacted on September 27, 2010, the 

Jobs Act, among other things:

− Established a $30 billion Small Business Lending 

Fund (SBLF) to provide low-cost funding to 

banks with assets of $10 billion or less in order to 

increase small business lending.

− Extended through 2010 the temporary guarantee 

increases and fee reductions on the SBA’s 7(a) 

and 504 loan programs.

− Increased the size limits for borrowers eligible for 

SBA-guaranteed loans and the maximum amount 

of the loans.

− Established a grant program for states that 

encourage small business lending.

− Provided a mix of temporary and permanent tax 

benefits to encourage small business owners to 

increase investment and hiring.12

10 John Tozzi, “Big Banks’ Small-Business Lending Promises,” 

Bloomberg Businessweek, May 4, 2010, http://www.businessweek.

com/print/smallbiz/content/may2010/sb2010053_204200.htm. 11 Public Law 111-5, 123 Stat. 115, 151-161 (2009). The SBA does not 

directly originate 7(a) or 504 loans but provides guarantees to lenders 

that participate in the program. Proceeds from 7(a) loans can be used 

for any purpose, while proceeds from 504 loans primarily are used for 

real estate purchases and improvements.

12 Public Law 111-240, 124 Stat. 2504 (2010). The Jobs Act affects 

many areas of small business that are beyond the scope of this article. 

For more information about the Jobs Act, see the SBA’s Web site at 

http://www.sba.gov/content/small-business-jobs-act-2010.
FDIC Quarterly 36 2011, Volume 5, No. 1

Microenterprise development refers to helping small 

business owners most at risk—namely LMI and other 

disadvantaged individuals who do not typically have 

access to the full range of mainstream financial services—

create or expand their small business. Microenterprise 

development involves providing these business owners 

with loans, capital, deposit accounts, budgeting services, 

tax preparation services, business-specific technical 

assistance, and other support. Microenterprise development is a poverty alleviation strategy intended to generate income and build assets for LMI or disadvantaged 

and underserved business owners and increase employment in their communities.

Entrepreneurship has long been key to the vibrancy and 

resilience of the U.S. economy, and encouraging small 

business ownership is a prominent public policy goal. 

However, microenterprise development in the United 

States is relatively new; it is commonly thought to have 

emerged in the early 1980s as a response to limited 

earnings and business ownership potential for women 

and as an option for countering high unemployment 

through self-employment.21

Microenterprise development in the United States was 

also influenced by international microenterprise strategies in the developing world, such as the micro loan 

program instituted by Grameen Bank in Bangladesh 

and elsewhere (see text box on page 41). Although 

important parallels exist between international and 

U.S. microenterprise development, the scale of loans 

and capital investments tends to be much larger in the 

United States, given the size and complexity of the 

U.S. economy and banking system; the breadth of the 

public safety net; the lower poverty rate; and the 

nation’s more mature physical, technological, and social 

infrastructures. For example, in the United States, a 

“microloan” has been generally defined as a business 

loan of $35,000 or less, whereas in the developing 

world, microlending often refers to loans in the 

hundreds of dollars or even less.

Microenterprise Development Organizations

Clearly, not all of the more than 25 million U.S. microenterprises are owned by LMI or otherwise disadvantaged individuals, nor are all LMI and disadvantaged 

entrepreneurs receiving microenterprise assistance. To 

understand the general size of microenterprise development and coverage areas, FIELD, a microenterprise 

policy project of the nonprofit Aspen Institute, 

21 Edgcomb and Klein, “Opening Opportunities, Building Ownership.”

• FDIC Hotline for Small Businesses – In recognition of the importance of making credit available

to small businesses, the FDIC created a dedicated,

toll-free hotline for small business owners to make

inquiries of FDIC officials or to register concerns

about the availability of credit. The FDIC will

respond to inquiries about policies and financial

institutions it regulates as well as make referrals to

other governmental agencies where appropriate.16

Microenterprises and Microenterprise Development

A number of positive efforts are beginning to counter 

the effects of the sluggish pace of economic growth on 

U.S. businesses. Yet, the very smallest businesses—

microenterprises—tend to be affected most deeply by 

business cycles, given their size and limited access to 

the capital markets and other funding options. A microenterprise is commonly defined as a business with five 

or fewer employees that requires no more than $35,000 

in start-up capital.17 Although it is difficult to quantify 

how many businesses need $35,000 or less of capital, 

the vast majority of all U.S. businesses—25.4 million 

out of a total 27.8 million in 2007—employ fewer than 

five employees.18

To illustrate the effects of economic problems on microenterprises, 25.6 percent of the smallest businesses in 

the NFIB Survey indicated that they were unable to 

obtain any of the credit they wanted in the past year, 

compared with 19.2 percent for medium-sized companies and 14 percent for the largest companies in the 

survey.19 In addition, 2.4 percent of the smallest companies in the survey indicated that they are unbanked in 

that they do not use a financial institution for business 

purposes, including for deposit accounts.20

16 FDIC, “FDIC Announces Hotline for Small Businesses Regarding 

Availability of Credit,” news release, January 13, 2011, http://www.

fdic.gov/news/news/press/2011/pr11005.html. The FDIC small business Web page also provides a Business Assistance Form, available at 

https://ask.fdic.gov/FDICBusinessAssistanceForm/, for small 

business owners who prefer to inquire in writing.

17 Elaine L. Edgcomb and Joyce A. Klein, “Opening Opportunities, 

Building Ownership: Fulfilling the Promise of Microenterprises in the 

United States,” FIELD, February 2005, http://www.fieldus.org/

publications/FulfillingthePromise.pdf.

18 SBA, Office of Advocacy, Statistics of U.S. Businesses and Nonemployer Statistics, http://www.sba.gov/advo/research/data.html#us. 19

Dennis, “Small Business Credit in a Deep Recession.” The survey 

showed three groups of companies by employment: those with 1 to 9 

employees, 10 to 19 employees, and more than 20 to 250 employees.

20 Ibid.
FDIC Quarterly 37 2011, Volume 5, No. 1

Microenterprise Development

services tend to be female, minorities, and in the LMI 

income band:

•	 Fifty-nine percent of individuals served by MDOs 

were women.

•	 Sixty percent were people of color or members of 

traditionally disadvantaged racial or ethnic groups.

•	 Sixty-eight percent of the people served were LMI, 

in that they had household incomes at or below 80 

percent of the Housing and Urban Development 

median for their location.23

Microenterprise Development Impacts and Costs

Over a five-year period, clients of MDOs have reported 

that their businesses have had positive effects on household income and their communities, such as the 

following:

•	 The median revenue for business owners increased 

60 percent, from about $50,000 at program intake to 

just over $82,000.

•	 The median “draw,” or the amount business owners 

take for personal compensation, more than doubled, 

from about $11,000 to $25,000.

•	 The median contribution of draw to household 

income increased from 52 percent to 71 percent.

•	 For the approximately 40 percent of business owners 

who employed workers other than the owner, the 

number of paid workers more than doubled, from 2.1 

workers per business to 5.6.24

The average cost to service a microenterprise is about 

$2,700, and MDOs recoup only approximately onefifth of their costs through interest and fees on loans 

and other income sources. MDOs derive the remainder 

of their funding from a mix of public and private 

sources, as shown in Chart 2 and described on the 

following page.

23 FIELD, “Microtest Measures 2008 Data,” http://fieldus.org/

MicroTest/FY08PerformanceOverview.pdf. Microtest measures are 

benchmarks to assess performance across the MDO industry and are 

based on data gathered in the FIELD survey of MDOs described in 

footnote 22.

24 Tamra Thetford, Elaine Edgcomb, and Ilgar Alisultanov, “At the 

Five-Year Mark: Outcomes Reported by US Microenterprise Clients,” 

FIELD, March 2010, http://www.fieldus.org/Publications/Multiyear

DataRpt09.pdf.

conducts periodic surveys of groups that serve microenterprises, called microenterprise development organizations (MDOs).

MDOs are generally nonprofit organizations, but they 

perform many of the same functions on behalf of 

microenterprises as banks, private equity funds, and 

financial planners, such as lending, capital investments, 

budgeting, and financial advisory services. In addition, 

they provide a range of business-specific technical training, coaching and mentoring, counseling, legal assistance, and other types of nonfinancial services. Some 

MDOs exist solely to conduct microenterprise development activities, and some are part of larger organizations with broader missions. The text box on page 42 

describes the operations of four U.S. MDOs: Grameen 

America, ACCION USA, Washington CASH, and the 

Lakota Funds.

A FIELD survey conducted in 2009, using data as of 

2008, estimated the scope of microenterprise development activities as follows:

•	 Nearly 700 MDOs in the United States served more 

than 274,000 individuals.

•	 More than 300 of these MDOs engaged in microlending and originated over 9,000 loans totaling 

more than $100 million.

•	 MDOs held an estimated $174 million in outstanding loans and $235 million in microenterprise 

capital.

•	 The most common services provided by MDOs were 

“microloans,” business loans of $35,000 or less, and 

general technical assistance; more than 90 percent 

of MDOs provide these services.22

MDOs serve entrepreneurs in a wide variety of businesses. For example, Web sites for the MDOs profiled 

in the text box on page 42 feature clients with catering 

businesses, hair salons, clothing designers, child care 

providers, and others. Demographic information gathered through the 2009 survey also showed that, on 

average, recipients of microenterprise development 

22 FIELD, “U.S. Microenterprise Census Highlights FY 2008 Data,” 

July 13, 2010, http://fieldus.org/Publications/HighlightsFY2008.pdf. 

This study identified 696 MDOs; it presents data provided by 369 

MDOs that completed a survey in 2009 detailing information on 

programs, products, and customer demographics. 
FDIC Quarterly 38 2011, Volume 5, No. 1

underserved entrepreneurs. Grants up to $250,000 can 

be awarded to fund direct assistance to customers of 

MDOs or to build the MDO’s own resources or research 

capabilities. The SBA awarded approximately $8 

million in PRIME grants to 92 recipients in 2010.27

The U.S. Department of the Treasury also provides 

funding for microenterprise through administration of 

the Community Development Financial Institution 

(CDFI) Fund. The CDFI Fund has various programs 

that provide grants, tax credit allocations, and other 

monetary awards that further public policy goals such as 

job creation, business development, commercial real 

estate development, affordable housing development 

and homeownership, financial education, and provision 

of basic banking services.

To participate in most of the CDFI Fund programs, an 

entity must be certified by the Fund as either a CDFI or 

a community development entity (CDE). As of August 

31, 2010, the CDFI Fund had certified 900 CDFIs, 

including approximately 70 insured banks and thrifts. 

Many MDOs also carry the CDFI or CDE designations 

and receive CDFI funding. CDFI funding that supports 

microenterprise development is not separately reported, 

but, overall, since its creation in 1994, the CDFI Fund 

has awarded $1.11 billion to community development 

organizations and financial institutions and $26 billion 

in tax credits related to private-sector investments.28

State Programs. Several states also provide funding 

for MDOs through Capital Access Programs (CAPs), 

which are lending partnerships between participating 

financial institutions, the state, and small businesses. 

CAPs operate slightly differently in each state. 

However, in general, the financial institution and 

the borrower each pay an upfront insurance premium, 

typically between 3 and 7 percent of the loan amount, 

into a reserve fund held at the originating bank that 

can be tapped in the event of a loan default. The state 

then matches the contribution. The reserve fund allows 

a lending bank to originate loans for microenterprises 

that otherwise would not qualify for a regular small 

business loan because of their risk profile.29

27 Information on the PRIME program was derived from the SBA 

Web site, http://www.sba.gov/content/prime-program-0. 28 Information regarding the CDFI Fund was derived from their Web 

site, http://www.cdfifund.gov/. 29 Information about CAPs was derived from Alan Berube, “Capital 

Access Programs: A Summary of Nationwide Performance,” US Department of the Treasury, January 2001. 

Federal MDO funding sources. With respect to public 

funding, MDOs primarily use the federal programs 

offered by the SBA and the U.S. Department of the 

Treasury. SBA’s Microloan Program provides funds to 

specially designated intermediary lenders, which are 

generally nonprofit community-based MDOs with 

experience in lending and providing technical assistance to microenterprise owners. The loan amount to 

each microloan recipient has been capped at $35,000, 

although it was recently raised to $50,000 pursuant to 

the Jobs Act, and the average loan is about $13,000. 

For fiscal year 2010, the SBA budget provided $25 

million for the Microloan Program.25

The SBA also recently introduced two new loan 

programs—Small Loan Advantage and Community 

Advantage—aimed at increasing the availability of loans 

in underserved communities by offering a streamlined 

application process for SBA-guaranteed 7(a) loans up to 

$250,000. Small Loan Advantage is available through 

existing SBA preferred lenders, including many FDICinsured banks. The Community Advantage Program is 

a three-year pilot program that will allow MDOs and 

other lenders that focus on underserved populations 

to access the SBA 7(a) program. The programs are 

targeted to be launched in first quarter 2011.26

The SBA’s Program for Investment in MicroEntrepreneurs (PRIME) is a grant program available to 

MDOs and other nonprofit organizations that help 

25 US Small Business Administration, “Small Business Jobs Act of 

2010,” September 27, 2010, http://www.sba.gov/jobsact/. 26 Information about the SBA’s Small Loan Advantage and Community 

Advantage Programs was derived from the SBA Web site, http://www.

sba.gov/advantage.

Chart 2

Most Funding for Microenterprise Development

Comes from Outside Sources 

Source: MicroTest, “FY 2008 Performance Data Reports, Costs and Efficiencies,” April 2010.

Federal

30%

Private

29%

Earned Income

16%

Local

12%

Other

5%

State

8%
FDIC Quarterly 39 2011, Volume 5, No. 1

Microenterprise Development

offer savings accounts to LMI owners of microenterprises (see text box on page 42).34

In another example, Northeast Bank, a community 

bank headquartered in Minneapolis, Minnesota, has 

partnered with the Minneapolis Community Planning 

and Economic Development Agency in the Microloan 

Program, which provides loans of up to $25,000 for 

small businesses in LMI neighborhoods.35 Other banks 

participate in microenterprise loan pools. For example, 

Kent County, Michigan, partnered with 18 banks in its 

Micro Business loan program, which combined small 

business loans of up to $15,000 with a small business 

resource center that provided technical assistance and 

counseling to small business owners.36

Banks that participate in microenterprise development 

can benefit in a number of ways. Operationally, banks 

benefit from revenue from loans, introduction to new 

and potentially profitable business customers, and goodwill created by serving the community. Also, banks 

could potentially obtain positive consideration for 

microenterprise development as community development activities under the CRA regulations.37 The 

opportunity for CRA credit would vary based on applicable size-based examination procedures. Banks could 

potentially receive positive consideration for microloan 

originations, investments in microloan pools, or for 

other activities to support these qualifying small businesses, such as by volunteering on bank time to lend 

financial expertise with MDOs and other organizations 

that benefit small businesses.

Microenterprise Development through Alternative 

Delivery Channels

Although banks have historically been the largest 

provider of direct small business funding, nonbank 

financial entities have recently increased efforts to lend 

to small business customers. One innovative form of 

34 Business Wire, “Grameen America and Citi Partner to Open More 

Than 2,500 Savings Accounts for Low-Income Entrepreneurs,” 

September 20, 2010, http://www.businesswire.com/news/home/

20100920006842/en/Grameen-America-Citi-Partner-Open-2500-

Savings. 35 Metropolitan Consortium of Community Developers, 

http://mccdmn.org/. 36 Kent Area Micro Business Loan Services. 

37 See 13 CFR 121.301. The CRA regulations define community development as “Activities that promote economic development by financing businesses or farms that meet the size eligibility standards of the 

Small Business Administration’s Development Company or Small Business Investment Company programs or have gross annual revenues of 

$1 million or less.”

Private Donors. Private donors are another important 

source of MDO funding and sometimes provide staff 

assistance and other support to MDOs. Although data 

are not available on the aggregate amount of private 

support for MDOs, numerous foundations and other 

philanthropic groups fund MDOs. For example, the 

Laurie M. Tisch Illumination Fund granted $1.5 million 

for microloans and technical assistance to support 

ACCION USA’s Green Cart program in New York 

City, which helps fruit and vegetable cart vendors from 

low-income neighborhoods.30 Also, the Ford Foundation provided grant funding to ACCION USA to 

develop a standardized lending scorecard for underserved microenterprises with impaired or no credit 

history.31

Banks Support Microenterprise Development

Banks contribute to microenterprise development in 

many of the same ways as nonprofit MDOs. They often 

make microloans directly to microenterprises; invest in 

microenterprise loan pools; make capital investments; 

and provide budgeting, financial education, account 

management, and other types of assistance to microentrepreneurs and MDOs. The Association for Enterprise 

Opportunity, an MDO trade association, has banks and 

credit unions among its members, although it does not 

report specific membership statistics.

A number of banks also have philanthropic foundations 

that support MDOs and others focused on underserved 

entrepreneurs. Other banks directly participate in 

microenterprise development through corporate partnerships with MDOs. For example, the Citi Foundation 

has provided more than $1 million in grants to MDO 

ACCION Texas.32 At the same time, the corporate 

entity, Citibank, has agreed to purchase $30 million in 

microloans from ACCION Texas over five years as an 

additional source of funding for the MDO.33 Citibank 

has also partnered with MDO Grameen America to 

30 New York City Department of Health and Mental Hygiene, “NYC 

Green Cart,” 2010, http://prtl-drprd-web.nyc.gov/html/doh/html/cdp/

green_carts_resources.shtml, accessed October 20, 2010. 31 FIELD, “Scaling-Up Services,” http://www.fieldus.org/projects/

scale.html, accessed October 21, 2010. 32 Citi, “Citi and ACCION Texas Report Significant Progress Helping 

Microentrepreneurs through Economic Downturn,” news release, 

December 8, 2009, http://www.citigroup.com/citi/press/2009/

091208c.htm. 33 Citi, “Citi Agrees to Purchase up to $30 Million in New Loans from 

ACCION Texas,” August 19, 2008.
FDIC Quarterly 40 2011, Volume 5, No. 1

Conclusion

Small businesses are crucial to the health of the U.S. 

economy, but they can be especially vulnerable to an 

economic downturn. The smallest businesses, microenterprises, are especially challenged, given their limited 

resources and funding options, which are further exacerbated for business owners who do not have access to 

mainstream financial services. Microenterprise development is an effective strategy to help LMI, underserved, 

or otherwise disadvantaged entrepreneurs create or 

expand small businesses that have significant positive 

effects on the owner’s financial well-being and the 

community at large. Participation in microenterprise 

development provides several benefits to banks, including new sources of revenue and customer relationships, 

community goodwill, and the potential for positive 

CRA consideration.

Authors: Rae-Ann Miller, Special Advisor to the Director

Division of Insurance and Research

 Heather Gratton, Senior Financial Analyst

Division of Depositor and Consumer Protection

 Luke Reynolds, Chief, Outreach and Program 

Development Section

Division of Depositor and Consumer Protection

 Disha Shah, Former Economic Assistant

Division of Insurance and Research

 Kathy Zeidler, Technical Writer-Editor

Division of Insurance and Research

nonbank lending that has emerged in recent years is 

peer-to-peer lending, which involves an Internet-based 

platform that directly connects borrowers and lenders. 

Kiva is a peer-to-peer lending Web site specifically 

devoted to matching borrowers and lenders in the 

microfinance area. Kiva operates in 207 countries, 

including the United States; it has facilitated the 

origination of more than $165 million in loans, with an 

average size of US$381, and reports a repayment rate of 

98.9 percent.38

Other nonbank entities, such as finance companies, 

suppliers, and even retailers, lend to microenterprises. 

For example, Wal-Mart Inc.’s Sam’s Club warehouse 

chain is testing the concept of offering online small 

business loans up to $25,000 to club members, focusing 

on businesses owned by racial and ethnic minorities, 

women, and veterans. Sam’s Club identified a need for 

credit among its members after a November 2009 

survey indicated that nearly 15 percent of its business 

members reported being denied loans elsewhere.39

38 Data on Kiva were obtained from its Web site, http://www.kiva.org/. 39 Karen Talley, “Sam’s Club to Offer Loans Up to $25,000,” Wall 

Street Journal, July 6, 2010, http://online.wsj.com/article/NA_WSJ_

PUB:SB10001424052748704862404575350813891562150.html.
FDIC Quarterly 41 2011, Volume 5, No. 1

Microenterprise Development

International Microfinance

Internationally, microfinance is a concept that refers to 

providing basic financial services, such as savings 

accounts, credit products, money transfer services, and 

insurance, as a poverty alleviation strategy to very poor 

families who lack access to traditional financial institutions. Typical microfinance clients are very low-income 

individuals in rural areas who engage in farming or small 

trade or processing transactions with farmers. The Rural 

Development Institute estimates that the world’s poorest 

1.4 billion people, 75 percent of whom live in rural areas, 

subsist on less than $1.25 per day.1

The roots of microfinance are often traced to government-sponsored rural development programs of the 1950s 

that offered subsidized loans targeted to specific communities. Problems arose because funds did not always reach 

the intended targets and repayment rates were low. Beginning in the 1970s, private firms in Bangladesh (Grameen 

Bank), Brazil (ACCION International), and other countries began to experiment with extending very small business loans, often to women in small groups. This became 

known as solidarity lending, where members of the group 

apply “soft” pressure to borrower-members to encourage 

loan payment.2

These programs and other products targeted to the poor 

were expanded through the 1980s and 1990s. The 

Grameen Bank model is likely the oldest and most wellknown of the microfinance models. The bank and its 

founder, Mohammed Yunus, were awarded the Nobel 

Peace Prize in 2006. Grameen Bank is owned primarily by 

1

 Rural Development Institute. The demographic data are for 2005. 

2

 Background information about international finance was derived 

from the CGAP Web site, http://www.cgap.org/p/site/c/home/, and 

the Global Envision Web site, http://www.globalenvision.org/

library/4/1051/. 

its poor borrowers, who hold a 95 percent share; the 

government of Bangladesh owns the remaining 5 percent. 

The bank has 8.3 million borrowers, 97 percent of whom 

are women. Grameen Bank loans are unsecured, and no 

legal documents evidencing the loan are required. The 

bank’s average microenterprise loan is about US$400, 

and the average loan yield is about 19 percent.3

In 2009, 1,884 international microfinance companies 

reported holding $26.8 billion in deposits and making 

$64.8 billion in loans with an average balance of about 

US$522 and an average yield of 21.7 percent.4 As the 

number of organizations providing international microfinance has grown, some have begun to criticize the usefulness of microfinance as a poverty alleviation strategy in 

light of high interest charged in some countries, which 

can exceed an annual percentage rate of 100 percent.

Concerns about microfinance stem from different political, economic, legal, and cultural circumstances in various countries. However, as the microfinance industry 

matures internationally, industry experts have acknowledged that improvements could include development of 

a credit bureau to reduce overlending, emphasis on client 

poverty reduction rather than lender profit to measure 

success, and expansion of other mainstream financial 

products beyond loans, such as savings accounts.5

3

 Grameen Bank Web site, “Grameen Bank at a Glance,” http://www.

grameen-info.org/index.php?option=com_content&task=view&id=26

&Itemid=175. 4

 Microfinance Information Exchange, “Microfinance at a Glance,” 

http://www.mixmarket.org/. 5

 See Vikas Bajaj, “Microlenders, Honored With Nobel, Are Struggling,” New York Times, January 5, 2011; Eric Bellman and Arlene 

Chang, “India’s Major Crisis in Microlending,” Wall Street Journal, 

October 29, 2010; and Neil MacFarquhar, “Banks Making Big Profits 

From Tiny Loans,” New York Times, April 13, 2010.
FDIC Quarterly 42 2011, Volume 5, No. 1

Microenterprise Development Organizations in the United States

Leaders in International Microfinance Operate 

U.S. MDOs

Two of the largest and best known organizations in international microfinance, Grameen and ACCION, apply 

many of their lessons learned abroad to promoting microenterprise development in the United States. Grameen 

America began operating in the United States in January 

2008 and has four branches in New York City and one in 

Omaha, Nebraska, with other offices planned for major 

cities. Grameen’s customers fall below the poverty line, 

and many are single mothers and recent immigrants.

To simulate the “solidarity” approach to international 

microfinance, Grameen America requires borrowers to 

form groups, receive financial training, and open a savings 

account before receiving a loan to start or expand a small 

business. Thereafter, the groups meet weekly for follow-up 

training and support. The basic loan is capped at $1,500 

per year for 6 or 12 months, with a 15 percent interest 

rate. Higher amounts and lower rates are available for 

borrowers who perform satisfactorily on their initial loans. 

As of August 2010, Grameen America reported serving a 

total of 4,000 borrowers with a nearly 99 percent repayment rate and that borrowers were successful in establishing or improving their credit scores. It also reported that 

customers accumulated more than $500,000 in savings in 

accounts held at Citibank.1

ACCION USA is one of the largest and most established 

U.S. MDOs. Since 1991, it has originated more than 

19,000 microloans totaling more than $119 million. It 

currently has 2,300 active borrowers; 61 percent are 

Hispanic or Latino, 27 percent are African American, and 

40 percent are female. ACCION USA provides loans ranging from $500 to $50,000, with a $30,000 cap for firms that 

have been in operation for less than six months. ACCION 

USA also provides technical advice and other support, 

such as seminars on how to raise credit scores and write a 

business plan. One-on-one credit training is provided 

during the loan process, online resources and group workshops reinforce credit-building skills, and repayment histories are reported to credit bureaus. ACCION USA measures 

its success in terms of impact on the community and reports 

that each loan contributes to the creation or retention of 

2.4 jobs, not including that of the borrower.2

1

 Information about Grameen America was obtained from its Web 

site, http://www.grameenamerica.com/. Citibank is participating in 

the FDIC Model Safe Accounts Pilot with the Grameen America 

accounts. The pilot launched on January 1, 2011, and is a one-year 

case study designed to evaluate the feasibility of insured institutions 

offering safe, low-cost transactional and savings accounts. See 

http://www.fdic.gov/consumers/template/. 2

 Information about ACCION USA was derived from their Web site, 

http://www.ACCIONusa.org/, and ACCION USA, “Sustaining Businesses and Jobs Amid the Financial Crisis: Outcomes Data in the 

ACCION USA Footprint, 2007–2008,” January 11, 2009.

Local MDOs Benefit Their Communities

Washington Community Alliance for Self-Help 

(CASH) is an MDO in the state of Washington that 

provides access to capital and business development 

training to low-income individuals. CASH provides loans 

ranging from $1,000 to $35,000 and charges an interest 

rate of 4 percent above local bank prime rates. In addition to loans, CASH provides technical business assistance, business consulting, mentoring, marketing 

assistance, Individual Development Accounts, and access 

to a peer support network.

The average CASH client supports a family of three on 

$20,400 annually when starting the program. Sixty-six 

percent of CASH clients are women, 63 percent are people 

of color, and 95 percent have low incomes. One year after 

graduation, CASH clients experience, on average, a 73 

percent increase in their household income. Moreover, 

82 percent of Washington CASH clients’ income levels 

were above the poverty line within 18 months of receiving 

services. Also, 18 months after graduation, 71 percent of 

clients are still in business. As of November 2009, approximately 2,800 low-income entrepreneurs had participated 

in CASH’s business development courses, and more than 

800 businesses had opened or expanded. In addition, 

CASH had extended 383 loans, totaling $802,000; these 

loans have a repayment rate of 96 percent.3

Lakota Funds is a Native American community development financial institution serving the Oglala Lakota 

Nation in South Dakota. This group, primarily located in 

an area known as the Pine Ridge Indian Reservation, has 

an unemployment rate of more than 70 percent. The 

median household income of residents is 58 percent lower 

than the rest of South Dakota and 52 percent lower than 

the national average. Lakota Funds helps promote 

economic development by providing access to capital, 

business-specific technical assistance, financial education, home ownership counseling, mentoring, and assistance in overcoming bureaucratic hurdles to land access 

on the Lakota reservation.

From 1986 to 2009, Lakota Funds originated more than 

660 small business loans totaling over $4.7 million, 

provided training to more than 1,200 people, and helped 

create more than 1,000 permanent jobs in a community 

of fewer than 40,000 people. In addition, this organization 

developed the first Native American-owned, tax creditfinanced housing project in the nation and co-founded 

the first Native American Chamber of Commerce on an 

Indian reservation in the United States.4

3

 Information about Washington Cash was derived from its Web site, 

http://washingtoncash.org/what-we-do/program-overview. 4

 Lakota Funds, “Lakota Fund’s Mission – Accomplishments and 

Challenges,” http://www.lakotafunds.org/mission.html, and Red Cloud 

Indian School, “Pine Ridge Indian Reservation Demographics,” http://

www.redcloudschool.org/history/072409_PineRidge_FactSheet.pdf.