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Microfinance Potential in Alaska.

The term "microfinance" likely elicits images of developing countries and $100 loans, but recent innovations and adaptations to the practice have brought microfinance products and services to the United States, with interesting results in the 49th State in particular. While microfinance in the developing world offers small loans to the poorest of the poor, American microfinance institutions generally provide business loans under $100,000 to those unable to secure financing from commercial banking entities. This may be due to poor/no credit history or the need for a small amount of capital, below typical lending thresholds. Microfinance programs tend to use more lenient criteria when evaluating potential borrowers than traditional financial institutions and usually offer more technical support services than commercial lenders.

Great Potential

Although microfinance efforts are still relatively nascent in the 49th State, the potential is certainly here, and interest in microfinance has been growing among various organizations. A majority of the state's microfinance activity has occurred through a unique platform called Kiva Zip. Kiva Zip is an arm of Kiva, an international microfinance nonprofit. Geared specifically toward borrowers in the United States, it provides an online crowd-funding platform for individuals to make loans directly to borrowers. Kiva Zip representative Adam Kirk explains that "Kiva's unique crowd-funded financing is different from that of traditional financial institutions in that Kiva vets business owners on the basis of their character and not on their business data. Entrepreneurs are required to recruit a number of people from their own network before they're able to raise money on Kiva."

Instead of credit score, net worth, or years in business, community involvement is the main metric Kiva Zip uses to assess borrower credibility and trustworthiness. Kirk states, "In Alaska, Kiva has connected twelve entrepreneurs with $75,400 in funding for their businesses, all without charging a single cent of interest or fees. These twelve business owners include people like Jenny, owner of Sipping Streams Tea Company in Fairbanks, who borrowed $10,000 to expand her wholesale capacity and grow retail revenue."

Zero Interest Loans

Fairbanks Economic Development Corporation Tech-Led Development & Cold Weather Testing Project Manager Juliet Shepherd says she "would like to make a clear call to action for Alaska small businesses to consider utilizing Kiva's 0 percent interest loan option to build cash reserves to ensure positive cash flow, while establishing or building a credit history. These crowdfunded loans can be used for any legitimate business need--including operations. It is a way for small businesses that are financially excluded from conventional lending options or are creating social impact in their communities to increase resilience while directly infusing capital into Alaska's economy." Shepherd points out that "the Kiva program works best with businesses with strong community ties--either directly or through established social networks." To find out more about how Kiva supports US entrepreneurs, visit borrow.kiva.org or email borrowers@kiva.org.

Kiva Zip is a viable option for rural entrepreneurs who may have difficulty accessing traditional banking based on their remote location. Michelle Sparck, co-founder of the sister-run, Alaska Native cosmetics company ArXotica, has run two successful Kiva Zip campaigns and shared her insights into the Kiva experience. When asked if using the Kiva Zip program was preferable to traditional banking, Sparck responded: "So much better ... These aren't astronomical and game changing amounts, but it does provide a little breathing room and autonomy while a small start-up considers the next move. A no interest loan is rare and beneficial. Many of [Kiva's] businesses have infrastructural inequities and challenging supply chains, Alaska isn't so unique with that, but to have this kind of capital with the barriers we face in simply getting to the marketplace is invaluable. Traditional banks would look at all these challenges and determine it too risky; Kiva is not traditional."

Pilot Program

The Anchorage Community Land Trust (ACLT) also recently piloted a microfinance program to address gaps in business lending in the Mountain View neighborhood. ACLT Communications and Development Manager Emily Cohn shares that the goal of the program is to "offer business owners an alternative lending product that will gain them access to small, usable amounts of capital for business growth. Many small business owners resort to credit cards, pay-day advance loans, family/friend loans, and other high-risk, high cost funding options in the absence of financial mechanisms that meet the needs of their small business."

The pilot program currently seeks to serve established business owners in the Mountain View neighborhood. Cohn says, "ACLT has strong anecdotal evidence that the microloan program is needed. Small business owners, in this case minority and women-owned, have indicated that a program where they can safely acquire funds to purchase a piece of equipment to expand their food service business would be a huge assistance. The program would allow them to grow profits without having to subject their personal finances, which support their families, to the risk and high interest rates that credit cards or other options provide." The first microloan dispensed by ACLT went to Eva's CupCakery, a Mountain View bakery and neighborhood institution. With the small loan from ACLT, the business was able to purchase espresso equipment and expand the shop's offerings.

Other Microloans

Entrepreneurs interested in business loans for small amounts of capital can also consider the Microloan Program available through the Alaska State Division of Commerce, Community and Economic Development. The Microloan Program lends up to $35,000 to an individual and up to $70,000 to two or more persons.

While exciting developments are being made in regards to microfinance institutions throughout Alaska, there is certainly room for more lenders in the state. There are several resources available to organizations interested in taking on a microlending component. The Small Business Administration supports intermediary microfinance lenders through a program that provides grant funding and loan money to eligible nonprofits that offer microloans and technical assistance for small business owners. There are, at this time, no microloan intermediary lenders in the state of Alaska.

The USDA Rural Development Office's Rural Microentrepreneur Assistance Program (RMAP) is another Federal Program in Alaska that can assist with microfinance. "Through the RMAP, USDA partners with local Microenterprise Development Organizations who in turn invest in viable, small rural businesses that are otherwise unable to obtain the credit they need to succeed," says Renee Johnson, business programs director at USDA Rural Development. "This program is underutilized in Alaska," says Johnson.

Under RMAP, USDA provides loans and grants to microenterprise development organizations to help microentrepreneurs access small microloans to start or develop businesses. Microenterprise development organizations use the funds to provide training and technical assistance to eligible small businesses or to establish revolving loan funds to provide loans (typically ranging from $5,000 to $50,000) to rural microentrepreneurs. For more information and how to apply, please contact Johnson at: (907) 761-7712 or renee.johnson@ak.usda.gov.

At the heart of these different microfinance programs is a desire to spur community and economic development. Access to small loans and intensive technical assistance paves the way for small business owners to use small amounts of capital to its greatest potential, grow their operations, and contribute to a robust entrepreneurial ecosystem. O

Anneliese Trainer recently ended a yearlong AmeriCorps VISTA placement at the University of Alaska's Center for Economic Development in a three-year Microfinance Initiative project. Contact UA CED for more information.
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Title Annotation:FINANCIAL SERVICES
Author:Trainer, Anneliese
Publication:Alaska Business Monthly
Date:Mar 1, 2017
Words:1225
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