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Global micro lender Grameen ramps up in Indianapolis

August 6, 2011

The sixth U.S. branch of the Nobel Peace Prize-winning financial institution that developed the innovative concept of micro loans for the poor is set to make its first Indianapolis loan in the next 30 days.

Bangladesh-based Grameen Bank, with four branches in New York and one in Omaha, Neb., could have its Indianapolis operation up and running as early as September, officials familiar with the organization say.

“Grameen America is thrilled to be opening in Indianapolis,” CEO Stephen A Vogel said in a statement. “In less than four years, we have seen our borrowers in New York City and Omaha demonstrate what just one small loan can do to change a life and we’re looking forward to watching the same successes in the Indianapolis community.”

The bank has hired three employees, including a branch manager and two central managers who are busy pitching the concept to community groups and searching out potential borrowers across the city, said Jennifer Baker, executive director of the Women’s Fund of Central Indiana, a lead financial backer in bringing the bank to the city.

“While it might not seem on the surface like there is a lot of action moving to those first loans, it has been an incredibly busy time,” Baker said.

Venture capitalist Tom Hiatt and the Central Indiana Community Foundation began the effort to bring Grameen here last spring. Since then, they have raised the $6 million needed to underwrite startup costs and the first five years of lending. The bank has not selected a location for the branch, he said.

The effort has received financial backing from an array of agencies, businesses and not-for-profits, including multiyear grants of $500,000 from the Indianapolis Foundation and Glick Family Fund, and a one-time grant of $150,000 from the Efroymson Family Fund. Other backers include the Women’s Fund, Cummins Foundation, Glick Foundation, Indiana Housing & Community Development Authority, J.P. Morgan Chase, Lake City Bank and Premier Capital.

That initial capital will fund 3,500 micro loans of $1,500 or less over the next five years to Indianapolis women living under the poverty line. Grameen requires no collateral on its loans, which typically carry repayment terms of six months or a year.

Borrowers work in peer groups and meet weekly with Grameen representatives. They are required to make weekly loan payments and deposit a few dollars into savings accounts. Grameen’s borrowers report a default rate under 1 percent.

Professor and Nobel Laureate Muhammad Yunus, then the head of the rural economics program at the University of Chittagong in Bangladesh, founded Grameen in 1976. Grameen established its U.S. operations in 2008, opening a branch in Manhattan and later in Omaha, thanks to its best-known resident, Warren Buffett.

Grameen America has made more than 6,500 loans totaling $21 million, averaging less than $2,000. The bank plans to open additional branches in Boston, California, North Carolina and Washington, D.C.

As branch employees made their rounds of the community and gauged interest, Baker said they discovered a need for loans to borrowers who would not be deemed creditworthy by a more traditional financial institution.

Twenty-four percent of female-headed households in Marion County live in poverty, according to research by the Women’s Fund.

In the first year, the bank plans to make 500 loans for such enterprises as baby-sitting, child care operations, sewing and tailoring shops, and food vendor carts.

“The limits are really the woman’s imagination, and her skills and talents,” Baker said.

From its second year on, the bank will scale up to 750 loans annually. By the end of year five, backers expect the operation to become self-supporting, sustained by 15-percent interest payments on the loans, and will have created 4,025 jobs.•

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