Microfinance is Instrumental in Alleviating Financial Hardship in the United States
Early Results of an MDRC Study of Grameen America
Bar Cudkevich, Aspectus Group for Grameen America
John Hutchins, MDRC
(New York, March 8, 2019) — Nonprofit research organization MDRC and Grameen America, Inc., the fastest growing nonprofit microfinance organization in the United States, today released the early results of a research study in Microfinance in the United States: Early Impacts of the Grameen America Program. The study, funded by Robin Hood, is the most rigorous, independent, third-party evaluation of group microfinance in the United States, assessing Grameen America’s program, a microfinance model that provides small loans to low-income women entrepreneurs in the United States seeking to launch or expand small businesses.
The first-of-its-kind random assignment study examined 1,492 women (in 300 loan groups) who applied in groups of five to the Grameen America microlending program in Union City, New Jersey. Applicant groups were assigned at random into two groups: those eligible to receive Grameen America loans (the program group) and those not eligible (the control group). The outcomes of the two groups were compared over time. Random assignment studies, often called the “gold standard” of evaluations, use the same rigorous methods as pharmaceutical trials.
Highlights from the early findings of the evaluation of the Grameen America program include:
More than 94 percent of Grameen America members reported that their financial situation is better than it was the previous year, a 13 percentage point increase over the control group average.
The Grameen America program produced a 22 percentage point increase in the attainment of a credit score — a VantageScore — at 7-12 months after participants enrolled in the study, and a 6 percentage point increase in the attainment of a Prime credit score, the top tier of creditworthiness.
Grameen America members were 13 percentage points more likely than their control group counterparts to report that they could afford to buy the things they needed.
Over 95 percent of Grameen America members reported operating their own businesses 6 months after joining the program, an increase of 11 percentage points over the control group average.
“Our goal in embarking upon this rigorous study was to determine whether the Grameen America model leads to the alleviation of poverty for borrowers,” said Gordon Berlin, President, MDRC. “The early results are promising. The Grameen America program produced reductions in measures of financial hardship, which puts the program in a position to increase income and reduce poverty, the ultimate goals of Grameen America, down the road.”
“Though often associated with the emerging markets, the need for microfinance loan programs in industrialized countries like the U.S. is severely understated. Safe and affordable access to financial services transcends borders and politics. It is the chief force behind economic mobility, empowering people to save, borrow, and invest. Unfortunately, financial services are not readily available for a large swatch of the population, often women in the lowest income brackets,” said Andrea Jung, President and CEO, Grameen America. “The early results provide encouraging evidence that microfinance programs can be a sustainable, scalable solution to help close the financial inclusion gap in the U.S. Microlending not only empowers women to launch businesses, lessening their reliance on having one primary employer; it has the potential to transform entire communities.”
“For many women, a loan from Grameen may be their first experience accessing formal financial services and can help build their financial identity. A good credit score is a vital asset for not only accessing credit, but also a mobile phone contract, renting an apartment, or applying for a mortgage.” said Bob Annibale, Global Director, Citi Community Development and Inclusive Finance, which made MDRC’s six-month report possible.
According to Grameen America, its unique group lending model, which requires that women create a group of five in order to be eligible, strengthens loan meeting attendance and repayment rates, providing an environment of encouragement, support, and motivation. Overall, the organization has invested over $1 billion in microfinance loans to 110,000 women across 14 U.S. cities and counting, and has achieved a 99 percent loan repayment rate.
Ray Dalio, Founder, Chairman and Co-Chief Investment Officer of Bridgewater Associates and Director Emeritus of the Grameen America Board, said, “The research conducted by MDRC only validates the Grameen America model that I have seen work great and have confidently invested in for over ten years. These solid results put Grameen America in an even stronger position to continue to expand the group microlending model on a national scale.”
The early results of the Grameen America program evaluation are the first set of preliminary results in the long-term study conducted by MDRC. The roadmap of the study intends to analyze results at the 18-month and 36-month marks, with an eye to go as far as a five-year evaluation. Future reports from the Grameen America evaluation will present longer-term impacts on a much wider range of outcomes, including overall income and earnings, which are the ultimate goals of the Grameen America program.
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MDRC is a nonprofit, nonpartisan education and social policy research organization dedicated to learning what works to improve programs and policies that affect the poor. MDRC is best known for mounting large-scale demonstrations and evaluations of real-world policies and programs targeted to low-income people. We helped pioneer the use of random assignment — the same highly reliable methodology used to test new medicines — in our evaluations. From welfare policy to high school reform, MDRC’s work has helped to shape legislation, program design, and operational practices across the country. Working in fields where emotion and ideology often dominate public debates, MDRC is a source of objective, unbiased evidence about cost-effective solutions that can be replicated and expanded to scale.
About Grameen America:
Founded by Nobel Peace Prize recipient Muhammad Yunus, Grameen America is a 501(c)(3) nonprofit microfinance organization dedicated to helping entrepreneurial women who live in poverty build small businesses to enable financial mobility. The organization offers microloans, training, and support to transform communities and fight poverty in the United States. Since opening in January 2008, Grameen America has invested over $1 billion in more than 110,000 low-income women entrepreneurs. Started in Jackson Heights, Queens, Grameen America has expanded to 21 locations in New York City, Austin, TX, Boston, MA, Charlotte, NC, Indianapolis, IN, Los Angeles, CA, Newark, NJ, Omaha, NE, Oakland, CA, San Jose, CA, San Juan, PR, Union City, NJ, Houston, TX, and Miami, FL. Learn more at www.grameenamerica.org.
About Robin Hood:
Founded in 1988, Robin Hood finds, fuels, and creates the most impactful and scalable solutions lifting families out of poverty in New York City, with models that can work across the country. Robin Hood invests roughly $100 million annually to provide legal services, housing, meals, workforce development training, education programs, and more to families in poverty in New York City. Robin Hood tracks every program with rigorous metrics. Learn more at www.robinhood.org; and follow Robin Hood Facebook, Twitter, Instagram, LinkedIn.
About Citi Community Development:
Citi Community Development leads Citi’s commitment to financial inclusion and economic empowerment for underserved individuals, families, and communities across the U.S. Through innovative collaborations with municipalities, community groups, and leading nonprofit organizations, we harness the institution’s expertise, products, and services to help expand opportunity for all.