Her dream of working in fashion shattered. Now a microcredit for this CT woman could be the chance for “financial mobility”.

Jennifer Marie Lopez was supposed to be doing an internship at fashion giant Betsey Johnson, but life got in the way. Lopez received the internship offer through a technical school that dropped out before her first day.

“She’s my idol to design with because she makes happy-looking patterns and she’s really expressive,” said Lopez, 35, from her New Haven apartment.

This encounter with a longtime dream represents the kind of missed opportunities Lopez kept seeing. She tried to enroll at the Fashion Institute of Technology in Manhattan after completing technical school, but high costs and personal responsibility pushed her out. Fashion design eventually became a postponed dream; Lopez focused on making money as a nurse and security guard, looking after her four sons, and growing her family as best they could.

But a chance at the career she always wanted is finally within reach, and this time on her terms.

In August Lopez received a $ 2,000 loan from nonprofit Grameen America, which is expanding its reach to Connecticut and providing financial funding to help low-income residents. With this money she starts her own business: a kitschy clothing line inspired by her family.

The Grameen America push in Connecticut marks a new era for the microfinance giant, which has so far focused its efforts on urban centers rather than entire regions.

The problem with access to money when one is poor

Borrowers with limited funds have historically been able to obtain loans from local banks, but many local banks have been absorbed by conglomerations. And the local banks that have remained small have to abide by laws that were passed after the banking crisis in 2008 and that limit the risk of lending.

This has made it harder to get a loan, especially for people who traditionally have had a hard time getting credit – women, people of color, and those on low incomes.

It is this group of people that Grameen hopes to help in their Connecticut expansion.

“Our mission is to provide financial mobility for our members and to achieve financial inclusion in many ways because we know that the most vulnerable populations are those drawn from the banking system …” said Grameen’s Vice President for Strategy Rajitha Swaminathan.

Grameen says it focuses on a specific segment of this vulnerable population: the nonprofit only provides microloans to women living in poverty, and the amounts start small.

Initial loans range from $ 500 to $ 2,000, according to the company’s communications director Jason Grobstein. Borrowers have 26 weeks to pay off their loans at 18 percent interest, although interest rates drop weekly during the loan term.

This is unlike traditional lending institutions, which can charge overdraft fees, debit card swipe fees, ATM withdrawal fees, and wire transfer fees even to non-credit-seeking customers.

According to experts such as banking law professor Mehrsa Baradaran, author of How the Other Half Banks, the financial add-ons often keep low-income people away from the traditional banking sector. The Federal Reserve estimated in 2019 that 22 percent of Americans either have no bank account at all or use mostly cash and credit cards for purchases.

Those who do not have adequate access to financial services must rely on other sources for access to the funds they need to stay afloat. In the absence of typical loans, researchers have observed low-income people turning to payday loans, auto loans, and cash registers, where barriers to cash are low and interest rates are high.

For example, the Federal Reserve Bank of St. Louis reported that the average interest rate on a payday loan is 391 percent. In contrast, the average credit card charges around 17.8 percent interest per month, according to financial services company Bankrate.

Statistics show that the alternative loans often create a spiral of problems for borrowers. The Progressive Think Tank Center for American Progress estimates that 80 percent of payday and auto title loans are “overdrawn or followed by an additional loan” after two weeks. Borrowers remain in debt for an average of six months.

Closing the gap

Micro-lenders like Grameen America say they strive to bridge the gap between what exists for middle and upper class Americans and what is currently available to less affluent customers.

For one thing, the loans they make are not to an individual: Grameen America uses a “group lending” model developed by its sister organization, Grameen Bank. To qualify for a loan, individuals must form groups of five and complete five days of financial training that teaches basic principles of business and finance. Even after the initial courses, borrowers need to meet with their cohorts and co-workers to bond within the center and learn from each other as each woman develops her business, company spokesmen said.

“We have a very, very high touch. We meet her every week, ”added Swaminathan. Members also have to pay their loans every week.

Does Microcredit Work?

For decades, Grameen has praised microcredit for its ability to lift people out of poverty. It was philosophy that earned the founder of Grameen Bank, Muhammad Yunus, the 2006 Nobel Peace Prize.

However, critics argue that microloans can do more harm than good. Some studies of microloans and their effectiveness found that the microloans had, at best, a “slightly positive” effect on people living in poverty.

At the same time, researcher Milford Bateman, who wrote “The Rise and Fall of Global Microcredit,” argued that “the global microcredit industry is effectively fueled by greedy individuals, opportunistic so-called ‘social entrepreneurs,’ aggressive private banks, and tough-nosed investors.”

But it is precisely these concerns that is why Quinnipiac University Professor Mohammad Elahee said he believed in the strength of Grameen’s specific microcredit strategy. For one, Grameen America is a not-for-profit organization. According to Grobstein, Grameen’s communications director, all of the money the company makes will fund overheads at its centers and future expansions.

That strategy, Elahee said, is an implicit recognition of the limits of microcredit.

If “I’m a micro-lender, I’ll never really make any money,” he said.

A community-based approach to lending is also important to the success of microcredit, according to Elahee. He said he believes the loans are most effective in groups with strong shared experiences.

“It can work, but not for a college graduate who is just looking to start a new business and take out microloans,” he said. “People who are economically at the lowest level, who have no credit history, who have no access to regular credit lines – for them a microcredit is like a new lifeline.”

While Grameen specifically lends to low-income women, Elahee has also envisioned successful results with refugees, immigrants, and former incarcerates – three groups that often face barriers to finding work in the United States.

Grameen America is coming to Connecticut

Although the local strategy is to anchor itself in densely populated communities with high financial needs, Grameen plans to develop a presence in six cities. The company already serves residents in New Haven and Bridgeport, but plans to expand to Stamford, Waterbury, New Britain and Hartford.

For the first two Connecticut centers, the average Grameen loan was about $ 1,844, but the loans get bigger as the companies grow. Nationwide, the average loan from Grameen America is about $ 4,500. Like New Haven’s Jennifer Marie Lopez, many of her members run businesses in the fashion sector.

Years after her offer failed at Betsey Johnson – and about four months after her loan – Lopez is constantly tackling her own dreams. Jenna Line Customs, she said, was just the beginning.

“I just want to open a fashion school in New Haven,” she said.

New Haven doesn’t currently have a fashion school of its own, and Lopez said she’d like her full-service school to be. Not only does she want to teach students how to design clothes, but she also wants to show them how to model and market their craft.

Although her own fashion career is only formally in its infancy, Lopez is not deterred. She’s already started teaching some sewing pattern classes at Grameen and she said she hoped this eventually opens other doors.

“I’ll do my best to get there,” she said. “I’ll work as hard as I can. And hopefully I could do it. “

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