Microlending in the U.S. got booster shot of moral support last week, when Federal Reserve Chairman Ben Bernanke spoke to an industry gathering in San Antonio. "I want to affirm the important role that microfinance plays in bringing the opportunity for entrepreneurship to people who otherwise might not have it," Bernanke told the ACCI√—N Texas Summit on Microfinance in the United States.
Bernanke used his speech to outline the development of microfinance in the U.S., which is supported by two federal agencies, the Treasury Department and the Small Business Administartion. Microloans here are usually smaller than $10,000, and because they're targeted to the smallest businesses in the poorest neighborhoods, they're typically bundled with extensive technical assistance. (Often times would-be borrowers have to complete a multi-week course on business basics before they can even apply for a loan.) Bernanke didn't mention it specifically, but the combination of cash and support create businesses that tend to last. A survey by the Aspen Institute found that nearly half of American microborrowers were still in business five years later, a higher share than the SBA reports for small businesses as a whole.
It's a little strange to imagine the Federal Reserve Chairman lecturing the nation's leading microlenders on the history of their own industry, but the importance of the event wasn't in what Bernanke had to say, but the fact that he was there to say it. After all, notwithstanding the success of microlending, the Bush Administration has been relentlessly hostile to the SBA and Treasury programs, first proposing dramatic cuts over successive years and then attempting to eliminate them altogether.
No such luck. Even the Republican Congress found this agenda unreasonable and restored much of the cuts, though the programs are smaller than they were in the last years of the Clinton Administration. This year, with an appropriation from the Democratic Congress, the Treasury Department's Community Development Financial Institutions Fund will bulk back up to its late Clinton Era size. Funding for the SBA's microloan program remains level, but the Legislature has refused the Administration's latest tack, which is to make the program self-sufficient by raising fees on its poor borrowers.
Perhaps Bernanke's speech is a sign of a truce from the Administration. Still the chairman didn't wander too far out on a limb: his last words reflected the White House desire to wean microfinance off government milk. "I hope," he concluded, "that microfinance organizations will sustain their energetic spirit of innovation and experimentation as they strive to become more self-sufficient and adapt to our ever-changing economy."
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