When I meet Susana Ugalde recently at her shop Susan Hair Salon, in Flushing, Queens, a young woman in furry Ugg boots is having her hair done by Ugalde's stylist. The whir of hairdryers and a waft of wet hair products fill the bright orange space, and you can hardly see the woman's face for the blond mane swept in front of it.
Ugalde is telling me how she emigrated to the U.S. from Mexico City in 1996 to start a better life for herself and her family.
"When you come here, it changes your mind, and suddenly you have other goals," Ugalde says. "Here, life is better."
Ugalde has built her business, which has one full-time employee, in part through the microfinance organization Grameen America, an offshoot of Grameen Bank, which was created by Nobel laureate Muhammad Yunus in Bangladesh in the 1980s. Grameen is one of thousands of microcredit and microfinance companies that have cropped up in the past decade to assist entrepreneurs too poor to qualify for traditional financing.
The ideas motivating microcredit and microfinance are laudable and hard to criticize. They lift people out of poverty by providing them with small loans to help them start their own businesses. Plus, they can serve as a quick path to funding, especially if a borrower has a spotty credit history, which can make raising traditional funding difficult. Still, their overall effectiveness has been questioned in recent years--particularly in the developing world.
"Microcredit may be a way to help an individual who is starting a small business, but its larger economic benefits are somewhat suspect," says Leslie Lenkowsky, a professor of public affairs and philanthropic studies at Indiana University's School of Environmental and Public Affairs.
Among the problems with microcredit, Lenkowsky says, is the tendency for the poor to use the money for nonbusiness-related expenses, such as medical emergencies or other necessities. There are also some doubts as to whether the cultural values of the developing world--which entail a subtle form of peer pressure in villages to ensure repayment of loans--can translate to big U.S. cities. And let's not forget the high interest charges.
Since microcredit loans are not backed by collateral, interest rates tend to average about 35 percent, but can be as high as 80 percent in some countries.
Grameen is somewhat unique, however, in its focus and belief in women entrepreneurs, which stem from Yunus's conviction that women are more central to communities, more prudent with money, and hence more likely to start successful, sustaining businesses. Since its inception, the bank has disbursed nearly $16 billion in microloans worldwide.
Grameen America began, with similar goals, about six years ago. With 19 locations across the U.S., including in Houston, Los Angeles, Charlotte, North Carolina, and Indianapolis, the organization has provided financing to 36,000 women nationwide. New York City, however, offers the biggest program, with 20,000 women-owned businesses having received $72 million in financing since 2008.
Entrepreneurs are eligible for $1,500 to start, and typically pay an annual percentage rate of about 15 percent. The loans must be paid back within six months, and the program is structured around weekly meetings with other women in the program as well their local branch manager. Payments are due each week, and as the loans are successfully paid back, borrowers are eligible for bigger amounts, though the loans are capped at around $10,000.
"I am a huge believer that microfinance in the U.S. is a very powerful tool for poverty alleviation," says Andrea Jung, president and chief executive officer of Grameen America. "I think most people are not aware of how it can provide tangible and pragmatic solutions in communities in the richest city in the richest nation in the world."
Though some experts might question whether that's true, in Ugalde, Grameen has probably found the ideal entrepreneur.
A Test Case
Ugalde is small and fine-featured, and her dark, serious eyes are offset by the playfulness of her personal style. Pink, Flintstone-esque hoops adorn her ears, and brilliant purple streaks run through her straight black hair. Several tattoos peak through a black shirt that droops artfully over her shoulders. Her face frequently lights up with a quick, warm smile when she speaks.
She tells me she comes by entrepreneurship honestly: Her father ran his own pharmacy and wanted her to learn a trade so she could start her own business too. Ugalde says she learned hairdressing by putting herself through Mexico's rigorous beauty school curriculum, which requires three years of training in special courses in men's hair, women's hair, makeup, and pedicures and manicures, among other things.
"When I first came here, I rented just one room with my son," Ugalde says. "Now I have a house and a car, and I get [away] two times a year for vacation. Before, I never had the time or the money, and I had to work for someone else."
Despite an early setback, in which she lost her first salon due to zoning issues, costing her tens of thousands of dollars, Ugalde plowed $7,000 of her own savings into her current space, which she converted from a 99 cent store. A friend, also in the beauty business, told Ugalde about Grameen about six years ago. Ugalde started out with a $1,500 loan, which she used to refurbish the space she's in now, including replacing the floors and painting the ceiling. Now on loan five, for $7,000 with an annual percentage rate of 15 percent, Ugalde's using it, she says, to market her business, including updating her signage, which gives her a stronger street presence.
That's important, because Ugalde is in tight competition with the numerous other hairdressers and hair salons on nearby Roosevelt Avenue and on Broadway. Though she's built up a loyal clientele over the years--including patrons who come down from as far away as Connecticut and Boston for hairdressing appointments--she has to constantly adjust prices and come up with specials to entice new customers. Rents are high, also, and getting higher all the time. A space the size of hers, about 300 square feet, can easily go for $3,000 a month or more.
The Bigger Picture
"When I opened my first salon here, in 1996, there were not that many businesses," Ugalde says. "Now it is harder, and [the other salons] have different prices" for their services.
As it turns out, Ugalde is one of 18 women business owners in the neighborhood who have taken out Grameen loans. Others include a woman who sells jewelry, another who sells dresses, and yet another who sells shoes. Ugalde also rents a portion of her salon to another Grameen entrepreneur, a woman who does pedicures and manicures.
They all meet every Friday morning in a neighbor's house to make their weekly payments, and to discuss how business is going.
Included in that group is Maria Arboleda, who runs Tires by Papi down the street. She stops in while Ugalde and I are speaking. Arboleda says the entrepreneurs learn from hearing one another's stories, which in turn helps their businesses grow. Arboleda, for example, used her first $1,500 to buy used tires several years ago. Now on a loan worth $4,000, she's using the money to help fund her switch to selling new tires, because she says it's ethically the right thing to do.
"A lot of people say $1,500 isn't much, but you can really boost up your business with that much money," Arboleda says, adding she has plans to open a food cart on the premises soon, with specialties everyone wants but nobody is selling in the neighborhood yet.
As for Ugalde, she says she might someday expand to another salon, or change it up by opening a restaurant. But she's pleased with what she's accomplished for now.
"I'm 37 years old, and now I can say I have my dream," Ugalde says. "I have my family and my house and the business--I have everything."