April 23, 2015

Micro Loans as Start-up Finance for Immigrant Entrepreneurs

Micro loans are both popular and successful in many immigrant source countries. Relatively nascent in the West, models in place have already shown success with a value-added approach.

Finding capital is a common challenge faced by immigrant entrepreneurs. While some business owners rely on informal lending circles for the finance they need, working outside the formal economy can also limit further growth.

Innovative cities and community partners, that recognize the challenges around raising capital for immigrant entrepreneurs, are experimenting with micro loans as part of the solution.

From the experience of a few seasoned models, it’s clear successful loan programs don’t stop at the money. A value-added approach sees immigrant entrepreneurs as part of a community and recognizes they may have other systems to navigate. Building other supports into a credit or loan program, working with other community supports to help them integrate, explore pathways to success and provide guidance that complements financial institution expertise helps ensure that immigrant entrepreneurs have the support they need.

The following good ideas in immigrant entrepreneur integration and support come from our sister site, Cities of Migration.

Economic Integration through Integrated Services

Access to capital and business counselling promotes entrepreneurial success and helps revitalize city neighbourhoods. The City of Philadelphia quickly recognized the role of immigrant entrepreneurs in revitalizing communities, providing goods and services to neighborhood residents, and developing the local economy. To help immigrant entrepreneurs navigate the system, the Department of Commerce recruited multilingual and multicultural staff and introduced language services. However, technical assistance programs and language training were not the only issues standing in the way of immigrant business success. Immigrant entrepreneurs needed access to credit to grow their businesses and confidence in the financial institutions that could help them develop sustainable investment practices.

Rotating Savings and Credit Association (ROSCA) was launched in 2010 when the city invited two of its community partners, micro-lenders FINANTA and Entrepreneur Works, to design and coordinate a lending circle program for low income business owners. ROSCA lending circles typically are made up of 14 entrepreneurs who receive a $1,400 loan and must pay back $100 per week during a 15 week period. Participants gain credit history while developing professional networks and relationships with lenders (who report back to credit bureaus). Business counseling workshops help entrepreneurs improve their business processes as well as appreciate the importance of credit and on-going investment in their businesses. Learn more.

Investing in Potential

A micro loan model prepares newcomers for employment and invests in their long-term success. Alberta’s Immigrant Access Fund (IAF) Loan Program provides internationally trained newcomers, regardless of occupation or training, with loans of up to $10,000 to help cover costs to get back to work in their field in Canada. Most loans cover training, professional fees, exam expenses, assessments and books, but an IAF loan is for whatever will lead to employment success.

A lending program that is flexible and community focused is part of IAF’s niche success. When starting the program, the option of partnering with a bank or formal lending institution was excluded in favour of a flexible community-based approach that allowed IAF to lend to whomever they want, be flexible in renegotiating loan terms should a newcomer experience difficulty and ensure that their loan work is connected to the local community. “IAF invests in people who the banks would turn away – people who have skills and abilities our society needs…. IAF loans are made to people who are trustworthy and are of good character. We lend to people not based on where they are today, but where we believe they will be in the future.”

Each IAF loan is rooted in the place where the newcomer lives and is based on trust. If someone is having trouble, IAF’s loan managers are available and ready to refer them to community supports for help. Pre-loan, if they decide a loan applicant’s learning plan isn’t going to be successful, the applicant is referred to a community partner for help refining the plan. Learn more.

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