New Mexico in Focus; 2009; Micro Credit

Thank you. Thank you. Thank you.

She bakes and decorates cakes like no one else. And now, because of a microloan, she has her own business. Our goal is to assist people in low-income communities. What is a microloan? Find out next on In Focus. [opening credit music] Hello, and welcome to In Focus. I'm Arcie Chapa.

Tonight we look at a growing movement, microcredit, a program that makes very small loans available to people who want to start their own businesses but have no access to credit through traditional channels. It has proven to be so successful in developing countries that it is now gaining acceptance in industrialized countries as well. Here in New Mexico, four agencies are providing microloans to help reduce poverty. In a moment, we will meet representatives from these organizations. But first, meet a loan recipient who's making the most of her small loan. Karen Castillo's creative genius in cake design, baking, and decoration is immediately apparent to anyone who enters her shop in Rio Bravo Square, a shopping center located in the heart of Albuquerque's South Valley. On the display shelf, visitors can admire some of her creations. Before opening her own business, Karen had perfected her skills over two decades. After graduating from Albuquerque's TVI Baking School in 1978,

she was employed by bakeries in New Mexico, California, Arizona, and Nevada. She learned a variety of different techniques and ideas, from the grocery store mass production, to the privately owned bakeries that catered to their customers. Karen has been wanting to start her own business since the early 1980s. I would do 40 to 50 wedding cakes on a weekend for another bakery, and I used to think I could do this myself. Karen knew she would someday have her own business, because she was bringing in a lot of customers for her employers. But she wasn't able to realize her dream until now, for a number of reasons. Well, primarily that she hadn't run a business before and she didn't have any collateral. So it was a completely unproven idea. She had tried with the banks and was unable to obtain funding there. And what we work with is people who are not able to go to the banks. We don't compete with the banks.

For those people who can, they should get funding there, and then we can save our capital for people who need it more. Dan Puccetti is a lending coordinator with the New Mexico Community Development Loan Fund, a private non-profit lender dedicated to the economic empowerment of lower-income people. From the beginning, I thought she was the kind of person we're here to help. She has a lot of experience. Her product is very good. At our office, we buy her cakes all the time. We got turned down twice, different banks and stuff. And I was kind of discouraged, but Dan just kept, you know, encouraging it. We gave her the application. Karen filled it out. She did put a business plan together, explaining where she was going to locate her business, who her clientele was, what her experience was. She told us how much money she wanted, what she needed it for. We took that information, processed it, and went to our loan committee. And, as I said, we were able to give her a loan. Karen needed space and equipment. With the loan, she purchased a freezer and two display cases.

One of the cases is a rotator that attractively displays her beautiful creations. Her customers come from all over the state, and it's no wonder. Watch how she turns this plain white cake into a work of art. [music] I think our cake lady is a success story, and it's going to be better.

Karen had just gotten started. Her cakes are very good and I know, as word of mouth grows, she's going to do extremely well. Joining us this evening to talk more about microlending in New Mexico is Marisa Perrera with Accion New Mexico, Vangie Gabaldon with the New Mexico Community Development Loan Fund, Agnes Nunan with Wesst Corp, and Senator Jeff Bingaman. Thank you all for joining us. Vangie, I'm going to start with you since Karen is one of your clients. Is she the kind of client you're looking for? What is your criteria when you do lend money? Karen Castillo is certainly a client that fits the makeup of a client we would recruit to the loan fund. Our criteria is individuals who are looking to start a business or who have a business, who either employ low-income people or who are low-income themselves, who have had a very tough time or an impossible time accessing credit from any traditional source of funding,

like banks or credit unions. Karen came to us because she had this dream of starting her own business, and she had had the dream for a long time. She was making money for a lot of other people making those beautiful cakes she makes, and she wanted to find a way to sustain herself, to support herself. And she had gone to the banks, and the banks had turned her down for a variety of reasons. It was a risky venture; she had had some credit problems in the past. And we worked with her, we found out what the reason was for her credit problems, and we approved the loan. And she's in business, she's doing well. She's doing incredible stuff, and she's got a market for her product. Well, now, I know she is in the South Valley. Is that the area you mostly focus on? No, we're a statewide lender. We do have a program that is specifically to serve the South Valley, because there is a great need in the South Valley for additional economic activity. But we are a statewide lender, so we serve the entire state, primarily rural areas of New Mexico.

and in the urban area of Albuquerque and Las Cruces. We really focus on the low-income communities within the urban areas, the pocket of poverty communities. Okay, Marisa, what about Accion, New Mexico? What is your mission? Sure. Our mission is to provide entrepreneurs in the Albuquerque area with the credit and training that they really need to pursue a dream of success as an entrepreneur. In some cases, it may be a startup business, maybe that's been run out of the home as a hobby. It may be a storefront on a deserted street corner that they're trying to bring back to life here in Albuquerque. But I think the common thread with our clients is that they have energy and drive and vision to succeed. But what may be lacking is just the know-how to put that to work most effectively and the capital to fuel that dream. So we provide those loans, and hopefully with the loan, the entrepreneur can become a catalyst for positive change in their neighborhood. When you say capital, what kind of capital are we talking about?

We provide loans anywhere from 200 to 50,000 dollars to people within 20 miles of Albuquerque's city limits. And, yes? Oh, go ahead. Oh, the loans are offered on a stepped basis. So someone's first loan with us has a ceiling on it. You can apply up to a certain amount based on how many years you've been in business or if you're a start-up. And it's an attempt for someone to really get off on the best foot with the business. We want to make sure that the loan is manageable, so that it can be put to good use. And from there, people can apply for whatever amount they feel is appropriate. What is your success rate with people actually paying back their loans? Sure. Our default rate right now is less than 2%, which is actually very competitive with a commercial bank. But you need to keep in mind that these are clients who, for whatever reason, have not been able to qualify at a local bank for a loan. A lot of times it may be because of a lack of income. It may be because of a lack of a track record. For a start-up business it can be very challenging to access capital under the business name.

Some people will have to finance a business off their credit cards for instance, and those are the people who can qualify for credit cards, as you know that's not everybody. Okay, Agnes, I want to talk to you about your organization, Wesst Corp. You're the executive director, and what is the mission of Wesst Corp? Well, WESST Corp, by the way, stands for Women's Economic Self-Sufficiency Team. Our basic mission is to work with low-income women and minorities who want to either start or grow their own business. I should mention, though, that we do serve men as well. That's a common misconception. But we principally target our services to women because I think it's fair to say that poverty in this country, and it's certainly true in New Mexico, has a female face. And we work with individuals who want to either start or grow their own business, and our credit program is one aspect. We certainly, I would say, place more emphasis on training and business assistance to clients, because many of the individuals that we work with are wanting to start a business,

but they come to us with little or no business background. So, before we offer them a credit or they have access to our loan fund, we'd like to make sure that they are aware of what they're getting into and what the risks are. Are you finding that a lot of the women that you're lending money to are serious about their enterprises, and what they're doing, that they are serious about returning the loan and paying it back on time? Yeah, I think there's quite an entrepreneurial spirit here in New Mexico. And I often say it's because, it's not that entrepreneurism is something nice to think about, but for a lot of low-income people, it's often the alternative to a minimum wage paying job. And again, our goal would just to help educate that client to make sure that he or she really understands what it is they want to do in their business, and, if they're going to get a loan, to help them understand how it is that they're going to be able to pay it back. So we really work with them on building the skills that they're gonna need to run a successful business.

Senator Bingaman, what do you think about these efforts here that are going on in New Mexico? Well, I think they're terrific. We clearly have a group of people who are low-income, moderate-income people, who do not have the ability to get the credit they need through traditional institutions, banks primarily. And therefore something like these micro-lending institutions is filling that need. As I see it, the real advantage is this is the lending of funds to these entrepreneurs is one of many services that need to be provided for them to succeed, and the others have been mentioned here, training and just general information about how to set up a business, how to make it to prosper, how to meet a payroll, do the things that are required. I think clearly there's a lot of opportunity for job creation in our state by these microenterprises. And so the microlending that is being done to the microenterprises is exactly what's needed.

In terms of economic development in the state of New Mexico and, as you know, in some of the rural areas, there is not that opportunity in small communities for economic development. How important is it that organizations like those that are here today, that they succeed? Well, I think it's very important. We have, we're putting in place, and have in recent years put in place, some assistance to small businesses throughout the state, the small business development centers, which we've got a great many of around the state. I think they provide a real service, but again, they don't have the funds to lend. They can do some of the training. They can provide some of the advice. But, particularly in small communities, as you point out, there is a real need, and I think these organizations are filling that need. So our state benefits tremendously from it. Let me ask you one more question.

Is there a bipartisan consensus forming in Washington on this issue? What is the mood there? Well, I think realistically this issue hasn't gotten the airing that it deserves in Washington. We did introduce a bill. Senator Kennedy sponsored a bill. I cosponsored. Senator Domenici cosponsored. So there's clearly bipartisan support for doing something at the federal level to assist these microlenders or these organizations that are assisting microenterprises. But we need to have some hearings. We need to, in the new Congress, we need to have hearings, and we need to get more attention to this. I think there's been much more attention in Washington to the benefits from microlending in the international arena than there has been to microlending here in our own country. Let me go to Marisa. Marisa, how important do you think these organizations, an organization like yours, is to help fight poverty? I think they are very important. I think it's dangerous to see them as the sole strategy. I'm glad to hear the senator underscore some of the different

components in making microloans really a successful strategy, and that involves training as well as other community support services. But at Accion New Mexico, while our loans are small, the average loan size is right around $1200, although we do offer loans up to $50,000, those loans have produced an enormous impact in the lives of the individual entrepreneurs and their families and I think most importantly in the community. We, about a year and a half ago, did a statistical study of the impact of our loans and found that, on average, after just two loans with our program, that businesses saw an increase in revenue of around 60% of business revenue, an increase in business assets of 70%, and, really amazingly, an increase in take-home income for that entrepreneur of almost 90%, of 87%. So how do you get in touch with your clients, or do your clients get in touch with you? I think at this point it's a little bit of both, but that remains a challenge.

I think any nonprofit is faced with how to really market and conduct outreach on a limited budget. So, for us, we rely quite a bit on word-of-mouth. A lot of our clients feel good enough about the program that they really want to share the word with their friends and see them access the same opportunities. So word-of-mouth is probably our primary way of reaching entrepreneurs in the Albuquerque area. Whenever possible, you know, we'll do radio and TV interviews, such as this, to try and spread the word in the public. Vangie, I want to ask you a question. What kind of an impact do you think that microlenders have on the battle against poverty? Well, I think in New Mexico, these three organizations, and I'll speak, I'll let the Wesst Corps and Accion speak for themselves, but I know that we've all collectively had a big impact in the poverty in New Mexico. We primarily serve the rural areas of New Mexico, where the poverty rates are higher than in the urban areas. We've done work in Mora, and we've done work in Tierra Amarilla,

and these are really counties and communities that have a very high poverty rate. And we have made an impact. We have created in excess of a thousand jobs in our history, and we're 9 years old. We're into our 10th year. We've made in excess of 250 loans, and we have our success rate in terms of repayment is less than 1%, our default rate. And we've loaned practically $5 million. I think that not only have we made an impact in creating jobs that are sustainable jobs over time and providing assistance to businesses that are also sustaining themselves over time, which helps the community, which helps the business owner, and which helps the people that they hire. One of our criteria is that if there is going to be any job creation, that that job creation is offered to low-income individuals within that community and that the salaries that they pay are sustainable salaries.

We don't want our loans to continue to create more working poor. We want to make sure that the people who get those jobs have a livable wage, so they can stay within their communities and support other economic development within those communities. I think we're having a major impact. You know, poverty rates seem to be going up rather than going down, but we look at each individual community where we work, and we and we look at the statistics within those communities. And we have seen that we have created an impact in those communities. You've worked with clients and you see that this is making a change in their life. What kind of stories can you tell me about people who've come and gotten loans. Well it's amazing. I guess I have a couple of favorites. Certainly the young man in in Santa Fe, Kevin Bellinger, who started Harambe and works with at-risk youth. He's a young man who was also involved with gangs and and at-risk himself, and

has started this program to get kids interested, through art and and performance, to get them off the streets and put them on a much different direction in their lives. And just to talk to those kids and their enthusiasm and their new interest in doing something else, other than be out in the street and getting into trouble, is just amazing. And one of the other ones that I just, is one of my favorites, it's in a low-income area in Albuquerque, and it is a cooperative of 25 very low-income women, primarily Spanish-speaking women, who got together and started a sewing cooperative four years ago. And these women were very extremely shy, very, you know, traditional roles of staying at home raising their families, and ventured out because they wanted to improve their quality of life. And the the change in the women themselves, their own attitude around self-reliance and, you

know, their confidence in themselves has changed dramatically over four years. Four years ago, these women wouldn't talk in public, and now they can go and tell their story and tell it well. And they're doing an incredible job, and 25 women have stuck with this project for over four years and continue to do very well. So those are the kinds of things, those are the kinds of impacts we're having, the kinds of success stories, and we have over 200 stories we could tell. And, you know, not all of them are successful. We have lost about three loans over the course of our 10-year history. But, when you look at the statistic, that's not, you know, that's a very small default rate. And people are successful. They're staying in business. And, you know, they facilitate other economic development activity. Agnes, I wanted to talk to you about, in general, about microlending. What do you think would be the outcome, or some of the clients that you've dealt with,

I would imagine that you would hate to think of them not actually getting a loan and being able to prosper and do what they're able to do. How important is microlending to some of the people that you've dealt with? And I'm sure that it would apply to everybody else here, too. Well, I think it's critical for the clients that we serve. Because, by kind of their very nature that they're low income, I would say it's probably true that most can't walk into a bank and have access to a small business loan. So, if they have some kind of entrepreneurial dream, they're just not going to get access to credit. So, were it not for the microlending agencies in New Mexico, I think it would be next to impossible for thousands of people to start any kind of small enterprise. So, you know, in terms of access to credit, it's absolutely critical. But I guess one thing I would emphasize, that it's not just access to credit. I know when we hear about some of the international examples, we hear microcredit, microcredit, microcredit.

The access is important, but I think, just as important, especially in a sophisticated economy like the United States, it has to be also a focus on the training, the business assistance to that individual so that they have some chance of success with their business. It would be too easy to hand somebody a loan and say goodbye and good luck and hope that they can make their way through what are going to be some very tough years ahead of them. So, I know as far as Wesst Corp is concerned, we actually feel that it's the training and the technical assistance that should come first. Senator Bingaman, is there legislation in Washington right now? Are you working on any kind of legislation that will help organizations like these succeed? Well, yes, this bill that I mentioned, Senator Kennedy introduced, and I'm co-sponsoring, Senator Domenici's co-sponsoring, it's a bill that we were not able to pass in the Congress that recently adjourned, but I'm sure it'll be introduced early in the new Congress.

I think we'll have a much better chance in the new Congress of actually getting it enacted. What is the bill actually? Well, the bill tries to provide some level of federal assistance to organizations like the three that are represented here, both so that they can do a better job of getting their services out and making these loans and providing this training and assistance to small businesses or micro-enterprises. But also it tries to encourage other organizations, other non-profit organizations, to take up this same kind of a mission so that in all communities, the ideal would be that in all communities in this country, this kind of a resource would be available to people, small entrepreneurs, that were not able to get traditional credit and wanted to go ahead and start a business. Well, I guess that's where I have to leave it. We're out of time. Thank you, everyone, for joining us today.

And that's our report for this evening. From all of us at KNME, I'm Arcie Chapa. Thank you for joining us. If you would like to contact us here at In Focus, you can reach us on our website at www.pbs.org/knme or at our email address at infocus@knme1.unm.edu. [music] [music] We'll be right back.