Citi to bolster charity’s financing schemes
By Francesco Guerrera and Saskia Scholtes
The Financial Times
August 18 2008

Citigroup will on Tuesday launch a $30m plan aimed at making it easier for small US businesses such as restaurants and taxi companies to get the small loans needed for their expansion.

The US financial services group’s alliance with Accion, a Texas-based charity, is believed to be the first for-profit microfinance venture in the US, and builds on Citi’s microfinance initiatives in Mexico.

Under the deal with Accion, Citi will provide a $30m credit line to be tapped by the charity to extend loans of a few thousand dollars each to small businesses in Texas – whose owners often hail from ethnic minorities without bank accounts or access to traditional credit.

The loans will be originated by Accion, which has 14 years of experience in microfinance in Texas, but Citi and Accion have agreed to share the revenues and risks of the loans. Each loan is likely to range between $6,000 and $10,000, although established businesses could be given higher credit limits.

Microfinance has become a crucial funding source in developing countries such as India and Bangladesh, seeding thousands of tiny enterprises that have trouble getting credit from traditional banks. However, it has played only a small role in the US, where the provision of small loans to family enterprises has largely been confined to charities.

Muhammad Yunus, the Nobel laureate pioneer of microcredit, recently criticised the introduction of a profit motive to what was once a strictly not-for-profit endeavour for driving reckless lending at exorbitant interest rates.

However, Robert Annibale, Citi’s Global Director of Microfinance, told the Financial Times that the deal with Accion would plug a gap in the US lending industry.

Mr Annibale, who has worked in microfinance around the world, said he was struck by the relative paucity of microfinance in an economy renowned for its entrepreneurial culture and availability of “bootstrap financing”.

“It was interesting to me how small the programmes were in the US. It was interesting how difficult it was to find programmes that had reached scale and have good credit performance,” he said.

Citi officials say the bank’s commitment is high by US microfinance standards.

Accion, the largest not-for-profit loan fund in the US, has extended $70m in loans since its inception in 1994. The majority of the businesses Accion has worked with were owned by minorities and women – a sign that in the US, like in many developing countries, those groups encounter significant hurdles in accessing finance.