Boosting Cottage Capitalism

By NANCY GIBBS

Three years ago, Judith Rickenbacker turned her Chicago town house into a laboratory for capitalist invention, international cooperation and entrepreneurial zeal. She did it by buying a sewing machine.

Rickenbacker used to be a hotel bookkeeper, dreaming of what life would be like without a boss. Her break came when she was able to borrow $500 to buy a powerful new sewing machine and become a professional seamstress. Having repaid the loan after one year, she is thinking about expanding her operation.

This triumph of cottage capitalism may not sound like a model of international business strategy. But the program that helped Rickenbacker secure her loan is part of a worldwide effort to use "microlending" to provide credit to people without collateral. Its roots lie not in a U.S. university, boardroom or foundation but thousands of miles away in, of all places, the villages of Bangladesh. Development officers in the Third World have found that self-employment, backed by training and access to credit, can be a path out of poverty.

Muhammad Yunus, founder of Bangladesh's Grameen Bank, popularized this simple idea: give small "peer groups" the credit they need to start their own businesses. They then act as a combination credit committee and collection agency: if one member defaults, the others must pay back the money. The average Grameen loan is $67, and the repayment rate is 98%. Among those groups following his lead was Chicago's Neighborhood Institute, which gave Rickenbacker her loan, formed her peer group and sponsored a 13-week entrepreneurial-trainin g class.

Yunus is not the only Third World visionary to teach Americans to think more creatively about credit. "The U.S. is seven to eight years behind the rest of the world when it comes to lending to the poor," says William Burrus, executive director of Accion International, a private development organization in Cambridge, Mass. Accion has loaned $75 million to workers in Central and South America and created 100,000 permanent jobs. When Accion decided to widen its mission to fight poverty in the U.S., it dispatched Delma Soto-Larsen to start a self-employment project in the Williamsburg section of Brooklyn. She has an M.B.A. and has worked for Citibank and Chemical Bank, but her real education began when Accion sent her to Colombia to unlearn all that she had been taught. "You're doing everything that all the books tell you not to do," she says. "You're making loans to people who can't prove that they can pay them back." In Colombia she saw dozens of people, some of them illiterate, borrowing money, using it wisely to build their businesses and carefully paying it back. That example may help her turn a Third World neighborhood into a first-rate investment.

With reporting by Christine Gorman/New York