Mini Loans Help Welfare Mothers to Create Their Own Jobs

In 1988, Sandy Currier was newly divorced and struggling to support five kids on restaurant work and limited welfare benefits.

"I hated it," she remembers. "Welfare was invasive and it's not even possible to support a family on it - or [on] minimum wage if you pay child care."

For Ms. Currier, deliverance came in the form of a $5,000 loan that allowed her to buy a housecleaning business in her Iowa City, Iowa, hometown, and eventually to hire six people to help her with Prairie Home Cleaners.

Currier was at the cutting edge of US microenterprise development (MED), an initiative that uses small loans and training to help people start their own businesses and escape poverty. Long used in the third world, MED is now being embraced at state and federal levels as one answer to the challenges of welfare reform - a way of helping people off welfare and into jobs.

"Microlending is attractive because people feel there aren't as many economic opportunities out there," explains Peggy Clark of the nonprofit Aspen Institute in Washington, "and states think it's a solution that's not hard to follow or fund."

Enough to live on?

The approach is controversial though, and critics question whether it's even viable. They point out that only a small percentage of the general population is entrepreneurial, that welfare law isn't structured to coexist with microlending, and that in America's competitive economy, it's hard to make a living by going it on your own.

"It's not an answer if you want to give people a living wage anywhere near the poverty line," says Timothy Bates, an urban affairs professor at Detroit's Wayne State University.

Still, the issue of American MED will be on the agenda at the Microcredit Summit, a gathering of 2,000 delegates from 100 nations being held in Washington next week. Co-chaired by Hillary Rodham Clinton, the summit will set the decade-long goal of getting 100 million of the world's poorest families on microcredit. Of that total, the summit's organizers hope 4 million will come from industrialized countries, 2 million of them from the US.

"It's quite bold," admits summit president Sam Daley-Harris. And as an aid to welfare recipients, he says, it's a viable option if legislative changes are made. "Right now, if you're on welfare and you get a loan to start a tiny business, almost immediately you lose benefits. There's a real disincentive to try."

Proponents argue that MED is an option for welfare recipients with low levels of skill and education. They cite stories like Currier's and, though there aren't many yet, statistics. One Aspen Institute survey of seven different programs found that while there were some failures, 25 percent of the participants crossed the poverty line in three years.

The record has been even better in the third world, where the practice developed and where loans can be as low as $50. The international role model is Bangladesh-based Grameen Bank, which has lent $1 billion to 2 million women and had 97 percent of that repaid.

The US backs international microlending efforts, spending an annual $130 million, but the practice didn't catch on here until the early 1990s, expanding from 50 programs in 1991 to some 248 operating in 44 states last year.

Funding comes from a few federal sources and, at the state level, from a variety of public- and private-sector sources. Some target welfare recipients almost exclusively, while others focus on low- or middle-income earners.

No-cost startups

At the Iowa Institute for Social and Economic Development, which helped Currier and boasts a 70 percent success rate, training is often all enrollees get: Roughly half start their businesses with no capital. "We tell people, 'If you can start your business without capital, do it,' " says president John Else. Like many, Dr. Else feels MED can play a role in welfare reform. "It's not a panacea for urban and rural development," he warns, "but it has to be part of the strategy."

With 12 million affected by welfare reform, advocates say, huge numbers are bound to try MED to make the transition from public assistance to work.

Under the new welfare law, states can make MED part of their overall welfare-reform strategies by easing the limits on assets welfare recipients can own or benefits they can receive.

At least 10 states have already done so. Those in the field worry that many of them are seeing it as a way of reducing poverty without the burden of a big budget.

"For roughly 5 percent of welfare recipients, self-employment will be the ticket," says Ray Boshara of the Corporation for Enterprise Development in Washington. "When we hear the White House and governors talking it up, we get a little concerned. You don't want to oversell it."