In its early years of development, the microenterprise industry in the U.S. experienced relatively low levels of demand for business loans. This was despite the fact that the need for business capital among the poor remains an important issue. Therefore, between 1999 and 2001, FIELD issued and managed a cluster of grants around the hypothesis that loan demand in the microenterprise field could be increased if financial products and delivery systems were better designed to meet the particular demands and characteristics of low-income entrepreneurs.

Key Findings
This cluster was designed to better understand those products that hold potential for increasing lending to low-income clients and the most efficient ways to lend to them. FIELD identified a set of products used by grantees and others that can be generically described as "small-scale, early-stage business financing" and has reviewed the strengths and weaknesses of each product. These products all have high value to very low-income clients in the early stages of business operation, often providing the basis for credit repair and building a better base for a business loan. FIELD and grantees examined Trickle Up grants, Individual Development Accounts, Jump Start Loans offered by Community Ventures in Kentucky and Goalsaver loans offered by some community development credit unions. While no one product was advantageous to clients and programs in all respects, several held potential and are worthy of further monitoring.

Grantees tested several products to channel equity to microentrepreneurs' businesses including grants, a loan rebate product (called a Business Investment Trust) and microequity investments modeled on more traditional equity investments. Microequity products appear to hold strong potential as a source of financing for established microenterprises that have growth potential, but have exhausted their capacity for debt financing and have few prospects for raising private equity. Coastal Enterprises' model of a convertible debenture is one approach; others in the industry are experimenting with other forms (such as royalty financing). Developing microequity products that are cost effective will require streamlining the underwriting process through the creation of tools such as standardized documents. It also appears clear, given the sophistication required to make microequity investments, that the field should look toward the development of a set of regional intermediaries that build the capacity to engage in microequity investing. FIELD developed a training kit for practitioners interested in microequity that is based on Coastal Enterprises' experience developing this product (see publications below).

FIELD also identified the use of credit evaluation grids for standardizing and speeding credit analysis as a vehicle for increasing efficiency and, in turn, outreach to the poor. This is likely particularly true for larger-scale microlenders that have multiple staff engaged in underwriting. To support the use of these tools by microlending practitioners, FIELD developed a publication on credit evaluation in conjunction with ACCION USA. (See publications below.)  FIELD also identified the possible power of a formal credit scoring model to increase efficiency in the industry and has been working with selected lenders to explore the feasibility of developing such a model for the field.

Publications
The publications from the grant cluster are:

Credit Evaluation Grids for Microlenders: A Tool for Enhancing Scale and Efficiency. This publication explains the use of credit evaluation grids as a tool to streamline and standardize the process of underwriting microenterprise loans. Since its publication in August 2002, this tool has remained a popular download from the FIELD Web site. A PDF can be downloaded free; the 24-page printed publication costs $15.

Developing a Micro-Equity Product: The Coastal Enterprises, Inc. Experience. Based on an audio conference hosted by FIELD, this practitioner kit includes a 1-hour audio taped discussion, a printed "follow along" guide and a set of tools. The package is designed for those interested in learning about an equity investment targeted to microenterprises. Price reduction: $10.

FIELD forum Issue 2 - Financing Products. Written at the outset of this learning cluster, this newsletter takes an in-depth look at the issue of business capital for low-income entrepreneurs and describes the five grantees, as well as their proposed innovations.

Learning Cluster Members
The five organizations awarded grants to test a range of innovations aimed at putting capital more readily into the hands of low-income entrepreneurs are described here.

Learning Evaluation
The learning evaluation designed for this grant cluster has two components, which are described here in detail.