Small Scale Finance Aims Big
Published: Monday, December 5, 2011
Updated: Tuesday, December 6, 2011 02:12
On a Thursday night in the Hariri Building, amongst breakout rooms filled with busy students, a D.C. entrepreneur is being taught business technology strategies by a team of undergraduates.
The students work with the Hilltop MicroFinance Initiative, a group of 12 who work to fund and educate small business owners in the District who do not otherwise qualify for loans and funding.
"Essentially what we look to do is target local D.C. area entrepreneurs and business owners who are looking to expand, but don't have access to forms of credit from banks. So we provide them the financing to expand their small businesses," Chief Financial Officer Craig Melcher (MSB '13) said.
The group was started three years ago as part of the Georgetown University Social Entrepreneurship Competition. Eventually, securing funding from the Rotary Club of Bethesda, HMFI has been gradually building and developing.
The group has a two-pronged approach to their mission. As potential loan recipients work through the application, they are required to attend a series of tailored lessons designed to increase their knowledge about the business world.
Bernardo Figueroa, the first recipient of an HMFI loan, operated a Salvadorian food truck before he was referred to the group.
Figueroa, who has received three successive loans of $3,000, $6,000 and $7,000, is now the owner of Lalo's Market, a grocery store in Columbia Heights.
"I'd rather work with [HMFI] than a bank any day," Figueroa said. "They gave me a lot of information on how to run a business, make a balance sheet and make sure I don't spend more money than I'm bringing in."
The burst of the housing bubble crippled Kipp Martin's work as a realtor. Because Martin, who also works part time as a truck driver, lacked the skills and capital to embrace social media marketing, he turned to HMFI to revamp his business.
"Not only did we give him the capital to purchase a smart phone, a digital camera and set up a website, but we gave him important skills," said HMFI Chief Operating Officer Alissa Orlando (SFS '13). "We said, ‘Here, this is how you use Facebook, here is how you use QR codes on all of your door hangers to bring people to your website and here's how you use LinkedIn and Twitter to find new clients."
Chief Executive Officer Alex Honjiyo (SFS '13) said the fact that the lenders are college students sometimes creates awkwardness initially, but the discomfort quickly dissipates.
"The whole process of dealing with awkwardness is offset by the kind of personal relationship we build with the client, which is the most important part of the process," he said. "So, the relationship really does change from the first meeting where the client realizes that these kids are 19, 20 years old, and still in college. But over time, we build these personal relationships, we meet the families, we visit their stores and it really does change the relationship."
HMFI's loan structure centers around year-long loans paid back in 12 equal installments. Though they charge 10 percent interest — somewhat higher than market standards of around eight to nine percent — the group seeks to serve business owners too risky to qualify for big-bank financing.
"It's a hand up, not a handout," Orlando said. "I want to give a hand up to industrious, ambitious individuals who have the talent and will to improve their lives, but don't have the financial resources."
While most lending corporations ensure adequate collateral before the approval of a loan, HMFI relies more upon the lasting relationships formed with its clients to ensure payback. To date, the organization has retained a 100 percent repayment rate.
"Having loaned out over $18,000, with no real mechanism of collecting if they don't pay back, [the perfect repayment rate] is pretty awesome," Orlando said.
The group hopes to expand their number of clients from two to 10 by spring 2013 and also add services such as credit reporting.
According to members, while microfinance organizations at other universities often employ alumni to manage the day-to-day operations, HMFI only allows graduates to serve on their Board of Directors.
"I think the idea of having college students run the organization is really important," Honjiyo said. "There is something about having college students run this that not only provides a really good experience, but it allows us to get off the Hilltop, work in the community and bring about real, tangible change in the District of Columbia."