Yale students launch loan program

Microfinancing effort takes off

NEW HAVEN, Conn. - When Larry Thomas couldn't get a bank loan for his struggling construction business, he turned to Yale University students less than half his age.

Elmseed Enterprise Program, which provides small loans and intensive technical support primarily to low-income and other disadvantaged entrepreneurs, is the first microfinancing program in the country run by college students, organizers say. It sparked a similar initiative last year by Harvard University students, while Georgetown students are planning a program in Washington, D.C., Rutgers in New Jersey, and others such as the University of Rochester in New York are considering starting programs.

The programs aren't affiliated with universities, but give students hands-on experience in working with struggling businesses. And because students are volunteers, eliminating labor costs, Yale students say their involvement has enabled Elmseed to achieve what many of the nation's 500 or so other microfinancing programs have not: self-sufficiency.

Thomas, 47, of New Haven, credits Elmseed with helping him turn around his construction business, which now has up to 10 employees and will do $500,000 to $1 million in business this year, up from $50,000 five years ago.

"I just can't say enough about them," Thomas said. "It's a very, very vital part of my success."

Rutgers students are starting to raise money for a program and hope to create a national network of student-run microfinance programs by offering matching grants when students form chapters at their colleges.

"We think with the student model it has a chance of catching on nationally," said Rohan Mathew, a Rutgers student involved in the effort.

Elaine Edgcomb, director of financial programs at the Aspen Institute, a nonprofit that says it is dedicated to fostering leadership and dialogue, has not studied Elmseed, but said it could serve as a model for other microfinancing programs if it can provide consistent support and expertise while relying on student volunteers.

"It is very hard for programs to cover all of their lending costs," said Edgcomb, who has studied the programs extensively.

Thomas said there was no let-up in support, with students urging him to make time for meetings even when he was busy with the business. They brought in a lawyer, an accountant, and a marketing specialist from a Hartford television station.

The students helped Thomas see that his sheetrocking business was not that profitable, so he branched out to windows, doors, and bathroom renovations. As he made more money, he bought tools instead of renting them.

And Thomas was able to get a $1,500 loan. When he repaid that, he got a $3,000 loan.

Elmseed, which is funded with federal grants and donations from banks, foundations, and individuals, was founded in 2001 by four Yale undergraduates who were inspired by the microcredit model used in the developing world and by similar initiatives in the United States.

A board of directors comprising banking executives and other specialists gives final approval to loans. The program is not affiliated with Yale.

Instead of collateral, Elmseed relies on peer pressure. Borrowers join a group in which everyone must be current on their loan payments in order for the next borrower in the group to receive a loan. More than 90 percent of clients repay loans, according to program officials.

The concept is not new, but won renewed attention after economist Muhammad Yunus and the Garmeen Bank he founded received the Nobel Peace Prize in 2006 for pioneering the use of microcredit to spur creation of small businesses in poor nations.

Microfinance programs have been somewhat slower to expand in the United States because of scarce resources and costs, according to Edgcomb.