Impact of the economic recession on microFinance; institutions in the United States

The current economic crisis has had widespread impact on all financial banking institutions worldwide. These institutions range from investment banks to microFinance; institutions (MFIs), which provide small loans to business owners and entrepreneurs. MFIs have become an increasingly significant source of alternative funding for small businesses in developed countries, including the US. This paper specifically focuses on MFIs in the US because it is important to better understand how the current economic crisis may affect their business practices. MicroFinance; is generally known as the institutional lending of small amounts of money to borrowers to help build or grow a small business. Originally created in developing countries, microFinance; also has expanded to developed countries. Within the US, MFI borrowers often do not have adequate credit or collateral to secure a small business loan, and/or desire a loan that is too small for traditional banks to justify processing. This paper first reviews the origins of microFinance; in its international setting. It then discusses the importance and growth of small business development in the US, providing the framework of federal agencies and local programs on which microFinance; in the US has flourished. Next, it discusses key characteristics of the microFinance; sector in the US, such as its organizational structure, sources of funding, and borrower demographics. It then addresses some of the challenges MFIs in the US faced in its early developmental years. The paper then addresses social trends that indicate a strong social support for the continued growth of microFinance; in the US, such as a shift towards social engagement and increased interest in social entrepreneurship. Next, a review of the current economic crisis is given, highlighting key factors such as the tightening of credit by banks and the rising unemployment rate. An analysis of how these and other economic factors may affect the microFinance; sector is then provided, suggesting that the economic crisis will serve as a catalyst for growth and support of microFinance; in the US.