Grameen microfinance: business loan offers low-income Aussies a way out of crisis

As job losses and pay cuts become the new norm for Australians, the question of how to earn a sustainable income has never been more pertinent. 

But what are your options beyond relying on government stimulus or payday loans which charge exorbitantly high fees? 

Global microfinance group Grameen has stepped in to offer low-income Aussies another way forward: setting up your own small business

Microfinance refers to small amounts of working capital that are provided to borrowers, typically excluded by mainstream lenders. These loans are backed by social collateral, which means each group of borrowers is collectively responsible for making sure their members meet their repayments.

Grameen Australia’s chief executive officer, Adam Mooney says Grameen has a legacy of helping countries and communities out of crisis and its expansion to Australia in the coming months will aim to do just that. 

“We’re seeing Jobkeeper and Jobseeker being tapered off, so we want to be there at the right time in the right place to be able to provide the incentives to work but also the opportunity to work for many millions of people,” he says. 

While Grameen began in Bangladesh in the 1970s, its success in reaching 130,000 women in the US over the past decade has proven that its microfinance model can also be applied to “so-called developed countries”. 

The idea behind Grameen’s model is that it acts as a springboard for entrepreneurs to build up their business and become self-sustaining.

“We want to be an enabling financial actor rather than a permanent fixture,” Mooney says.

“The ideal scenario for each business is that it generates sufficient return, that it can grow itself and doesn’t need to continually come back for additional loans.”

Mooney says the model especially complements Australia’s migrant and Aboriginal and Torres Strait Islander communities who “have got great skills and an aspiration but haven’t had that sort of investment capability to be able to start their own businesses.” 

For example, Grameen’s group formation structure lends itself well to the principles of collective wealth and collective identity that are culturally familiar to Indigenous people.

So how does Grameen work?

With Grameen, loan amounts go from $5,000 up to $10,000. The interest rate is set at around 10-12%. This simply covers operational costs, says Mooney, as Grameen is a non-profit organisation and makes no return on investment.

But Grameen isn’t just another financing option. Its model also involves ongoing support via peer groups, where entrepreneurs get together in groups of five and discuss their aspirations, strengths and business development plans. 

From there Grameen “offers mentoring, partnership, training and capacity building, as determined not by Grameen but by the groups or the entrepreneurs themselves,” says Mooney. 

In addition, there’s a savings component where entrepreneurs are encouraged to stash away part of their income - 15-20% of the repayments they pledge to make.

“If someone makes a $100 commitment [per week or fortnight], $80 of that might go towards repaying their loan and $20 of that might go into a savings vehicle,” Mooney says. 

Participants can park this money in any savings account they’d like, but they’re encouraged through group conversations to keep it as an emergency fund.

“That way, not only is the loan repaid, but they’ll also have $1,000 or $2,000 worth of savings that can act as a resilience buffer in case of unexpected shock to the business,” says Mooney.

Am I eligible?

Unlike the traditional business loan, you won’t be subject to any credit checks. Instead, “it’s more of a demographic criteria,”  says Mooney.

Grameen is predominantly for women from a low-income background. They may have been unemployed or underemployed for some time, or been dislocated through job loss, but want to be economically active again. They have a skill or strength that they want to flesh out into a business venture and they agree to participate in the peer group formation. 

Looking for other ways to fund your new business venture? Check out our article on business loans for startups.