Jennifer Marie Lopez was supposed to intern for fashion giant Betsey Johnson, but life got in the way. Lopez scored the internship offer through a technical school that folded before her first day.
“She’s my idol to design with because she does happy-looking patterns, and she’s really expressive,” Lopez, 35, said from her New Haven apartment.
That brush with a longtime dream typifies the kind of missed opportunities that Lopez has seen over and over. She attempted to enroll at the Fashion Institute of Technology in Manhattan after her time at technical school, but high costs and personal responsibilities drove her out. Fashion design ultimately became a dream deferred; Lopez focused on making money as a nurse and security guard, taking care of her four sons and putting her family ahead as best as she could.
But a shot at the career she always wanted is finally in reach, and this time, it’s on her terms.
In August, Lopez received a $2,000 loan from the nonprofit Grameen America, which is expanding its reach into Connecticut and making financial capital available to help low-income residents. She’s using that money to kickstart her own business: A kitschy fashion line inspired by her family.
Grameen America’s foray into Connecticut marks a new era for the microfinance giant that until now focused its efforts primarily on urban centers instead of entire regions.
The problem with accessing money while poor
Borrowers of limited means historically have been able to get loans from local banks, but many local banks have been absorbed by conglomerations. And those local banks that have remained small have to follow legislation passed after the 2008 banking crisis that put restrictions on how much risk they can take in giving out loans.
This has meant that getting a loan has become harder, especially for people who traditionally have had a hard time borrowing — women, people of color and low-income individuals.
It’s this group of people that Grameen is hoping to help with its expansion into Connecticut.
“Our mission is to provide financial mobility to our members and to bring about financial inclusion in multiple aspects, because we do know that the most vulnerable populations are the ones that are left out by the banking system … or any formalized financial system,” Grameen Vice President of Strategy Rajitha Swaminathan said.
Grameen says it focuses on a specific slice of that vulnerable population: The nonprofit only gives microloans to women living in poverty, and the amounts start small.
Initial loans range from $500 to $2,000, according to company communications director Jason Grobstein. Borrowers have 26 weeks to pay off their loans at 18 percent interest, though interest declines weekly during the loan period.
That’s different from traditional lending organizations, which even for non-loan-seeking customers can charge overdraft fees, debit card swipe fees, ATM withdrawal fees and wire transfer charges.
The financial add-ons often keep low-income people out of the traditional banking sector, according to experts like banking law professor Mehrsa Baradaran, author of “How the Other Half Banks.” The Federal Reserve in 2019 estimated that 22 percent of Americans either have no bank account at all or primarily use cash and credit cards to make purchases.
Those without abundant access to financial services must rely on other sources to access the funds they need to stay afloat. Without typical loans, researchers have observed that low-income people turn to payday lenders, auto title loans and cash-checking outlets, where the barriers to cash are low and interest is high.
For example, the Federal Reserve Bank of St. Louis reported the average interest on a payday loan is 391 percent. In contrast, the average credit card charges around 17.8 percent in interest per month, according to consumer financial services company Bankrate.
Statistics show that the alternative loans oftentimes cause a spiral of problems for borrowers. Progressive think tank the Center for American Progress estimates that 80 percent of payday and auto title loans will be “rolled over or followed by an additional loan” after two weeks. Borrowers on average stay in debt for six months.
Bridging the gap
Microlenders like Grameen America say they aspire to bridge the gap between what exists for middle- and upper-class Americans and what is currently available for less affluent customers.
For one thing, the loans they give aren’t to an individual: Grameen America uses a “group-lending” model pioneered by its sister organization Grameen Bank. To qualify for a loan, individuals must form groups of five, plus go through five days of financial training that teaches basic tenets of business and finance. Even after the initial classes, borrowers must meet with their cohorts and staff members to create a bond within the center and learn from each other as each woman develops her business, company spokesmen said.
“We are very, very high touch. We meet them every single week,” Swaminathan added. Members must pay on their loans every single week, too.
Does microlending work?
Grameen has for decades lauded microcredit for its ability to lift people out of poverty. The philosophy was what gave Grameen Bank founder Muhammad Yunus a Nobel Peace Prize in 2006.
Critics, however, argue that microcredit can do more harm than good. Some studies of microcredit and its effectiveness found that, at best, the small loans had a “modestly positive” effect on people living in poverty.
Simultaneously, researcher Milford Bateman, who wrote “The Rise and Fall of Global Microcredit,” argued that “the global micro-credit industry had effectively been taken over by greedy individuals, opportunistic so-called ‘social entrepreneurs,’ aggressive private banks and hard-nosed investors.”
But those qualms are exactly why Quinnipiac University Professor Mohammad Elahee said he believes in the power of Grameen’s specific strategy for microcredit lending. For one, Grameen America is a nonprofit. According to Grobstein, Grameen’s communications director, all the money earned by the company funds overhead expenses at their centers and future expansions.
That strategy, Elahee said, is an implicit acknowledgment of microcredit’s limitations.
If “I’m a microlender, I will never actually make money,” he said.
A community-based approach toward lending is also important to microcredit’s success, according to Elahee. He said he thinks the loans are most effective within groups with strong shared experiences.
“It can work, but not for a college graduate who just wants to start a new business and take microcredit,” he said. “People who are at the lowest rung from an economic point of view, who do not have any credit history, who do not have access to regular lines of credit — for them, a microloan is like a new lifeline.”
While Grameen is lending to low-income women specifically, Elahee can also imagine successful outcomes among refugees, recent immigrants and formerly incarcerated people — three groups that often face barriers when trying to find work in the United States.
Grameen America comes to Connecticut
Though the local strategy involves anchoring itself in communities where the population is dense and financial need is high, Grameen said it plans to establish a presence in six cities. The company already serves residents in New Haven and Bridgeport, but it plans to expand into Stamford, Waterbury, New Britain and Hartford.
At its first two centers in Connecticut, the average Grameen loan was about $1,844, but loans get bigger as the businesses grow. Nationwide, the average Grameen America loan is about $4,500. Like Jennifer Marie Lopez from New Haven, many of its members run businesses in the fashion sector.
Years after her bid at Betsey Johnson fell through — and about four months into her loan — Lopez is steadily picking away at her own dreams. Jenna Line Customs, she said, is only the start.
“I just want to open a school in New Haven for fashion,” she said.
There isn’t a dedicated fashion school in New Haven currently, and Lopez said she wants hers to be full-service. Not only does she want to teach students how to design clothes, but she also wants to show them how to model and market their crafts.
Though her own fashion career is only formally in its infancy, Lopez is undeterred. She’s already started to teach some pattern-making classes through Grameen, and she said she hopes that opens other doors eventually.
“I’m going to do my best to get there,” she said. “I’m gonna work as hard as I can. And hopefully, I could do it.”