The Microfinance Project @ UC Merced (UCMMP) aims to help local small businesses grow by providing an alternative source of financing, specifically microloans.
The project works with Kiva Zip, a globally recognized nonprofit organization, and with SBDC, to crowd-fund 0-percent-interest small-business microloans of $5,000-$20,000. These loans are granted online for entrepreneurs interested in growing their businesses.
Over the past year, microloans were distributed to two Merced businesses, initially, to test the concept’s viability in the area. The results were promising and the project expanded the microloan service to multiple businesses throughout the Merced area, funding another seven businesses. The project has been strengthened with the addition of several loan officers, consultants and interns.
In the city of Merced, many entrepreneurs are interested in growing their businesses. However, they have extremely limited financing options for small loans. Typically, a small business that needs a microloan ($1,000-$5,000) will turn to banks or credit card cash advances, that can charge interest rates from 17 percent to about 25 percent. These rates are too high for a small business to grow efficiently, so many businesses in the local economy remain stagnant.
Launched in 2011, Kiva Zip is a nonprofit organization that crowdfunds interest-free microloans and issues them to small business owners to help them grow their businesses. Many organizations have successfully used Kiva Zip’s crowdfunding platform to raise 0-percent-interest funds.
However, microloans require endorsements from vetted trustees, which requires an application process. The UCMMP, as a current trustee of Kiva Zip, is able to endorse businesses on Kiva Zip.
The project provides opportunities for students to directly engage with local business owners and apply social entrepreneurship and social finance practical skills toward helping businesses grow.
Under the supervision of UC Merced faculty members, students research and identify the types of small businesses to be targeted for the project. Students develop a deep understanding of current credit market issues affecting micro-businesses in the San Joaquin Valley region. They execute research, crowdfund capital and develop strategic microfinancing initiatives to tackle such issues.
This program converts the models of established municipal microfinance programs into educational curriculum for students and enables the application of next-generation financing for microbusinesses throughout the region. In all, the project:
- Introduces students to how microfinancing works;
- Provides an opportunity to apply in-class learning to field operations; and
- Enhances students’ experiences with teamwork and networking
The project functions include:
- Meeting with local business owners and explaining the benefits of microfinancing;
- Analyzing business finances and developing microloan strategies that maximize the return on debt;
- Assisting in creating business profile descriptions to be placed on Kiva Zip’s global crowdfunding website; and
- Following up with small business clients to assure loan payments are received and loan strategies are exercised
The project began through a pilot study in the summer of 2015. In addition to Kiva Zip, partners include the Small Business Development Center (SBDC).
