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Breaking the Cycle of Poverty, Microfinancing a Community

Grace Philipp and the members of Social Entrepreneurs of Grinnell (SEG), drive economic literacy in their community and around the world, by supporting "entrepreneurial energy" in all people.

My work with the Social Entrepreneurs of Grinnell (SEG), a nonprofit located in Grinnell, IA, has taught me that passionate individuals have great capacity to create positive change in their communities. SEG practices microfinance: we provide access to capital in an innovative and empowering way so that people are able to reclaim financial agency. Originally conceived as a student group raising money for entrepreneurs in developing countries, SEG has since evolved to provide microfinance services to communities around the world and in the local Grinnell community.

We believe in the creative, entrepreneurial energy of all people, and that all people deserve the power to define their lives. In reality, many individuals lack access to capital and conventional banking services, and easily get caught in a cycle of poverty. Limited access to credit restricts options; if someone takes a payday loan or cash advance, they can be charged interest rates so high that it will be difficult for them to ever pay down the principle of the loan. These lenders justify charging high interest rates because they’re serving a constituency that is termed ‘high-risk,’ but these business relationships then become exploitative and demeaning in nature. SEG chooses to embody a different philosophy by offering small, zero-interest loans through our Emergency Loans Project. We believe that we can minimize our risk and maximize our social impact by forging partnerships with borrowers that are tailored to their individual needs and that empower rather than disenfranchise them.

One of the most innovative aspects of the Emergency Loans Project is its use of “Community Liaisons,” which have substantially contributed to the project’s sustainability. This program partners a loan recipient with a community member who serves as a sounding board and as an advocate on their behalf. These liaisons meet monthly with recipients to establish a relationship beyond the loan and to work through any repayment difficulties that may arise. In this way, we both improve repayment and also provide financial services in a non-threatening and cooperative manner. This, we believe, is the key to our success: from these policies, we have achieved a default rate that is less than half the national average for our target population.

There is still more that we can do. From here, we want to further invest in the long-term financial agency of individuals and families in three new ways. By offering credit-building loans, we can rapidly build individuals’ credit scores to directly target the costs associated with high interest rates. With financial literacy classes, we will give individuals the skills and knowledge to take control of their finances. Finally, we’re reviewing our first loan applications for our burgeoning small-business loan program, which offers loans to local entrepreneurs.

Bringing microfinance to the Grinnell community has been an empowering experience—I’ve seen what a group of dedicated and innovative students with a mission can do to create change. Our model is distinctive in that we have a large impact with minimal overhead costs, a model we see as flexible and replicable in other communities. Boasting twenty-five active members—members that balance idealism and practicality, theory and application, the bottom line and the individual—I am proud to say that SEG truly embodies an organization dedicated to social justice, and so is a Champion of Change.

Grace Philipp serves as a project manager of the Social Entrepreneurs of Grinnell in Grinnell, Iowa.