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Small is Beautiful – The Meaningful Impact of Micro Loans

In the social profit sector, small is often beautiful. There are many effective social programs that may not impact thousands of people, but still have meaningful results. Smaller, high impact social programs are like a thousand points of light that shine bright together.

Many social profit organizations are focused on achieving scale of impact – essentially the idea of increasing the social outcomes of a program without having the same level of growth of the host social profit organization. Momentum is also working towards scaling up some of our traditional in-person programs by using technology, which I highlighted in a recent blog. However, we also recognize activities like microlending that are purposely smaller scale can make a valuable difference in the community.

Momentum’s Micro Business Loans provide small loans to a relatively small number of people each year. Typically, we provide an average of $4K in capital to 30 to 50 entrepreneurs annually. Working with a relatively small number of people allows us to get to know each loan recipient well, especially as the loan recipients are often a graduate of a Momentum business training program. The relationship with each person is important since our Micro Business Loans are character-based lending – the credit score and collateral of the applicant is not as important as the character they have displayed in our programs. Momentum’s Micro Business Loans increase access to affordable capital to develop locally owned businesses that create jobs and contribute to our community.

Momentum has now offered Micro Business Loans in Calgary for over 25 years. We have provided over $3M in Micro Business Loans with a 94% historical repayment rate. Each of the loan recipients that successfully repaid their loan have moved forward financially – they’ve increased their credit score and many have increased their income from their business. Even though Micro Business Loans have a track record of success at Momentum, we have intentionally not attempted to scale the program. A big reason for not pursuing scale is that there only so many entrepreneurs in the Calgary who are not able to access any other form of capital. Another reason is that international micro business lending has scaled with many challenging consequences. As revealed in the book Confessions of a Microfinance Heretic, the profit motivated micro business lending of many large international micro loan organizations is not always in the best interests of the entrepreneur.

Despite the challenges of COVID-19 on our local economy, several Micro Business Loans recipients were able to continue operating their business and repay their loans last year – 28 small business owners paid their loans in full in 2020 including:  Hudson’s Bakery, SouperSpudz, Velour Clothing Exchange, Foreseen Solutions Inc., and New Earth Waste Services. At the end of 2020, Momentum had 70 active Micro Business Loans in its portfolio that had created 111 jobs in the community.

One active Micro Business Loan recipient, Roderick, who owns Dzyne Culture managed to boost his business despite the challenges resulting from COVID-19. Roderick launched his graphic design and videography business in 2019 after graduating from a Momentum self-employment training program. Prior to coming to Momentum and launching his business, Roderick had struggled with employment in part due to a criminal record from his youth. Last year, Roderick’s business really took off as the Dzyne Culture real estate video tours service boomed because of the COVID-19 public health restrictions – he was so busy he had to start hiring sub-contracted staff to get all the work done!

Social profit organizations like Momentum need to always focus on the ‘ends’ we are trying to achieve – the outcomes – rather than the ‘means’ – the programs we offer. Some programs can scale without having unintended consequences so that more people can benefit while others – like micro business lending in Calgary – may be better to remain as small but high impact program. As E.F. Schumacher emphasizes in this book Small is Beautiful, social and economic development needs to operate ‘as if people mattered’ the most.

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