UA SIFE Team Uses Microloans to Help Small Businesses Around the World

TUSCALOOSA, Ala. — A group of students at The University of Alabama is doing its part to help grow the global economy by arranging microloans for the owners of small businesses from Tuscaloosa to Vietnam.

The UA group, Students in Free Enterprise, or SIFE, is in the second year of its microfinance project. Since its first loan in September 2010 to help a group of women build a dry goods store in Ecuador, UA’s SIFE team has lent $1,900 to 76 entrepreneurs in more than 20 countries.

SIFE is an international student organization that operates under the motto, “A head for business, a heart for the world.”

Teams around the world work on projects that positively impact their communities and then compete in an annual competition that includes the total impact of their team’s efforts.

The University of Alabama’s SIFE team is only seven years old, but has won at regional competition five years in a row. The team’s faculty adviser is David Ford, professor of marketing and management, who encourages his students to pursue their areas of interest and passion – which is how the microfinance project got its start.

Microfinance is a financial system which, by most accounts, came into being 20 years or so ago in Bangladesh, through Grameen Bank. It allows people to receive small loans, called microloans, at reasonable interest rates. 

Often times, microloan recipients do not have the collateral most conventional banks would require to issue a loan.The Grameen loans seldom exceed $200 and, in many cases, are made to women to start at-home businesses.

Microfinance is also found within the United States. According to the Small Business Administration, an SBA Microloan is simply a small loan amount between $100 to $35,000 for an existing business, entrepreneur or a start-up. The loans are made through non-profit intermediaries and have a repayment term of up to five years. The loan was first introduced in the 1990s and has been a staple of the Small Business Administration.

“I learned of the microlending website, Kiva, in one of my classes,” said Stefanie Back, SIFE vice president and future Alabama law student.

“After reading more information on the concept of microfinance, I became a believer in the empowering capacity the financial system offered. I felt like this would be a worthy effort to support,” she said.

The SIFE students started their microfinance program by creating a profile on Kiva.org. Through the Kiva site, individuals can lend as little as $25 to entrepreneurs across the world who are engaged in businesses such as farming, raising livestock, taxi services and making and selling clothing sales.

Ron Howard, a member of the Board of Visitors for UA’s College of Continuing Studies, was the founder of the first University of Alabama Kiva lending team. With the help of an initial donation from Howard, the SIFE team made its first loan to “Mujeres con Visión” (Women with Vision) of Ecuador to help the women build the aforementioned dry goods store.

The Alabama SIFE team received a surprising opportunity via email last fall from another SIFE team based in Hanoi, Vietnam. The Hanoi SIFE team members had read about The University of Alabama’s SIFE microfinance activities and contacted the Alabama group for guidance and help in establishing their own microfinance project.

Alabama’s SIFE students collected information on microlending agencies in Vietnam, microfinance training seminars in Vietnam, and read over microfinance reports from the World Bank about the environment in Southeast Asia. They recommended the Hanoi team offer to serve as field representatives and assistants to local microlending agencies.The Hanoi students wrote back that they had taken the suggestion, and they had formally established a working relationship with ActionAid Vietnam to carry out microfinance activities.

The next goal the Alabama SIFE team was to engage in a domestic microfinance project.To reach that goal, the team partnered with a local nonprofit firm, Forza Financial. When it officially begins operation this summer, Forza Financial will be the only operating microfinance institution in the Southeast.

Founded by David Bailey and Austen Parrish, two Honors College students, Forza Financial will offer financial services to residents in Alabama who are looking for small loans but who may not have a solid enough credit history to merit a loan from a conventional bank. Potential customers include student entrepreneurs and entrepreneurs in the state’s Black Belt. The average loan will be between $1,500 and $4,000.

Back said her team is preparing educational packets to be used in lecture seminars covering topics such as basic accounting, marketing and finance. Recipients of Forza Financial’s microloans will participate in the seminars to decease the chance of default.

“We are very excited to be working with Forza Financial,” Back said. “David and Austen both have a deep commitment to microfinance and serving the needs of Alabama entrepreneurs. We hope our educational materials will help facilitate that process. If there are any organizations that would like to contribute to Forza’s microlending efforts they can contact David through dfbailey@ForzaFinancial.com.”

In addition, the Alabama SIFE team will be working with Seedco, a national nonprofit that works in community development and microfinance, to advance efforts in the Black Belt region of Alabama during the coming year.

“Our team mission is to benefit our local and global communities through business-inspired projects. I feel our microfinance projects have done exactly that,” Back said.