Industry Watch

ADC Executive Director Nasibu Sareva visits a client business, Midwest Auto Repair

Microfinance helps Minnesota’s scrappiest entrepreneurs

$1,000 makes all the difference

By Brian Martucci
Friday, January 22, 2016

The American Dream of owning a business is alive among those at the lowest income levels and among the newest immigrants to Minnesota. However, these aspiring entrepreneurs often lack the credit histories or collateral required by banks. Fortunately, two Minneapolis nonprofits are serving this need through microfinancing.

MicroGrants, founded by serial social entrepreneur Joe Selvaggio, provides $1,000 grants to low-income people so they can “get work, keep work or create work.” The African Development Center (ADC), founded by the late Hussein Samatar, provides traditional and alternative financing for entrepreneurs, with an emphasis on Minnesota’s African community. Loans range from less than $5,000 to as much as $50,000.

MicroGrants: Building equity

MicroGrants gives 10 $1,000 grants per week. It finds, selects and monitors its grants through 15 partner organizations, including ADC. Most grantees are nonprofit organizations working with low income people. Recipients are typically in the process of finding work or starting their own businesses, but lack the savings and personal networks necessary to fund their goals. They need small advances to fix their cars, procure basic equipment for a new business, or purchase professional clothing.

“Many people in our granters’ shoes are able to look to relatives or friends for assistance,” says Don Samuels, a former COO who replaced Selvaggio as MicroGrants’ CEO in January. “Our grantees can’t. Their relatives are actually looking to them for help.”

Samuels says 15% of its grantees say their grants “helped them avoid catastrophe.” And because grantees never have to repay their grants, the leg up never becomes dead weight.
“We believe in building equity, not debt,” says Selvaggio. “We want people to invest in themselves now and be in a position to give back to the community later.” 

“We look to graft on to the general business climate,” says Selvaggio. That means keeping one foot in the scrappy social justice world and one in the more buttoned-up business and finance world. To remind himself what it’s like to be a dealmaking do-gooder, Selvaggio keeps a picture of Donald Trump’s face in a Mother Teresa habit — a reference to PBS NewsHour contributor Fred de Sam Lazaro’s quip that Selvaggio’s work made him a “Mother Trump.”

ADC: Helping new Minnesotans

The African Development Center’s microlending initiative began in 2005 with just $25,000 in seed money. Since then it has funded more than $6 million in loans. In 2011, the ADC was authorized by the U.S. Small Business Administration’s Microloan Program, to lend up to $50,000 to each recipient.

Most applicants are economic immigrants or refugees from Somalia, Ethiopia, Kenya, Liberia and other parts of the continent. Some owned businesses in their homelands, but most are first-time entrepreneurs.

Early on, many entrepreneurial borrowers were truck owner-operators. “We financed about 20 18-wheelers in the late 2000s,” says ADC executive director Nasibu Sareva. “Then we started to worry that our portfolio wasn’t balanced enough, so we reached out to other types of businesses.”

Ethnic grocery, clothing and jewelry stores followed. Lately, says Sareva, the ADC’s borrowers have been more ambitious: food and dry goods wholesalers, pharmacies, even clinics and urgent care centers.

Since many of its borrowers practice Islam, the ADC offers traditional, interest-based loans as well as a “profit-based” Islamic financing product that complies with the faith’s usury prohibition — the first such product available in Minnesota. “Islamic-compliant financing is technically an asset transfer,” says Sareva, “but the term and amortization — when and how much borrowers repay — is basically the same.” The ADC still makes a profit on each Islamic-compliant loan, at an amount roughly equivalent to the interest on a traditional loan of the same size.

Approved loans are usually unsecured, though Sareva is optimistic about a recent uptick in applications for the ADC’s collateralized “second-stage” financing products, which can be as large as $250,000.

Sareva sees the fruits of his labor every day.

“Economic opportunity draws people to Minnesota,” says Sareva. “As with previous waves of immigration, stretching back to the Scandinavians, entrepreneurialism is the best way for new arrivals who don’t know the language or customs to gain a foothold.”