Micro-loans

=Micro-loans=

11/13/08 What makes a good loan? Here is the rubric students created to determine which entrepreneur they wish to help fund.

About Microfinance: http://www.kiva.org/about/microfinance/ One California Bank: http://www.onecalif.com/ Kiva: http://www.kiva.org

10/16/08

=“Give that Frog a Loan; his Old Man is a Rolling Stone”=

Kat Taylor came to teach the 5th grade about banks, loans, the credit crisis, etc. The students responded with terrific questions and even a funny riddle. Below is a summary of the topics she reviewed with the class.

• 15 months ago, she and her husband, Tom Steyer, launched One California Bank • We’re all in the same boat; we are all in one California • When the larger community succeeds, we succeed. • Goal is to watch out for our customers /borrowers, and when they’re growing, we’re all OK. • We help people save money, make money, and invest money • His first loan was $27.00 to 6 ladies in Bangladesh; now he has $1.7 billion in assets • Bangladesh famines • Lent to 6 people at a time; borrowers were to re-pay all the $ even if some were sick or shirking responsibility • **Education** is fundamental to economic opportunity and advancement • His goal was to have people have the skills to make money AND to sell their goods/services AND have a little reserve • **Incentives** among the **borrowing circles** //o Are borrowers going to do what’s best for them? o Are they going to do the right thing? o Are they going to do what’s best for everyone?// • Best record of paying back the loan. No defaults b/c of the **relationships**. The families all knew each other. • Special institutions in our society; they are necessary and regulated • They must keep capital in addition to lending money in order to have a cushion • Great Depression saw a **run on the banks**, bankruptcy, and a complete systems disaster • How to know if your bank is safe? Look at reports and loans your bank has made. • **Interest charge** and **compounding of interest** • Federal Insurance of Deposit • Loans make commerce and growth possible • W/o credit, it is hard to create goods and services to sell • Loans = provide for cash upfront, allows making, production, and marketing of goods and services • W/o credit, this cycle is stopped • Government stepped in make it easier /more attractive for banks to lend • Trigger for recent economic crash is artificial boom in housing • **Owning vs. renting** • **Mortgage-backed securities** • **Underwrite**: analyze ability of borrower to payback loan • “A Perfect Storm” – so many influences it condemns to the outcome • Economics – so complex b/c it is a global economy • Need to give banks the incentives to underwrite properly
 * One California Bank**
 * Muhammad Yunus**
 * Banks**
 * Loans**

1. Character • Know your borrower in a relationship over time 2. Collateral • Items (car, house, etc.) go to bank if you cannot payback loan • Collateral values change 3. Capacity to payback loan • Can you anticipate future debts, pitfalls, expenses, etc? 4. Capital • Pile of savings 5. Conditions • This is the wild card and consists of what is happening in the world today
 * 5 C’s of Credit**

Best advice – Plan for a rainy day and be conservative

Lending is: • Valuable • Provides jobs • Creates savings / wealth • What will get us out of this mess

Economic opportunity • Is a civil right • Allows people movement which is important in a democracy