A financial plan for the poor
Opportunity Fund helps low-income residents strategize for their future
Middle-class workers enjoy access to many methods for saving money, such as 401(k) plans, which come with tax advantages and, in some cases, employer matching.
However, most low-income workers do not have access to such plans and thus find it difficult to save. Indeed, an inability to build assets is one of the main reasons for the persistence of poverty from generation to generation.
Opportunity Fund strives to break this cycle by helping its clients enter the financial mainstream.
OF's business loans help low-income entrepreneurs start or expand small businesses such as day care centers, hair salons, janitorial services and small retail stores. These entrepreneurs would not qualify for traditional business loans because the loan amount they need is too small or they have poor or no credit history.
Express Cut in Mountain View is one business that exists because of an OF loan. Owner Mali Sehrgosha got her loan in May 2006. Explains Sehrgosha, "I used to work at a different hair salon, but now I can work for myself. I am very thankful to Opportunity Fund for this opportunity to start my own business."
OF's CEO Eric Weaver believes the business loan program is more important than ever in the current economic climate: "Banks have tightened up lending and raised minimum credit scores, so we're seeing more applicants who once could have gotten a loan from a bank but now do not qualify. Economic recovery really starts with small businesses, and our programs are an efficient means of job creation since an average loan of $8,000 leads to 2.3 new jobs."
The newest innovation in OF's loan program is a partnership with micro-loan site Kiva.org. Some of OF's loan recipients are now profiled on Kiva, which allows anyone in the world with an Internet connection and a credit card to lend money to these individuals in $25 increments. As recipients pay back their loans, lenders get their money credited to their Kiva account. They can then withdraw it, re-lend it or donate it to Kiva.
OF also recently developed a Web site, savetogether.org, to provide a similar platform for its Individual Development Account (IDA) program. Participants in this program are low-income individuals (with an average household income of $24,000) who have been consistently employed and want to save money toward one of four goals: education, home ownership, starting a business or U.S. citizenship.
Savers attend money management workshops and make monthly deposits into a special bank account. Their deposits are matched 2:1, so savers who attain the maximum savings goal of $2,000 will actually end the program with $6,000 saved. OF's follow-up studies reveal that 75 percent of program graduates continue to save two years after leaving the program, and 70 percent of savers opened savings accounts for their children.
OF was the first in the country to offer an IDA to save for citizenship. Says Weaver, "Santa Clara has more new citizens than any other county in the country. Costs for citizenship have gone up dramatically in (recent) years to about $700 per person. We discovered lots of people who wanted to become citizens but couldn't because of the cost, especially if they had several family members who wanted to become citizens. Our collaboration with Knight Foundation ensures that these people can achieve their dream of citizenship."
Weaver urges donors who want a more personal donation experience to use savetogether.org to "develop a personal connection with one of our clients, invest in that person, and see the impact of their loan." Thanks to OF and the Internet, ordinary people now have the power to help defeat poverty, one person at a time.
Mountain View resident Jennifer Pence is founder of the Windmill Giving Circle and founder and owner of Academic Springboard, a tutoring group. She can be reached at firstname.lastname@example.org.