By Matt Royles, conference attendee

I promised in my pre-conference blog post to check out some of the emerging sources of capital for microfinance CDFIs.  The panel discussion entitled “Where Does All that Loan Capital Come From, Anyway?” tackled just that subject.  It featured ACCION Chicago, the U.S. Economic Development Administration, OneCalifornia Bank, and Bank of America.  ACCION San Diego Executive Director Elizabeth Makee served as moderator.

Panelists discussed bank and government investments in U.S. microfinance institutions as a means to deploy capital to underserved business owners.  We audience members learned that the CDFI industry currently faces both a tremendous opportunity and challenge. Banks have billions invested in CDFIs, but the field’s performance over the next three years will be critical to determining if those billions are to become tens of billions—or more.

Although this was a discussion of loan capital, one of the most interesting exchanges actually dealt with grants.

It seems that much of the hard work of running a microfinance institution lies in the one-on-one coaching of business owners who are not yet qualified to borrow. With a few changes, many could go on to secure a microloan.  Others will not, but nonetheless receive an important business development service from the CDFI.

In all cases, microloans take more time to underwrite.  As one panelist put it, “all microloan applicants look bad on paper.” ACCION Chicago coached 2,100 business owners in 2009, but made loans to only a small percentage of that group. Of course this work is time-intensive (read: expensive).  So while capital to lend is critical, the group concluded that operating grants and donations are at least equally important.

Matt Royles is Associate Director for Resource Development at ACCION USA, and has worked in the CDFI field for six years.  In addition to the Microfinance USA 2010 blog, he also contributes to Main Street Microfinance, ACCION USA’s blog.