Kuleana Micro-Lending formal proposal for Island Innovation Fund

Kuleana Micro-Lending

Executive Summary

By providing micro-loans up to $5,000 and creating an on-line network of “community resources” to support incipient entrepreneurs not served by traditional lending institutions, Kuleana Micro-Lending seeks to enhance income-generating opportunities and self-esteem for Hawai'i residents living in poverty.

The social networking component will be a dynamic entity that will communicate activity, engage individuals, and educate/transform the community. By sharing the stories of our clients, members of the community will be attracted to participate in the Kuleana experience.
The Kuleana experience begins with a unique application process that immediately introduces clients to behaviors and positive feedback aimed to reinforce their self perception – “I can do this.”

Micro-loans of up to $5,000 will be offered to clients not served by traditional lending institutions and who Kuleana has determined can make positive strides with this opportunity.
We will leverage clients' stories with an on-line platform, connecting to existing social networks to reach a broad and diverse audience, and create a ”service network” made up of members of the community to help clients start, grow, and maintain their businesses.

With social service funding on the decline, it is imperative to provide an alternatively funded and community-based means to assist those living in adverse financial circumstances. Access to credit is a fundamental tool that empowers individuals to improve their lives. Taking out a loan to start or expand a business is one way people can become less dependent on social services and become more productive, contributing citizens. Small business creation is a recognized pathway to self-sufficiency. People are able to utilize their skills, talents, and aptitudes when they start their own businesses and can fully realize the fruits of their work. The direct relationship between working hard and increasing income, the flexibility of creating one's own schedule, and the inherent enjoyment of working at a job they love sets the stage for becoming self-sufficient. Undertaking a small business can be done in place of or in conjunction with other traditional strategies for exiting poverty (i.e. work, education); therefore it is a powerful tool for Hawaii’s social sector which has seen limited effectiveness lately due to high unemployment, education costs, and child care constraints that affect a person’s ability to break out of poverty through traditional means.

The Kuleana Micro-Lending program intends to help coordinate and leverage as many existing services as possible. Our community partners— Partners in Development, Catholic Charities— will help identify potential clients and coach them through the initial application.

To implement the Kuleana experience we will form application and loan review committees which will focus on a set of non-traditional metrics. Loan terms will be customized for each particular client. We intend to keep the loan interest rate at 7.5% with a loan term of 24-36 months and a grace period of up to three months.
Existing service organizations with various specialties will be tapped for additional support where needed.

A website will be created to host client profiles and connect to existing social networks for the purpose of broadcasting activity and attracting community involvement. This net presence allows for participation by a broad community of people that does not have the constraints normally placed on individual service organizations and their limited staffs and budgets. This plan is essentially modeled on the teamwork concept of the ahupuaʻa —the responsibility of a community's well-being is dependent on all the members of the community supporting each other, regardless of what each individual's contribution may be.

As a client fulfills their obligations through the Kuleana experience, continued storytelling on the website and through the social networks will allow for the community to stay engaged, continue to attract new resources, mentor/coach the client, and provide ongoing inspiration.

Description of Organization/Mission

Kuleana Micro-Lending seeks to create empowered citizens who are increasingly productive and contributing members of society. To achieve this goal we will provide small loans up to $5,000 for incipient businesses that will generate income for borrowers generally living in poverty and who, therefore, are not served by traditional lending institutions. In addition, borrowers will receive mentoring and/or business support services from a network of resources connected by a central web presence. Borrowers will be referred to Kuleana by social service organizations with whom we will establish Memoranda of Agreements to delineate respective and reciprocal duties and responsibilities. Borrowers must have a household income below 150% of the poverty level, defined as $38,565 for a family of four, according to the Federal Register (Vol. 76, No. 13, January 20, 2011.)

Micro-lending is only one instrument for dealing with homelessness and/or poverty. This program emphasizes borrowers taking control of their lives and improving self image as much as raising their earnings potential. The program will also foster a better understanding of poverty by the general public and highlight how citizens can support the broader community.

We are establishing a new organization based on previous efforts at micro-lending both in Hawai’i and around the world. The first year is set up as a pilot program— a time to refine and adapt our approach and procedures as needed for maximum success based on our own experiences with the first year clients.

We expect to select three to five clients out of a pool of candidates indentified by our community partners for the pilot. We also expect the social networking component to be in place, in a simplified form, within 30 days of funding.

Significance of Innovation/Program

Our initial innovation is establishing a local micro-lending organization that understands the unique needs and cultures in Hawaiʻi. Operational capital will be acquired through on-going grant applications, modest interest rate charges on loans, and micro-donations from the service network. To identify potential borrowers we will work closely with our "community partners", (Partners in Development— our fiscal sponsor, and Catholic Charities) and small business support programs. These entities understand that income generation is key to stabilization for all individuals and families, especially for populations that have barriers to traditional employment.

The second innovation we offer is the loan application process itself. The Kuleana experience is structured as a multi-tiered process comprised of partner organizations, a “service network” of individual donors and contributors of services (lawyers, accountants, business people/students, graphic designers, etc.), and a four phase application process that connects the parts together.
Once referred by a partner agency, the first step will be to have the prospective borrower fill out the first part of the loan application (Phase I) to describe their basic business idea as well as to provide personal information and employment history. This will enable us to assess the soundness of their idea as well as gauge their basic level of interest and commitment. All applicants that complete this phase will continue on to Phase II.
• In Phase II, the Application Review Committee will require references and a basic business plan prepared with the help of an assigned mentor, if necessary. Advisors and mentors will come from the “service network” (see below). A profile will be established on the Kuleana website so that borrowers’ stories can be shared, and they can connect with the service network.
• Upon completing Phase II, the Loan Review Committee will determine the loan terms (Phase III) and the type of support the client will need in the short term, intermediate term, and long term to see their business through to success. Depending on the strength of the application we will reserve the option to divide the loan into sequential segments. We anticipate the time from initial referral to actual funding can be as short as six to eight weeks.
• If the borrower is successful in paying back the initial loan and fulfilling all of the obligations (attending meetings, communication with mentor, attendance at basic business classes, savings account etc.) they can then apply for another loan (Phase IV).
• If at any time a client fails to meet the terms of a Phase, they will be referred to an appropriate service organization, or the service network, for assistance in meeting the objectives of a Phase.

The third and perhaps most significant innovation of Kuleana Micro-Lending is the enabling of the community to participate in our 'service network'. Client profiles hosted on the Kuleana website will highlight stories, successes, and current needs that can be met by members of local and online communities.

By taking advantage of already available mechanisms to 'signal' existing online social networks (Facebook, Twitter, tumblr, etc.), a single person’s participation can serve as the catalyst to make their network of peers aware of opportunities and actions that can be taken to support other people in their communities. In these ways, our clients will also have access to a wider pool of support than is currently possible in traditional social service agencies and for a period that extends well beyond that of the loan itself.

The culture of Hawai’i is highly networked and viral by nature. No matter the issue, someone knows someone else who can help, or has a friend with experience in this specific situation. Network participants can experience personal growth of their own by understanding the barriers to income generation, and they can participate directly or indirectly by offering their knowledge and expertise, or in the backfunding of loans (i.e. donating money to the site in order for more loans to be offered).

By tapping into traditional media outlets’ — radio, TV, newspapers, magazines— Kuleana will also be presented to interested individual citizens who view micro-lending, individual empowerment and broad community support as an extension of their values.

Testing Demand for Innovation/Program

It is estimated that global demand for micro-credit is upwards of $300 billion, of which less than 10% has been met. Organizations such as Grameen and Kiva have been pioneers in this field and have changed many people’s impressions of whether people living in poverty can handle money responsibly and then use it to significantly improve their standard of living. As documented in a recent Newsweek article, Grameen has started to provide individual loans of up to $1,500 to groups of women in Brooklyn with widespread success. In Kiva’s case, they encourage participation of donors by utilizing a central website to collect loan contributions via storytelling. Since October 2005 they have provided, through their field partners in fifty-eight countries, close to $200 million in loans to people living in adverse financial circumstances with a repayment rate of 98.93%.

According to the Honolulu Star Advertiser, more than 156,000 people lived below the poverty line in Hawaii in 2009. This is equivalent to about 40,000 families (assuming a family of four)— ample demand if even a small percentage were interested and/or qualified. While available to all individuals and families living in poverty, the Kuleana Micro-Lending program is expected to be particularly helpful to two important sub-groups— the working poor and those who have fallen into poverty from the middle class.

By improving a person’s or a family’s standard of living and subsequently their sense of self-sufficiency, we hope that it will also improve their self-image. When these stories of success are shared with the broader public, we also foresee the general perception of people living in poverty improving as well, as has been the case with both Kiva and Grameen.

Given the rapid growth and success of these two global organizations, as well as the increased number of inquiries to local programs provided by the Office of Hawaiian Affairs and Pacific Gateway, we feel the demand for this type of service in Hawai’i is significant, achievable, and in need of other players in the field. We would like to form symbiotic relationships with these organizations as we collectively address the goal of providing micro-loans to our respective and overlapping constituencies throughout O’ahu.

Growing the Impact of Innovation/Program

We will initially be working with our primary community partners— Partners in Development and Catholic Charities— but we hope to be able to take on clients from other social service organizations (such as KEY Project, US VETS, Ulu Ke Kukui, Honolulu Community Action Program, etc.) as long as they are willing to sign on to our Memorandum of Agreement regarding their responsibilities in this process as well.
We are in discussions with the Finance Club at the University of Hawai’i Shidler School of Business as well as with the Hogan Entrepreneurial Program to provide advisors and mentors to our organization and/or volunteers in counseling the entrepreneurs through the business plan development and implementation stages. We plan to contact the UH Pacific Asian Center for Entrepreneurship for these same purposes.

There are also many opportunities to create partnerships with public and private schools to encourage their students and teachers to get involved at various stages of the application and implementation process, whether it be assisting the mentor and borrower in developing the business plan, fundraising, telling the story of a borrower to prospective donors through video or writing, or helping to promote the business through various other social media. Hopefully this process will also connect the schools to each other in ways they may not have done so before.

To grow the social network, we will continue to do off-line promotions through traditional media; public relations and marketing; presentations at civic groups, schools, universities, and churches; and conversations with interested individuals. On-line promotions will rely on leveraging existing site members’ social networks.

Responsible Parties Comprising Program

While on sabbatical through August 20011, John Cheever will serve as the full time Executive Director of Kuleana Micro-Lending.

Other members of Kuleana Micro-Lending include:
• Benjamin Ancheta, Chief Operating Officer, ProService Hawaii;
• Rona Fukumoto, Director of Intake, Catholic Charities Hawaii;
• Fran Gendrano, Principal Broker, KFG Properties;
• Kimberly Horan, Human Resources Consultant, ALTRES;
• Jessica Horiuchi, Executive Director, Alaka’ina Foundation;
• Kevin Kawahara, Software Development Manager, Punahou School;
• Yvette Maskrey, District Manager, Honeywell International;
• Michael Morales, Executive Director of the Center of Excellence and Enterprise Program Management Office, Hawaiian Telcom;
• Lorene Yap, former manager of Country Economics Division for Bangladesh, Pakistan, and Sri Lanka, World Bank.

Our board of directors, with their diverse professional experiences and background, are capable of playing all key roles during this initial phase, (business development, legal, technical, social service expertise), and will continue to provide the main oversight and quality control to ensure Kuleana’s success.

All board members will serve on a strictly volunteer basis.

A program administrator will be hired prior to August 2011 to support the daily operations
Additional paid staff will be hired as required by the growth and success of the program.

Our fiscal sponsor, Partners in Development, will be available for consultation, and brings over 13 years of local non-profit and social service experience.

Sustainability of Innovation/Program

To maintain a capital base so that we can continue to make loans in a timely manner to worthy borrowers, we will continue to apply for grants from a wide variety of foundations and organizations and solicit donations from local and international civic organizations. Members of our service network will be able to backfund loans (i.e. donating money to the site for the purpose of making more loans), inspired by the success and progress of existing clients.
In one year we would like to have given out three to five loans in support of business plans that have been successfully implemented, and that none of the loans are delinquent, if not paid back entirely.

For the social networking component, we would like to see a steadily increasing number of members registering and taking action each month; and once registered, exhibiting repeated and more active participation. We also want to see a wide variety of members from different professions, of all ages, and both genders. Gauging the daily traffic to the site will determine whether this site has actually become a dynamic and viable asset to the community.

After one year, we expect to be able to constructively evaluate our pilot in order to have a sound working model for the future. By surveying the recipients of loans and community support we hope to be able to witness an improved self-image. The amount of traffic to the site and number of active and passive participants in the program will enable us to infer the changing perceptions of the broader public.

Appendix

A hypothetical Kuleana client/engagement:

The Honolulu Advertiser ran an article last year (“Can it do that?” 4/11/10) which profiled the Chong family. The husband had worked as a mechanic for his entire working career, including the previous five years with his most recent employer, when he was laid off. Unable to find new employment, and despite his wife’s salary working at a 7-11, they could not pay their rent and were subsequently evicted by their landlord. Faced with homelessness they had no choice but to move in with extended family.

The Chongs went to Catholic Charities for help finding more permanent housing and counseling on how to manage their finances more efficiently. These traditional services helped to stabilize their living arrangements and finances, but Mr. Chong’s employment status did not change. Had Kuleana Micro-Lending been a resource for Catholic Charities at that time, another option would have been available to help improve their situation.

With his skill set and experience, Mr. Chong has the makings to become a successful mobile mechanic. However, lacking current employment and credit, Mr. Chong would have been unable to secure a loan from a traditional bank. Having never run a business, he would not have known where to start. Catholic Charities could have referred this case to Kuleana Micro-Lending and helped him complete Phase I of the loan application process.

Kuleana’s application review committee would do some basic research to investigate the viability of this idea: mobile mechanics, according to Craigslist, charge approximately $50/hour, well above the living wage for Hawai’i ($35.95 for two adults and two children). An Internet search reveals that the start-up costs of a set of mechanic's tools (approx. $350 for a 302 pc. set of Craftsman mechanics tools), a multimeter ($250), a diagnostic scanner ($500), a vehicle to get to the jobs ($2,000-$3,500), a cellular phone ($100) so customers can call, and a flat-rate manual ($60) for determining job charges bring total start-up costs, including a car to between $3,260-$4,760; without the car = $1,260. A micro-loan of under $5000 could have meaningful impact to this family’s life.

Additional support from our service network, made up of potential customers, other mechanics, entrepreneurs, and community members interested in seeing a family succeed would be available to provide important advice on business practices, various insights, word of mouth marketing, and simply encouragement.