By Sunita, Sohrabji, Indiawest.com –

SAN FRANCISCO, Calif. – Microfinance lending is branching out from the developing world and targeting American small business entrepreneurs, noted several panelists at the Microfinance USA conference here, which began May 20.

The two-day conference was organized by the San Jose, Calif.-based Opportunity Fund, which provides microfinance loans ranging from $1,000 to $100,000 to small and medium-sized enterprises in the San Francisco Bay Area. Opportunity Fund, like similar microfinance lending institutions throughout the U.S., makes loans to people who have little to no credit history, no collateral, and who have been turned down by banks for traditional business loans. The organization says it has directed more than $150 million to 10,000 lower-income households in the region.

Small businesses in the U.S. represent about 87 percent of all businesses in the U.S., and create about one million new jobs each year.

The microfinance industry — pioneered by Grameen Bank founder Muhammad Yunus who lent small amounts of money to women in Bangladesh to start micro-enterprises such as raising chickens or making baskets — now boasts global assets of more than $60 billion, especially as private firms and capital have entered the industry.

There is huge scope for worldwide expansion with a potential market of three billion people who could benefit from a microfinance loan, noted Stephanie Cohn, manager of investments at Omidyar Network, a philanthropic investment firm established by eBay founder Pierre Omidyar and his wife Pam.

Omidyar Network recently opened an office in Mumbai, where it intends to invest $45 million in Indian social enterprises.

California’s first lady Maria Shriver and Kiva president Premal Shah opened the conference May 20 at the Metreon Center downtown.

The San Francisco-based Kiva, founded in 2005, has loaned more than $75 million to entrepreneurs in 44 countries through its Web site, where lenders can make loans as small as $25 to borrowers in the developing world. The organization boasts a 99 percent payback rate, which the lender can then use to fund other individuals.

Though the site is structured so that small investors seem to be investing directly in an individual, Kiva consolidates the loans and works with field partners in various countries who actually administer the loan. The organization was recently brought to task in a New York Times story for the high rates of interest charged by some of its lending partners.

Kiva has not yet received approval to offer its loans in India.

The organization began its domestic lending program last June, after Shriver visited the organization’s San Francisco office in March 2008, and asked why the international model could not be replicated for U.S. innovators. Kiva to date has funded 60 entrepreneurs in the Bay Area with $350,000 in loans.

Shriver’s own microfinance lending venture WE Invest, which works with women entrepreneurs in California to get them loans, along with training and mentoring, recently partnered with Kiva, so that lenders could fund WE Invest’s borrowers through the Kiva Web site.

“At no time in this state’s history do people need these loans more than right now,” said Shriver, adding, “We are at a moment when people are realizing the government cannot support them.”

With the current economic climate throughout the U.S., with record numbers of people unemployed, more people are leaving corporate America to try and start ventures on their own, said Shriver, adding that social factors, such as raising a child or caring for an elderly parent are also pushing people out of traditional employment and into entrepreneurship.

“My best advice to any entrepreneur is fail fast, fail forward,” said Shah, to laughs and applause from the audience of more than 1,000 people.

“For a long time with Kiva, it was crickets and tumbleweed. No one was coming to our site. It was very depressing and I used to think, ‘I quit my job for this,’” he said, to more laughter.

Later that afternoon, speakers at the “Fair Price for Credit” panel engaged in a lively debate about the interest rates charged by microfinance lending institutions throughout the developing world. Globally, interest rates average about 37 percent per loan, but can be as high as 87 percent.

“What differentiates the microfinance institution from a loan shark?” asked moderator Jonathan Lewis, founder of MicroCredit Enterprises, querying further whether the microfinance model was still an anti-poverty measure or a tool for investors.

Yunus, speaking four days later at the Commonwealth Club in San Francisco, said he was wary of private investors getting involved in microfinance for profit. “We created microfinance to get rid of the loan sharks,” he said, noting that many MFIs charged interest rates on par with predatory lenders.

In an earlier story, Shah of Kiva justified the high interest rates of microfinance loans, noting the high costs associated with administering many loans for small amounts.

At another May 20 afternoon panel, Deepak Kamra, general partner at Canaan Partners, said his company was finalizing a microfinance venture in India, but could not yet disclose details of the deal.