Wednesday, July 24, 2024

Latino Entrepreneur Creates New Micro Lending Company

While the current economic crisis is making it harder for many Americans to get loans, a sizeable and growing segment of the Latino community has never had access to traditional financial and banking services.  This need is providing a business opportunity for one young Latino entrepreneur.

James Gutierrez is the founder of Progreso Financiero, a micro-lending enterprise headquartered in Southern California.  The company makes small loans averaging a $1,000 to primarily Latino immigrants with little or no collateral.

Describing his company, Gutierrez says, “We’re solving a gap in the market.”

Often the loans meet an emergency need such as a car repair or quick trip back to the borrower’s home country.  Los Angeles customers, Alejandra and Antonio Guerrero, used a loan from Progreso to pay for car repairs so they could continue their business cleaning homes and offices.

The concept of micro-lending has been in practice in many poor and developing nations for years especially where communities have little or no other access to capital.  Gutierrez, a Mexican American with an undergraduate degree from Yale and an MBA from Stanford, believed that there was a similar need here in the United States in the immigrant community.

With support from a private equity investor his idea has taken off.  Progreso, which is licensed by the State of California as a consumer finance lender, has over 200 employees, 39 locations in California and Texas, and plans to open 10 more locations in the next couple of months.  With growing revenues, Gutierrez expects to turn a profit in the new year.

Even in good economic times, this underserved segment of the population would likely have to rely on payday lenders for their financial needs.  While at 26 – 36%, Progreso’s interest rates are above the average for traditional banks, they are well below the rates that payday lenders and pawn shops charge which sometimes can top 450%.  And, unlike payday lenders, the company does not allow a lender to take out a loan to pay another loan thus creating a perpetual cycle of debt.

Gutierrez says that proprietary software allows his company to more accurately identify bad risks. Still, his loss rate is between 5% and 10%.  And, he is not without critics.

Some community groups argue that by targeting communities and individuals that have no other alternatives, he is employing the same tactics subprime lenders did.

However, for borrowers who depend on these loans and faithfully make their payments every two weeks, often in person, the access to this money makes all the difference in their lives. As one customer, Manuel Chacon, said, “This loan is better than we can find anywhere else.”

Chicago Tribune