Taxonomy of microloan borrowing with application to customers in two United States microloan programs

Poverty alleviation and economic self-sufficiency are key priorities for U.S. policymakers. Microlending has been adopted as one approach to these issues. Initially, practitioners and policy makers presumed that the lack of capital was the primary impediment to the opportunity for the self-employed reaching self-sufficiency. Currently, there is a supply of capital chasing low-income entrepreneurs. Most research has concentrated on the delivery system---program design, program costs, outputs, and outcomes. Research exploring the customer perspective on demand for microloans with an emphasis on customer costs rather than benefits alone is limited.; Microenterprise development (MED) in the U.S. has roots primarily tracing back to the 1980s. The main focus of MED is disadvantaged individuals who are operating or starting a microenterprise, often in distressed communities. MED has emerged as one strategy to assist in asset accumulation; poverty alleviation; community and economic development; empowerment of disadvantaged populations; and improvement in access to credit.; This research explores the costs incurred by microloan customers and the factors affecting borrowing. It addresses the question, "What are the barriers, costs and constraints for microloan customers in the U.S.?" It introduces an analytical framework for microloan customer borrowing. This framework is tested through in-depth case studies of two U.S. programs. A model for estimating microloan customer costs is developed.; Without incorporating the full range of costs as well as the required skills, sophistication, and knowledge of the borrower, the costs of borrowing are seriously underestimated. When the costs of borrowing exceed the worth of loans to microentrepreneurs, including financial and opportunity costs, preferences, business requirements and other factors, rational microentrepreneurs determine that borrowing is not appropriate and are effectively priced out of the market for microloans.; Microloan programs have created a series of requirements that effectively serve as filters. By understanding the nature and magnitude of borrower costs and recognizing other positive and negative factors, program managers may assess requirements and services offered and adapt to customer demand, while maintaining portfolio quality. Based upon the analysis of customer costs and factors, both program and policy options are explored, including savings programs and the increased use of technology.