Houston Entrepreneur Starts Microfinance Program to Boost Startups

1/24/14Follow @angelashah

[Updated 1/27/14 7:49 am] Entrepreneurship is an intensely personal business. Customers and investors must have faith in you, not just your product.

A decade ago, Prasad Menon met a would-be entrepreneur, who not only fixed his wonky garage doors but also called days later just to check that all was well. “He seemed like the owner of the business, not just an employee,” Menon recalled.

In fact, the young technician said he wanted to buy the garage-door business from his soon-to-be-retiring boss, but he lacked $10,000 to buy it, and banks weren’t biting. “I felt for him, and I promised myself that day that one day I would find a way to help other entrepreneurs,” Menon says.

On Saturday, Menon announced funding would be given to five mom-and-pop businesses in Houston as part of the Bayou Microfund, which he recently founded. For Lemon-D-Lite Popcorn in Houston, the fund launched late Friday a website on Kiva Zip Fund, the U.S.-focused branch of the global microloan organization, to help Bayou’s entrepreneurs crowdfund from retail-level investors interested in helping out local entrepreneurs. People can offer loans in $25 increments via services like PayPal.

As of Monday morning, Lemon-D-Lite had raised nearly 30 percent of the $5,000 it is seeking from investors in Houston, San Francisco, and Copenhagen. Two other businesses, Sweet Luxuries Boutique Bakery and Divalicious Dish, will also get Kiva Zip websites. And a final two businesses, Once Upon a Praline and Beauty to You, will receive one-year loans of $5,000 from Promise Credit Union, which is affiliated with the United Way.

The arrangement is that the entrepreneurs will pay back the principal to the credit union; Menon says he will repay the interest. “I want these to be interest-free loans,” he says. [Updated with Saturday's announcement, which went out to a total of five Houston businesses.]

While a snack-maker might lack the “change-the-world” glamour of startups in Austin or Silicon Valley, Menon says the benefits to both the founder and the economy are still significant. “The lower band of micro-enterprise, they don’t have opportunities to get funding like other businesses do,” he says. “That’s what we are addressing.”

Before the entrepreneurs can receive funding, they are required to attend a three-month course, which is taught in community centers by students in the University of Houston’s microfinance program.

On Saturday mornings, a group of 50 entrepreneurs took the first class, which ended in December, where they learned the basics of business planning, product pricing, accounting, and other skills. Three of the entrepreneurs will be receiving loans. “The ingredient to success is not giving them money—they do need the capital—but making sure they have the capacity to know exactly how to run a business,” says Saleha Khumawala, a University of Houston accounting professor who founded the school’s microfinance program in 2006.

Menon hopes to expand the pool of investors by bringing in fellow members of The Indus Entrepreneurs (TiE), of which he is a founder of the Houston chapter.

Microlending originated in impoverished populations in Africa and South Asia, as a way to connect the millions of people who work in cash-only enterprises—typically on their own—without access to capital from banks and other organizations. Khumawala had made regular study-abroad trips with MBA students to India, where they saw the programs at work.

When she began teaching classes in microfinance, she realized class trips to Asia weren’t possible. “We looked locally,” she says of the university’s own neighborhood. “There was so much poverty right in our backyard.”

She met Menon through TiE last year and the two agreed to work together to support Bayou Microfund. Next month, they will start a small-business incubator for eight startups that have “graduated” from the Saturday morning program.

Microlending is a relatively new concept in America. Two years ago, Detroit was the first U.S. city to receive a Kiva Zip program.

Bayou Micro Fund is one the first programs to use the Kiva platform in a Texas city. Houston, which is thriving due to an energy boom and a strong state economy, is also home to a large group of poor people. Nearly 18 percent of Texans live in poverty, while more than a quarter of Houston residents do so, Khumawala says.

A few weeks ago, the 80/20 Foundation, which was started by Rackspace founder Graham Weston, formed a similar partnership with Accion Texas, a local microlending group, to help accelerate business development in downtown San Antonio.

The foundation is providing Accion a $250,000 matching grant to help the group provide more micro loans to small business owners who are interested in opening up retail shops downtown.

The bottom line, Menon says, is that with a little help, the smallest of businesses can also participate in Texas’s prosperity.

He himself knows how valuable just one loan can be. Following a layoff early in his career, he had difficulty finding work. So, he decided to start his own ship operations consultancy—he had worked as a marine consultant at the Port of Houston—and was able to convince a bank to loan him $6,000. To this day, he remembers the loan officer’s name.

“I do not know if the word ‘microloan’ existed then, but I know that was a microloan,” he says. “This launched my business and over the years, I went on to become a serial entrepreneur.”

As for that budding repair-shop entrepreneur, Menon says he never found out what happened to him. “I just didn’t know how to help him at the time,” he says.

Angela Shah is the editor of Xconomy Texas. She can be reached at ashah@xconomy.com or (214) 793-5763. Follow @angelashah

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