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Tapper: Madison Fund aims to help small entrepreneurs with micro-loans

By Brian E. Clark
For WisBusiness.com

When Andrew Tapper, co-founder of the Madison Fund micro-finance group, was a youngster, he wanted to change the world.

But the UW-Madison math and economics major says he soon discovered “that wasn’t really possible and I became discouraged.”

Tapper’s idealism wasn’t extinguished entirely, however.

After arriving in Madison from his native Illinois, he joined a group called Badger Volunteers – run through the Morgridge Center for Public Service – and spent a semester tutoring disadvantaged elementary school children.

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“That experience shifted my focus,” he said. “I realized a real substantial way to change the world around you is to get involved in a few peoples’ lives to try to make a difference there. And hope that enough people are doing the same thing so you can better the community.”

So when Alex Rosenthal approached him in 2010 about putting together a student-run organization to make small loans to entrepreneurs and others who don’t meet the criteria for traditional bank lending, Tapper jumped at the opportunity.

Tapper said he was impressed with the micro-financing mission of "empowering and enriching the community by helping individuals get some financial literacy and get their dreams going.

“Our goal is to create some kind of multiplier effect with our loans. We want to give loans to people who are not only going to succeed in their own business and get their own personal satisfaction, but will hire other people.”

Rosenthal and Tapper, who have the titles of executive directors for the fund, met in coffee shops to hammer out by-laws and incorporate their business.

“Now here we are today, fully operational with a volunteer staff,” Tapper said.

Tapper said Rosenthal was inspired by Mohamed Yunus, a Bangladesh economist, university professor and founder of the Garmeen Bank, an institution that provides micro-credit. Yunus received the Nobel Peace prize in 2006 for his work.

Rosenthal also was influenced by Brown University student Andy Posner, who started a student-run micro-finance group.

“Alex saw that business plan and how the model of micro finance had been changed a little and applied to the U.S.,” Tapper said. “He realized it was possible for students to do something like this and that there was a void for that in Madison.”

Though the Madison Fund is run by students, it has help from professionals, some of whom run non-profits such as WWBIC, the Wisconsin Women’s Business Initiative Corp.; and the Nehemiah Community Development Corp.

So far, the organization has been funded with donations. But he said it is now seeking grants.

Though micro-loans for several small businesses are in the works, to date the group has made just two loans to offset the cost of gaining U.S. citizenship. The filing fee for naturalization, Tapper said, is about $750.

Tapper said the group is now working with someone who wants to expand a Cajun-style barbecue business and is seeking a loan of between $4,000 and $5,000, the maximum the Madison Fund will extend.

He said the potential borrower has won food festival contests and, after losing his regular job, decided he wanted to open a restaurant.

“There are a lot of legal issues with catering ... and health codes and whatnot. So basically, he was looking for a property to make his own. So we are working together to help him with that.”

Tapper said borrowers do not need collateral, but are evaluated closely for credit risk.

He said the Madison Fund uses a system created by Accion, one of the largest micro-lenders in the country, that tries to take the subjectivity out of the lending decision.

“We look at character, which includes how much outstanding debt they have, cash repayment (history), credit score, education and even how quickly people respond to an email,” he said.

They also look at the client’s business plan and profit potential.

“But no collateral is put down,” he said. “A big part of micro-financing is that it doesn’t require collateral.”

Tapper said repayment is based on simple interest.

“If we decide to make a loan, we talk with the client and come up with terms of repayment that includes an interest rate and duration of the loan,” he said.

So if someone borrows $100 at annual rate of 10 percent, he or she would have to pay back $110 over the course of the year. To lower the interest, Tapper said prepayment of the principal is encouraged.

Tapper said nationally, repayment experience for micro-financers has been good. Before the recession, the default rate was below 4 percent. Since then, it has risen to 8 percent, he said.

Though the Madison Fund has received requests from outside the state, he said the group will remain small, student-run and focused on Dane County.

“Keeping it small, to an extent, gives us a big advantage of helping the community,” he said. “Part of what makes this successful is that our costs are zero. We are all volunteer-based and everything is under the plan of getting as much money into our loan pool as possible.”

For more information on the Madison Fund, see http://www.madisonfund.org.

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