Frequently Asked Questions
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What is a Micro-Enterprise Deposit?
A micro-enterprise deposit is a deposit made by the Federation in a credit union that is used to collateralize a portion of the micro-enterprise loans that the credit union makes. As the credit union books loans to micro-enterprises, funds from the deposit are transferred to accounts pledged to the credit union to support those loans. Usually we assume risk equal to 25 - 33% of the value of the loan. The size of any loan made by the credit union to a micro-enterprise must be no larger than $25,000. When the Federation's deposit in the credit union matures, the credit union repays to the Federation the amount of the original deposit which was never used as collateral, if any, plus amounts used as collateral that represent the repayments by the micro-enterprise borrowers.
The purpose of the micro-enterprise deposit is to “share” the risk between the credit union and the Federation. The collateralized portion of each loan is the share of the loss the Federation is willing to take.
How does a Micro-enterprise Deposit work?
The following transaction is an example:
| 1. The Federation's deposit in credit union: |
$25,000 |
2. Credit Union makes loan of:
 Portion collateralized by funds from the Federation deposit:
Amount collateralized by funds from the Federation deposit: |
$20,000
25%
$5,000 |
3. If the loan were to default:
Amount collected after all collection efforts:
Loss realized after all collection efforts:
Amount of loss taken by credit union:
Amount of loss taken by the Federation:
Funds from collateral account returned to the Federation deposit: |
$8,000
$12,000
$9,000
$3,000
$2,000 |
4. At maturity of the Federation Deposit (Assuming no other losses)
Amount repaid to the Federation by credit union: |
$22,000 |
Who is eligible for a Micro-Enterprise Deposit from the Federation?
All credit unions that have Micro-Enterprise lending programs and have been policy members in good standing of the Federation for at least six months are eligible for Micro-Enterprise Deposits. The recipient must have at least two years of lending experience. Priority is given to applicants whose staff has attended Federation-sponsored training on Micro-Enterprise lending and who have hosted a Micro-Enterprise VISTA.
What are the terms for these deposits?
Below are the standard terms for the Federation's Micro-Enterprise deposits:
| Amount: |
Up to $25,000 |
| Promotional Rate: |
3.75%, payable quarterly |
| Term: |
3 Years |
Are there any restrictions on the use of the funds?
Yes, the credit union must have a micro-enterprise lending program and use the funds from the deposit in that program as described above.
If approved, what documentation does the Credit Union and the Federation sign?
Both parties must sign a Micro-Enterprise Collateralization Deposit Agreement. The terms and conditions are described in this agreement.
What is required in order to apply for a Micro-Enterprise Deposit?
Complete and send in an application form, including:
- amount and the description of the proposed use of the funds
The application should also:
- discuss the need for micro-enterprise loans in the community and the credit union’s strategy for meeting this need
- describe how micro-loans are made and booked
- provide the credit union’s micro-lending policies (apart from general lending policies)
- describe the experience/background in micro-enterprise lending of the loan committee and/or of the micro-lending officers.
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