The importance of minority-owned businesses to urban economic development is well-documented. They're more likely to be located in urban communities so they're more likely to hire local residents and use minority-owned supplies, thereby lowering local unemployment rates and contributing to overall growth of minority enterprise. Despite these benefits, minority entrepreneurs continue to face major obstacles to their start-up and growth, including lack of financial capital and limited access to broader consumer markets, among others.

A 2005 report out of the U.S. Small Business Administration's Office of Advocacy found that ethnic minority business owners are less likely to have bank loans of any kind and that black and Hispanic owners face loan denials at a rate higher than that of white males. When they get loans, they tend to receive higher interest rates.

In 2002, minority-owned businesses represented 18% (4.1 million) of all firms, grossed 8% of all annual gross receipts ($668 billion), and employed 9% of all paid employees (4.7 million), according to the U.S. Census' Survey of Business Ownership. In that same year, there were 1.2 million black-owned firms in the United States, employing 754,000 persons and generating $89 billion in revenue. In short, minority representation among business owners continues to lag behind representation in the general population.

In our Opportunity Compact, we recommend greater use of microlending to spur minority business development and increase representation of minorities who own their own companies. A little more than 30 years ago, economics professor Muhammad Yunus launched an experimental project to reduce poverty by lending very small sums of money to landless peasants in remote rural villages of Bangladesh to help them start their own businesses. Within a decade, the experiment grew into a formal bank known as Grameen Bank, whose remarkable results attracted interest from around the world.

By 1996, Grameen evolved into a bank with roughly 1,100 branches in Bangladesh and loans in excess of $2 billion, serving more than two million clients, most landless peasants and female, according to a Federal Reserve Bank of Boston report from 1998. At least 90% of loans were repaid. Wages rose, borrowers increased their savings and even school enrollment went up, the report states. In 2006, Yunus received the Nobel Peace Prize for his efforts.

In the mid- to late-1980s, similar ventures sprouted up in the United States, reaching millions of Americans - mostly minority and low-income. In the 1990s, several federal government programs were implemented to advance microentrepreneurship. Since the beginning of the decade, they've been under the constant threat of budget elimination.

One of the most comprehensive is the SBA Microloan Program, which provides a combination of grants and loans to nonprofit agencies for technical assistance and loans to entrepreneurs. Since 1992, roughly 22,000 microloans - totaling more than $254 million - have been made. A related program is the SBA's Program for Investments in Microentrepreneurs (PRIME), which provides training and technical assistance for low- and very low-income entrepreneurs.

In 2004, the nation was home to nearly 23.5 million microenterprises - firms with less than five employees - employing nearly 30.2 million - or 18.2% of total private non-farm employment, according to the Association for Enterprise Opportunity. Of black-owned businesses, roughly 70% in 2002 could be considered microenterprises, according to the U.S. Census Bureau.

In 2006, ACCION USA, the nation's largest microlender, disbursed $5.65 million in loans serving 1,031 clients - 61% Hispanic, 27% black and 40% female with a repayment rate of nearly 96%. Since 2000, the group has made nearly 5,000 loans totaling $18.6 million.

Microlending in the United States hasn't seen quite the success that it has in developing countries but it still shows some promise in improving the lot of financially-challenged aspiring entrepreneurs. Because the risk associated with microloans is much lower than that of traditional bank loans, the sting of failure isn't as lasting or as devastating. Individuals can still gain valuable work experience and business knowledge with less damage to their personal financial condition. As the Federal Reserve Bank of Boston noted in 1998: "Even when microlending is not used strictly as a poverty alleviation strategy, it can play an important role in making opportunities available to those who have the desire and determination to try their entrepreneurial hand."

It offers hope to scores of would-be minority entrepreneurs of breaking down some of the barriers associated with starting a business from the ground up. The Aspen Institute has suggested that microlending is a less expensive way of promoting business development than traditional public policy mechanisms such as tax breaks, public subsidies - up to one-tenth as costly. For a minimal public investment, microlending would be a helpful way to put low-income entrepreneurs on the road out of poverty and toward economic independence.

Marc H. Morial is president and chief executive officer of the National Urban League.