Street U.K., based in Birmingham, was founded in 2000 by former J.P. Morgan & Co. banker Rosalind Copisarow, to lend to entrepreneurs in Britain's poorest neighborhoods who are often shunned by Britain's biggest banks.

Street U.K. has made so far 195 loans, averaging 2,100 pounds each, since it started test projects in 2001. Each Street U.K. borrower has to find a personal guarantor. Copisarow made loans measured in tens of millions of dollars while at J.P. Morgan.

High Risk

Copisarow says her loans are less risky than critics think because Street U.K. works hard to find people with solid plans and then advises clients on how to reach their goals. Street U.K. estimates it will average a repayment rate of 95 percent. ``We're bridging a gap between philanthropy and commercial lending to help entrepreneurs in tough neighborhoods,'' Copisarow said in an interview. Street U.K. funds operations with 2.5 million pounds from charities and 1.7 million pounds of credit from Barclays Plc, HBOS Plc, Northern Rock Plc, Alliance & Leicester Plc and the Co- operative Bank.

To become self-reliant, Street U.K. needs to gain 20,000 customers, boosting its loan book to 45 million pounds. The organization wants to expand its three offices in London, Birmingham and Newcastle, to a network of 40 with 120 employees. Copisarow and Hockly say it will take at least twice as long as they first hoped to become self-sufficient.” It costs us two pounds to lend one pound,” Hockly said. “ We need to lend more so that we can turn that around.”

Welfare Payments

It's harder for a micro-lender to become self-reliant in the U.K. than in Bangladesh, because operating costs are higher, and government welfare payments lower the determination of people to rely on their own abilities, said Ruth Pearson, a professor of development studies, at Leeds University.

Street U.K.'s first-time borrowers pay interest at an annual rate of 29 percent, 25.5 percentage points more than the Bank of England's benchmark lending rate. The alternatives are often pawnbrokers or loan sharks who charge interest rates of as much as 1,000 percent, according to Peter Kelly, head of financial inclusion at Barclays. They can also tap companies like Cattles and Provident Financial Plc, which specialize in lending to people with low credit ratings and charge annual interest rates that may exceed 100 percent.

“Our loans are vastly cheaper than the alternatives available to our customers,'' Copisarow said. ``We assess the economic benefit of each loan to make sure it is repayable.”

Government Pressure

Mainstream U.K. banks, under pressure from the government, are also offering the less wealthy more banking services. Since this year, they have been obliged to offer “basic banking” accounts to anyone who can prove their identity. Some banks, like Edinburgh-based HBOS and London-based Barclays, say they want to work closely with institutions like Street U.K. ``We want to pass on business if we decline lending proposals,'' said Niall Alexander, a director in HBOS's community banking unit to develop businesses that will become our customers when they move into the mainstream,'' Barclays' Kelly said. Copisarow hopes Street U.K. will repeat the success of Fundusz Mikro, a micro-bank she founded in Poland in 1994. The Warsaw based lender became profitable after it made 30,000 loans totaling $45 million in its first five years.

Copisarow started Fundusz Mikro after reading an article on Yunus in the Financial Times in 1993, when she was the top banker in Poland for J.P. Morgan, which merged with Chase Manhattan Corp. in 2001 to form the second-biggest U.S. bank. She previously worked at Citicorp and Midland Montagu & Co. Yunus says Street U.K. will succeed if it can find more genuinely creative people to lend to. ``They need to find role models who will inspire others,'' he said. ``Then a thousand borrowers will follow in no time.''

Reported by Simon Clark in the Bloomburg. London newsroom(44) (20) 7673-2059 or
e-mail: sclark4@bloomberg.net.