Microlending, which grew popular in South Asia as a tool to build developing economies, is designed to work incrementally, loan by loan and job by job. But that pace may be at odds with the goal of the stimulus plan to swiftly lift the U.S. economy out of recession.

Microfinance can boost the economy but can take a long time to create jobs, said David Roodman, a research fellow for the Washington, D.C. based Center for Global Development, a think tank on global poverty.

“Most kinds of spending stimulate,” Roodman wrote in an e-mail message. “As for fast, not so much.” He said the biggest obstacles are creating the institutions that make the loans. “If you are building a program from scratch,” he said, “it can take years to build the program up to a meaningful scale.”

Critics say the time, effort and cost that go into giving a microloan in the U.S. make it a less effective model here than it is in developing countries.

The current microloan trend began with the Grameen Bank. Its founder, Mohammad Yunus, won the 2006 Nobel Peace Prize for the banking system he created in Bangladesh to extend tiny amounts of credit – from $5 to $100 – for women to buy the sewing machines, cows or farming equipment they needed to start small businesses.

That system is based largely on trust – loans are given out to groups of people, and repayments are leveraged by group responsibility, or peer pressure. That’s not the way it works in Brooklyn.

“You got to go through a lot of scrutiny,” said Abdoulaye Mbaye, an immigrant from Mauritania who got $25,000 to expand his taxi fleet (see video). “You got to show your credentials, show your business plan and tell them how you’re able to pay the loan, how much you’re making in terms of revenue weekly or monthly.”

That scrutiny takes time and money. BOC Capital Corp. has sunk more than $150,000 in stimulus funds to hire another loan officer and implement a more automated system.

The high overhead costs typical of domestic microfinance organizations limit their growth potential, said Roodman, the microfinance expert.

“Microfinance has been a tough business to do well in the U.S. [Microfinance] can’t be a national model because of the subsidies needed to operate it,” Roodman said. “Americans are expensive, that’s what it comes down to.”

But microfinanciers and their supporters in the Obama administration view it as a long-term investment in helping people who need support the most.

The stimulus funds reached BOC Capital Corp. via the U.S. Treasury Department’s little-known Community Development Financial Institutions Fund, established in 1994 to provide financial services to those who have trouble getting loans from traditional banks.

To receive money, CDFIs must provide their clients with counseling to build their businesses. The CDFI received $98 million in stimulus money in July 2009. Within two months, it had dispersed the full amount to 69 microlenders and other financial institutions across the country. President Obama’s budget for 2011 proposes a 30 percent increase from last year, to $140 million. A treasury spokesman did not return calls for comment.

Richard Aguilar, better known as Rico, builds out a custom frame at Spokes & Strings. (Photo: Lisa Riordan Seville)

With its $600,000 recovery loan, BOC Capital Corp. pledged to increase the number and size of its loans by 15 percent; they can range from $1,000 to $50,000. They offer short-term loans, to help businesses fill orders, at 1 percent per month for three months, and larger loans that stretch over several years, with interest at around 10 percent.

The loans are not cheap, but they offer borrowers who often can’t get loans access to capital. In the credit crunch that followed the recent economic downturn, small businesses owners turned away by conventional banks came to BOC Capital Corp., Carin said.

Of the $367,000 the agency has spent through March, about $195,000 went to microloans and the rest toward improving the organization’s systems for tracking it.

Between January and March, the organization made just three loans, totaling $40,000. One loan went to Wood, the bike shop owner. Another went to a beauty parlor that had closed due to financial problems and was able to reopen and hire back staff thanks to the loan. Several more loans will be made in the next reporting period, Carin said. CDFI loans must be spent within three years, and Carin said she hopes to finish spending the money sooner than that – by the end of 2010.

“Our intention is that, because it’s stimulus funds and there’s such a need in the marketplace, that we’ll deploy it more quickly,” said Carin.

Regardless of the total number of jobs BOC Capital Corp.’s stimulus-funded microloans create, the program made a difference for borrowers like Wood. In addition to repairing bikes at Spokes & Strings, he builds them under the brand NYC Bikes. Though last year was the worst he had ever seen, things were looking up at the end of the 2009 year. He had a buyer who wanted 250 custom-made bikes. He had the supplies for next season sitting on a dock. But with credit at a stand-still, he didn’t have the money to build the bikes, or to get that order paid through.

With his $8,750 loan, he was able to deliver on the order and have merchandise for this spring. The short-term boost of cash helped save three jobs, let him hire another part-time bike mechanic and let him pay off the loan.

Wood said the loan helped position him for the business that has begun to trickle back in with the arrival of spring. He may even be able to create another job.

“If somebody I knew came back to me now,” said Wood, “I would hire them.”