The Ewing Marion Kauffman Foundation is investing $1.2 million in local microlenders, but the ultimate impact could be much larger.

Through the new KC Microfinance Portfolio, four microlenders – AltCap, the Women’s Business Center, the KC Hispanic Economic Development Corporation and Justine PETERSEN – each will receive $300,000 in the coming months.

Each nonprofit organization makes small loans to businesses that might not be able to secure financing from a traditional institution.

What’s new is the KC Microfinance Portfolio will work to help those microlenders sell their loans to local banks, enhancing the microlenders’ ability to provide capital to their clients.

“In Chicago, we learned the key to improving sustainability among microlenders is developing the ability to sell microloans to local banks,” said Jonathan Brereton, a Kauffman consultant who worked on a similar project in the Windy City. “This allows microlenders to reduce their operating costs and helps banks to fulfill their Community Reinvestment Act requirements.”

The first loans could be sold as soon as next summer.

“This pilot program has been years in the making, with exploratory work now complete, and we are thrilled to bring it to life in KC,” said Nathan Kurtz, senior program officer in entrepreneurship for the Kauffman Foundation.

“It is part of our zero barriers initiative to help reduce obstacles that have traditionally kept people out of entrepreneurship. Our hope is that if the pilot program can work here in Kansas City, it can work anywhere.”

The initial $1.2 million investment should provide funding for 20 to 30 business – to start, at least.

“The scalability of the investment is most fascinating,” said Brereton. “While the Kauffman Foundation is making an initial grant, that investment is truly sustainable if you think about the capital available to entrepreneurs turning over year after year. Through this program, KC microlenders can help underserved entrepreneurs for years to come.”