(FORTUNE Magazine) – Geneva Green is turning a hobby into a moneymaker. She now sells the silk flowers and dried-grass arrangements she makes in the housing project where she lives. She and other low-income entrepreneurs in southeastern Arkansas are building their businesses through 12% loans from Southern Development Bancorp., a company founded in 1988 to help economic development in rural areas. Backers include billionaire Sam Walton's family foundation and Systematics, a Little Rock computer systems company. The Good Faith Fund, one of Southern Development's lending arms, has a $550,000 pool and makes new loans as old ones are repaid. The interest earned goes to administrative costs. So far, the fund has made 37 loans totaling $104,000. Ten borrowers, with loans amounting to $18,000, defaulted in the first year. To limit future defaults, the fund is testing shorter-term smaller loans for first- and second-time borrowers -- $300 for three months, say -- rather than one-year loans of up to $4,000. Borrowers make their payments fortnightly in front of small groups of their % peers who meet in such places as a Monticello fast-food restaurant. These small loans don't sound like much. But Geneva Green says she used to be able to purchase only small quantities of silk flowers at a time. She says her $755 loan enables her to buy ''vases, paints, and flowers in bulk and the colors I want.'' Her business plan: to supplement her income as a housekeeper by selling her products at flower shows. The Arkansas loan program was inspired by a similar one at Grameen Bank in Bangladesh. Other imitators: the Rural Economic Development Center in Raleigh, North Carolina, and the Lakota Fund at South Dakota's Pine Ridge Reservation.