Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:

 

'Lending circles' help low-income communities join the financial mainstream

05.06.2013
An innovative financial lending program is helping low-income individuals build credit, reduce debt and find their financial footing, according to a pair of studies released today from San Francisco State University's César E. Chávez Institute (CCI).

Lending Circles, a program managed by the nonprofit Mission Asset Fund, dramatically improved credit scores for low-income residents of San Francisco, the studies found. In addition, the reports suggest the program can be successfully replicated in other communities and could serve as a nationwide model for helping vulnerable populations, particularly immigrants, achieve economic stability. Many of these communities were among the hardest hit by the recent recession.

"Low-income individuals, especially immigrant women, often have limited access to financial opportunities and few places to turn for help," said Belinda Reyes, an associate professor of Latina/Latino Studies at SF State, CCI director and lead author of the studies. "The Lending Circle program is bringing people who had no credit or very a damaged credit, into the financial mainstream."

In a lending circle, participants join a group of at least four individuals in which each contributes an equal amount and receives the total sum in rotation. For example, someone participating in a circle with seven other people could contribute $100 a month for 8 months in exchange for an $800 loan.

"This is something that immigrant communities in particular have used for generations," Reyes said. "In the past it has been very informal, but a good way of getting cash."

MAF is the first to formalize these types of peer loans by reporting payments to credit bureaus, allowing lending circle participants to build up credit. To build good spending habits, MAF combined the circles with financial education classes to help participants learn how to manage their expenses and adopt behaviors that can help their credit score. Researchers found that those who participated in a lending circle in 2011 and 2012 saw their credit score increase by an average of 168 points. The impact was even more dramatic for those with no credit history: 72 percent of participants with no credit score at the beginning of their lending circle had a score of 620 or above at the end of their first lending circle.

"The program is outstanding for people without credit history," Reyes said. "It really addresses the needs of those who are most in need."

The report also found lending circles helped participants reduce outstanding debt by an average of $1,000 versus a control group that increased its debt by an average of almost $3,000 over the same time period.

The impact of lending circles can be felt in the wider community as well, Reyes said. Many clients, for example, used their loan to expand an existing business, bringing an infusion of capital and entrepreneurship to vulnerable neighborhoods. The financial sector also benefits by gaining new customers who were previously unable to access traditional banking services.

"For the financial sector, there is this underground economy that they're not tapping into," Reyes said. "People are lending to each other informally and surviving every day without banking. Lending circles are a way of reaching these individuals in a way that is culturally relevant."

To see if the program could be successful elsewhere, CCI and MAF partnered with five Bay Area nonprofits to establish and study lending circles and found similar improvements in credit scores. These additional groups were more diverse than that at MAF, which serves primarily Latinos, showing the program can be replicated across different cultural communities.

The reports suggest that community-based organizations, particularly those that already have financial programs such as free tax preparation, job training or homeownership preparation, are ideal for implementing the program with the support of a central agency that secures the loans and handles loan processing, reporting and other administrative functions.

In all, MAF's Lending Circles program has been replicated in 16 communities across six states: California, Oregon, Nevada, Washington, Minnesota and Massachusetts.

"Building Credit for the Underbanked" and "Replicating Lending Circles" were authored by Reyes, Elías López, Sarah Phillips and Kurt Schroeder. To view the reports, visit http://cci.sfsu.edu/maf.

SF State is the only master's-level public university serving the counties of San Francisco, San Mateo and Marin. The University enrolls nearly 30,000 students each year and offers nationally acclaimed programs in a range of fields -- from creative writing, cinema and biology to history, broadcast and electronic communication arts, theatre arts and ethnic studies. The University's more than 219,000 graduates have contributed to the economic, cultural and civic fabric of San Francisco and beyond.

The Mission Asset Fund, a nonprofit organization based in San Francisco, provides responsible financial products and services to ensure that low-income families have fair access to affordable credit and mainstream financial services.

Jonathan Morales | EurekAlert!
Further information:
http://www.sfsu.edu

More articles from Business and Finance:

nachricht How Strong Brands Translate into Money
15.11.2016 | Kühne Logistics University - Wissenschaftliche Hochschule für Logistik und Unternehmensführung

nachricht Demographic change depresses tax revenues
04.11.2016 | Fraunhofer-Institut für Angewandte Informationstechnik FIT

All articles from Business and Finance >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: Traffic jam in empty space

New success for Konstanz physicists in studying the quantum vacuum

An important step towards a completely new experimental access to quantum physics has been made at University of Konstanz. The team of scientists headed by...

Im Focus: How gut bacteria can make us ill

HZI researchers decipher infection mechanisms of Yersinia and immune responses of the host

Yersiniae cause severe intestinal infections. Studies using Yersinia pseudotuberculosis as a model organism aim to elucidate the infection mechanisms of these...

Im Focus: Interfacial Superconductivity: Magnetic and superconducting order revealed simultaneously

Researchers from the University of Hamburg in Germany, in collaboration with colleagues from the University of Aarhus in Denmark, have synthesized a new superconducting material by growing a few layers of an antiferromagnetic transition-metal chalcogenide on a bismuth-based topological insulator, both being non-superconducting materials.

While superconductivity and magnetism are generally believed to be mutually exclusive, surprisingly, in this new material, superconducting correlations...

Im Focus: Studying fundamental particles in materials

Laser-driving of semimetals allows creating novel quasiparticle states within condensed matter systems and switching between different states on ultrafast time scales

Studying properties of fundamental particles in condensed matter systems is a promising approach to quantum field theory. Quasiparticles offer the opportunity...

Im Focus: Designing Architecture with Solar Building Envelopes

Among the general public, solar thermal energy is currently associated with dark blue, rectangular collectors on building roofs. Technologies are needed for aesthetically high quality architecture which offer the architect more room for manoeuvre when it comes to low- and plus-energy buildings. With the “ArKol” project, researchers at Fraunhofer ISE together with partners are currently developing two façade collectors for solar thermal energy generation, which permit a high degree of design flexibility: a strip collector for opaque façade sections and a solar thermal blind for transparent sections. The current state of the two developments will be presented at the BAU 2017 trade fair.

As part of the “ArKol – development of architecturally highly integrated façade collectors with heat pipes” project, Fraunhofer ISE together with its partners...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

Event News

Sustainable Water use in Agriculture in Eastern Europe and Central Asia

19.01.2017 | Event News

12V, 48V, high-voltage – trends in E/E automotive architecture

10.01.2017 | Event News

2nd Conference on Non-Textual Information on 10 and 11 May 2017 in Hannover

09.01.2017 | Event News

 
Latest News

New Study Will Help Find the Best Locations for Thermal Power Stations in Iceland

19.01.2017 | Earth Sciences

Not of Divided Mind

19.01.2017 | Life Sciences

Molecule flash mob

19.01.2017 | Physics and Astronomy

VideoLinks
B2B-VideoLinks
More VideoLinks >>>