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."
"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!
Mathematical confirmation: Rewiring financial networks reduces systemic risk
22.06.2017 | International Institute for Applied Systems Analysis (IIASA)
Frugal Innovations: when less is more
19.04.2017 | Fraunhofer-Institut für Arbeitswirtschaft und Organisation IAO
University of Maryland researchers contribute to historic detection of gravitational waves and light created by event
On August 17, 2017, at 12:41:04 UTC, scientists made the first direct observation of a merger between two neutron stars--the dense, collapsed cores that remain...
Seven new papers describe the first-ever detection of light from a gravitational wave source. The event, caused by two neutron stars colliding and merging together, was dubbed GW170817 because it sent ripples through space-time that reached Earth on 2017 August 17. Around the world, hundreds of excited astronomers mobilized quickly and were able to observe the event using numerous telescopes, providing a wealth of new data.
Previous detections of gravitational waves have all involved the merger of two black holes, a feat that won the 2017 Nobel Prize in Physics earlier this month....
Material defects in end products can quickly result in failures in many areas of industry, and have a massive impact on the safe use of their products. This is why, in the field of quality assurance, intelligent, nondestructive sensor systems play a key role. They allow testing components and parts in a rapid and cost-efficient manner without destroying the actual product or changing its surface. Experts from the Fraunhofer IZFP in Saarbrücken will be presenting two exhibits at the Blechexpo in Stuttgart from 7–10 November 2017 that allow fast, reliable, and automated characterization of materials and detection of defects (Hall 5, Booth 5306).
When quality testing uses time-consuming destructive test methods, it can result in enormous costs due to damaging or destroying the products. And given that...
Using a new cooling technique MPQ scientists succeed at observing collisions in a dense beam of cold and slow dipolar molecules.
How do chemical reactions proceed at extremely low temperatures? The answer requires the investigation of molecular samples that are cold, dense, and slow at...
Scientists from the Max Planck Institute of Quantum Optics, using high precision laser spectroscopy of atomic hydrogen, confirm the surprisingly small value of the proton radius determined from muonic hydrogen.
It was one of the breakthroughs of the year 2010: Laser spectroscopy of muonic hydrogen resulted in a value for the proton charge radius that was significantly...
17.10.2017 | Event News
10.10.2017 | Event News
10.10.2017 | Event News
19.10.2017 | Materials Sciences
19.10.2017 | Materials Sciences
19.10.2017 | Physics and Astronomy