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 Microtechnology industry is hiring – positive developments of past years continue
09.04.2018 | IVAM Fachverband für Mikrotechnik

nachricht RWI/ISL-Container Throughput Index with minor decline on a high overall level
20.03.2018 | RWI – Leibniz-Institut für Wirtschaftsforschung

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: Future electronic components to be printed like newspapers

A new manufacturing technique uses a process similar to newspaper printing to form smoother and more flexible metals for making ultrafast electronic devices.

The low-cost process, developed by Purdue University researchers, combines tools already used in industry for manufacturing metals on a large scale, but uses...

Im Focus: First evidence on the source of extragalactic particles

For the first time ever, scientists have determined the cosmic origin of highest-energy neutrinos. A research group led by IceCube scientist Elisa Resconi, spokesperson of the Collaborative Research Center SFB1258 at the Technical University of Munich (TUM), provides an important piece of evidence that the particles detected by the IceCube neutrino telescope at the South Pole originate from a galaxy four billion light-years away from Earth.

To rule out other origins with certainty, the team led by neutrino physicist Elisa Resconi from the Technical University of Munich and multi-wavelength...

Im Focus: Magnetic vortices: Two independent magnetic skyrmion phases discovered in a single material

For the first time a team of researchers have discovered two different phases of magnetic skyrmions in a single material. Physicists of the Technical Universities of Munich and Dresden and the University of Cologne can now better study and understand the properties of these magnetic structures, which are important for both basic research and applications.

Whirlpools are an everyday experience in a bath tub: When the water is drained a circular vortex is formed. Typically, such whirls are rather stable. Similar...

Im Focus: Breaking the bond: To take part or not?

Physicists working with Roland Wester at the University of Innsbruck have investigated if and how chemical reactions can be influenced by targeted vibrational excitation of the reactants. They were able to demonstrate that excitation with a laser beam does not affect the efficiency of a chemical exchange reaction and that the excited molecular group acts only as a spectator in the reaction.

A frequently used reaction in organic chemistry is nucleophilic substitution. It plays, for example, an important role in in the synthesis of new chemical...

Im Focus: New 2D Spectroscopy Methods

Optical spectroscopy allows investigating the energy structure and dynamic properties of complex quantum systems. Researchers from the University of Würzburg present two new approaches of coherent two-dimensional spectroscopy.

"Put an excitation into the system and observe how it evolves." According to physicist Professor Tobias Brixner, this is the credo of optical spectroscopy....

All Focus news of the innovation-report >>>

Anzeige

Anzeige

VideoLinks
Industry & Economy
Event News

Leading experts in Diabetes, Metabolism and Biomedical Engineering discuss Precision Medicine

13.07.2018 | Event News

Conference on Laser Polishing – LaP: Fine Tuning for Surfaces

12.07.2018 | Event News

11th European Wood-based Panel Symposium 2018: Meeting point for the wood-based materials industry

03.07.2018 | Event News

 
Latest News

Detecting damage in non-magnetic steel with the help of magnetism

23.07.2018 | Materials Sciences

Researchers move closer to completely optical artificial neural network

23.07.2018 | Information Technology

Enabling technology in cell-based therapies: Scale-up, scale-out or program in-place

23.07.2018 | Health and Medicine

VideoLinks
Science & Research
Overview of more VideoLinks >>>