In Mexico they're called "tandas;" in Peru, "panderos;" in Taiwan, "hui;" and in Liberia, "esusu." Peer-lending circles are so prevalent in dozens of cultures throughout the world that they have a name to go by.
In the United States, such circles operate on a small scale in immigrant communities. As in other countries, these loans are informal agreements and not officially tracked. Consequently, the participants have no credit history, which could otherwise help them get larger loans or simply rent an apartment.
That's where Mission Asset Fund comes in.
Since the fall of 2008, the San Francisco nonprofit has been running a program called Cesta Populares—or "popular basket"—in which it works with groups of immigrants to form lending circles or formalize existing ones. Its goal is twofold: to help low-income Hispanics get on their feet and establish credit so that someday they can qualify for loans on their own. Mission requires all members of a lending circle to open bank accounts. It also reports the loans and members' payment histories to credit bureaus.
"We have taken this traditional lending model and formalized it," says the nonprofit's executive director and founder Jose Quinonez.
Working mainly with Latino immigrants in San Francisco's Mission District, the nonprofit has facilitated more than 150 interest-free loans, averaging $1,300. To date, no loans have defaulted.
The success of the program is starting to attract some attention. Quinonez says he's been fielding calls from nonprofits in other parts of the country looking to develop programs similar to Cesta Populares, and Mission now counts several of the nation's largest banks among its investors.
Jennifer Tescher, the director at the Center for Financial Services Innovation in Chicago, says it makes sense for banks to support programs like Cesta Populares because, ultimately, they will benefit. Mission "is creating a pipeline for banks and creating the next generation of banking customers," she says.
Participants are not required to have a credit history or a bank account before joining a peer-lending pool arranged by Mission. After a brief orientation, all the members in the pools are required to set up bank accounts and sign a promissory note. They also must contribute a certain amount each month via an automated clearinghouse transaction, which Mission then redistributes to the same borrower via another ACH transaction.
A key partner in the program is Oakland's OneCalifornia Bank, which collects loan payments on Mission's behalf. The bank just about breaks even on the service, and that's fine with Harry Haigood, its chief executive officer.
"We're doing it because it's a good way to help the community and provide some ability to get them on the credit grid," Haigood says. "And as time goes on, hopefully they'll become customers."
According to the nonprofit's website, five banks support its work. One is Citigroup, which provides grants and resources to help Mission develop new programs.
"It's a really interesting product, and we are impressed with the work they are doing," says Gina Doynow, Citi's national director of North America community relations.
What sets Mission's peer-lending program apart from others—and makes it particularly attractive to low-income immigrants—is that there are few restrictions and loans are interest free.
"If you need a short-term loan, your options are payday lenders and credit cards, and you are going to pay through the nose for both," says Janis Bowdler, the deputy director of the Wealth-Building Policy Project for the National Council of La Raza. "So this is a viable alternative."
Quinonez says he hopes the idea spreads to other cities. He also has talked with large banks about developing a mechanism for streamlining the process of reporting loan activity to credit bureaus.
Bowdler says if some kinks are worked out she could see similar programs popping up around the country over the next few years. "I think it's definitely scalable and can go to other cities," she says. "And I am excited to see the direction it takes."
