As the House GOP leaders decide whether to consider immigration reform legislation, MAF's model for using lending circles to finance immigration applications could soon be in the spotlight. Should Congress approve a pathway to citizenship for millions of undocumented immigrants, organizations nationwide will be looking to smooth the process for eligible applicants. MAF's model provides a simple solution: letting communities finance applications themselves.
When MAF's founders got together in 2007, they realized that many of the Mission District's Latinos were all but invisible to banks. "About 50 percent of our target market did not have a bank account or a savings account," says José Quiñonez, executive director of Mission Asset Fund. Forty-four percent of households in the Mission had no credit score at all, a 2008 study from nonprofit Social Compact found.
In the U.S.'s credit-based financial system, those who can't access low-cost loans find it very hard to get ahead. "Without a credit score or credit history, people can't buy cars, they can't buy houses, they can't get loans to start businesses--they can't even get an apartment or get a job in some instances," Quiñonez says.
Immigrant and low-income communities nationwide face similar problems. Nineteen percent of foreign-born noncitizen households have never had a bank account, according to the Federal Deposit Insurance Corp.'s annual survey. A federally insured checking account provides a safe place to store a paycheck and is a point of entry into the larger financial system. But many people may not understand how to open a bank account or may not know that they're eligible to open one. The same goes for using a credit card and building a good credit score.
Yet unbanked communities still save and lend money. In Mexico, friends and family team up to form informal, rotating credit associations called tandas. The group agrees to contribute equal sums of money to a shared fund each week or month, and each week or month one person gets to go home with the pooled total. Tandas give participants access to lump sums that would otherwise be beyond their means, and there are no fees or interest attached. Many communities in the U.S. with Mexican roots continue to use tandas.
Participants in lending circles prove they're able to follow through on an obligation to a creditor, but lending circle activity isn't directly comparable to a bank loan. In a lending circle, the first person to receive the lump sum acts like a borrower: He's given money that he repays in installments. But the last person acts like a saver: He puts away small sums of money and gets it all back at the end. Everyone in between acts like a lender and takes their turn at being the borrower.
Quiñonez and his team had a breakthrough insight--they realized they could legally define contributions to MAF's lending circles as payments against a future loan. MAF clients sign a promissory note to that effect, which enables the nonprofit to report monthly cesta contributions to credit bureaus TransUnion and Experian. MAF guarantees cesta contributions, ensuring that participants won't lose their money if a rogue circle member defaults. To make it possible to manage a large number of circles electronically, MAF also requires clients to open checking accounts: a crucial first step into the U.S. banking system.