A mission in the Mission
January 16, 2009 | California, alternatives, industry | Comments (1)The Mission district in San Fran is a poor area with many immigrants. One nonprofit is helping to get immigrants banked and credit worthy by following a Mexican tradition:
The program is based on a model common in Mexico among savvy but poor Mexicans. To increase their own buying leverage, friends contribute to a communal pot of money. Each month, members deposit a fixed amount and take turns withdrawing the full balance to pay off individual debt or manage household finances. Conducted outside the formal banking system, communal pots function as informal savings or lending programs. Some 30 percent of the Mexican population participates in such cestas, according to Quiñonez.
Along with Bank One California, the Mission Asset Fund has formalized an informal system, allowing Mission immigrants to improve their credit scores stateside. The fund acts as steward of the communal pot, subsidizing bank administration fees and guaranteeing member deposits.
As the story further explains, the goal is to build a credit history for these consumers so that they can borrow to start business or things they need.
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Hopefully the government bureaucrats and the consumer protectionists won’t find out this “communal pot lending” model exists! If they do, this service will “blow up” due to disclaimers, disclosures, licensing, bonding, auditing… being forced down their throats.
Actually, Muhammad Yunus won a Nobel Peace prize in 2006 for similar work he performed with Grameen Bank in India.
He setup small networks of extremely poor Indian women. His bank lends money to the GROUP; each member is responsible for ALL the members.
Results were fantastic! Stories of one poor Indian woman beginning with a $7 loan for a few chickens eventually employing 350 workers on her chicken ranch!
Another would gather crushed juice containers to make purses. The GROUP lent her $14 and she built it into a 100 plus employee business!!
Interestingly, when Yunus attempted these “micro-loans” with the men they failed to pay back the loans and the GROUPS disbanded
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This is now referred to as “MicroFinance.” Hmmm… small, uncollateralized Loans… what does that sound like?
Grameen Bank is planning to experiment with these micro-loans in New York as well.
We in the payday loan industry are all for this! Let the market determine what products at what fees will be offered. Let’s see what survives in the marketplace.