When Alicia Villanueva started selling her tamales, she went door to door to hawk the homemade bundles of savory masa and corn husks from her native Sinaloa. But at about 100 tamales a week, she could only make a little extra cash to help make ends meet, and didn’t have the funds to set up a real shop. She found a small angel investor by turning back toward her community—a group who pools their money into a shared fund.
Through this lending circle, Villanueva borrowed $1,000 to invest in a small food cart. She eventually cultivated a staff of several other women, churning out 3,000 tamales a week, and was able to lay the foundation for her own restaurant. Villanueva recently reflected on her venture in an interview for a San Francisco oral history project: “All my community here in San Francisco, they really support my business, you know, buying my tamales and, at the same time, I’m supporting my ladies [who] have their own families . … Sometimes it’s kind of stressful, but at the end it’s really a big satisfaction.”
That loan, provided by a local nonprofit called the The Mission Asset Fund, was the other key way Villanueva’s community was able to support her. The modern version of the lending circle has been a small but significant vehicle for new investment in San Francisco’s Mission District, merging Silicon Valley’s start-up culture with migrant ingenuity.
Home to generations of working-class Latino families, the Mission has a history of incubating frustrated dreams as residents struggle with economic insecurity, unstable immigration status, and financial debt.
The Mission Asset Fund is part of a new breed of nonprofit lending institutions that tries to capitalize on those hopes by turning the community into its own financier. They run modernized lending circles, sometimes called tandas, that brings students, entrepreneurs, and working-class families into a synergetic network of grassroots finance in which neighbors invest in each other: Now previously undocumented students are getting through the paperwork they need to get legal status and start college. A family has moved into a new home after building up a security deposit. Others have upgraded their street stands to shops, or just received a little help paying down old debts.
Putting immigrant capital to use is the flip-side of the primary driver of migration. The fastest growing groups of immigrants worldwide are “economic migrants,” driven to other shores to seek a better livelihood. In turn, immigrants drive the domestic and international economy through their labor and consumption in the U.S. as well as the through the vast network of remittance payments to family back home. Meanwhile, studies show that their economic presence often revitalizes depressed neighborhoods and pumps fresh commercial energy into local economies.
But oddly, the U.S. banking system, supposedly society’s instrument for fostering economic ownership and security, tends to systematically foreclose those aspirations in their standard financial programs.
Despite their critical contributions to the transnational economy and global capital flows, recent immigrants make up a large portion of the estimated 106 million people with little or no access to regular banking services. Typically the “unbanked” or “underbanked” are excluded from the financial system by overlapping economic hardships. They may simply be too poor to save, or they live in underbanked communities where mainstream financial outlets are scarce and payday lenders are abundant. Immigrants especially may be apprehensive about, or unable to, open an account if they are undocumented or face language barriers. Those working for cash in precarious, low-paying jobs may be hesitant to do much long-term financial planning.
Such obstacles can create a cycle of financial exclusion in low-income neighborhoods. Households that are not keyed into the banking and credit systems end up with low credit scores, further impeding their access to resources like mortgages or small business loans. So despite their vital economic contributions, immigrants and poor people of color nationwide are often tracked into predatory loans, which may carry interest rates that range as high as 400 to 500 percent.
But while Wall Street fails to catch up with Main Street’s newest arrivals, immigrant communities are building their own assets with initiatives like The Mission Asset Fund, which build on the lending circle with the security of a credit union and the pragmatic zeal of microfinance.
“Social lending,” the vehicle of peer-to-peer finance typically starts with a lump-sum loan from one member, and others then coordinate to take out individual loans in sequence over time, replenishing the pool regularly. Each member holds themselves and each other accountable for keeping the fund solvent as it is “recycled” through multiple users, and the pool is constantly replenished by successive borrowers.
Since 2007, MAF has marshaled funding from government, foundations, and corporate charities, and rolled it into a non-profit financial infrastructure anchored around the upgraded tanda concept. Their “open source” credit model establishes MAF as the official loan guarantor, while still retaining the tanda’s organic, personalized structure. With backing from MAF, the loan gives borrowers official leverage so that, through reporting to credit-scoring agencies, their lending activity enables them to start a line of credit. They also get access to a checking account, a basic financial tool that links them into mainstream electronic banking that they might never have accessed otherwise.
Over the years, the loans—typically in the range of about $1200, and for some reason, mostly managed by women—have distributed about $3 million in “social loans” for local entrepreneurs and households, with zero interest and zero fees. The MAF model has also inspired other community groups around the country who have developed similar grassroots financial organizations.
Christina Ruiz’s tanda sprung her from her gig working as a bartender to a self-styled business venture—a local mobile clothing boutique that has since grown from a truck to a full shop in San Francisco. “Once I got the first loan, the second one and the third rolled in really easily,” she said in an documentary about her project. “It was a huge boost in confidence for me, like ‘Oh, I can do this,’ it’s not as scary once you get the first one. … It’s a bunch of people getting together to improve their credit and help each other.”
MAF founder José Quinonez, who came to the U.S. from Mexico as a young boy and supported himself doing odd jobs at the local flea market, has a personal grasp of how immigrant workers struggle to scrape by. But MAF sees ingenuity where mainstream lending institutions tend to see only impoverishment.
Large commercial banks often “have this notion that if they make a loan for $1 million and service that, they can make more money than making 100,000 loans of $1000,” he says. “So instead they focus on servicing the needs of the well-to-do, and by and large have ignored the needs of low-income individuals.” In neighborhoods like San Francisco’s Mission District, where more than 40 percent of households lacked a credit score when the group was first founded in 2007, he notes, “there’s really no loan products for people looking for a $500 loan outside of a payday loan.”
The idea of immigrant banking is hardly radical; the ultimate goal is to help borrowers gain stability so they can access mainstream financial instruments, like home mortgage financing. Yet there’s an element of restorative justice in immigrant-geared financial programs. Grassroots finance is more of a hack for the banking system: In forming an independent network of mutual financial support, immigrant-financiers reclaim a piece of a system that has for generations exploited the wealth created by their labor.
And the borrowers get the added bonus of shattering stereotypes that dog poor urban communities. By and large, the borrowers served by alternative programs like MAF are actually perfectly creditworthy, but just socially undervalued. According to the MAF’s data, participants have an over-99 percent repayment rate and have collectively saved $1 million in fees and interest. Over time, they have reduced their volume of high-cost debt by $2.5 million. Much of that money is diverted from predatory lenders and reinvested within the community.
More importantly, borrowers are entrusted to apply their own financial acumen. MAF works with borrowers to develop financial plans, but the participants independently decide whether to spend it on, say, launching a start-up or just paying down debt. And there’s a multiplier effect across the community: members of the self-contained lending circle, who might be accustomed to being either ignored or preyed upon by conventional financial institutions, are now stewards of their own economic trust.
The small scale of MAF’s operations allows it to cater to the community’s acute financial needs. Last year, for example, MAF launched a lending circle to finance the Deferred Action program for undocumented youth. As borrowers work through a loan to pay the program’s $465 fee, they gain not only temporary legal status, but also a circle of supportive colleagues all navigating the same byzantine federal bureaucracy.
Since its inception, MAF helped form a network of 25 community-based nonprofits in six states that operate similar social lending programs, based on the model of asset-building in low-income and marginalized communities. Meanwhile, the economic collapse during the recession has also opened space for other alternative financial systems geared toward immigrants. Bay Area Filipino activists, for example, have founded TIGRA, a development organization that vets financial companies and runs a cooperative consumers’ union for migrants. By connecting immigrants to an accredited network of migrant-centered, fairly priced remittance services, rather than big companies like Western Union, the group helps the community recapture some of the wealth that often gets skimmed by predatory institutions.
Conservatives often cite immigrant-run small businesses to hail entrepreneurship as an embodiment of “American Dream,” framing the immigrant success-story trope as a validation free-market capitalism. But while MAF operates within a capitalist superstructure, as a horizontally structured lending institution, it attests to the power of the collective.
As a community advocacy group, MAF has campaigned for more access to financial services for local immigrant neighborhoods. But at the same time, Quinonez notes, MAF’s everyday operations actively demonstrate that their people are eminently bankable. While pushing for financial justice in mainstream banking, he says, “We don’t want to wait for the industry correct itself because that might take years and decades. What we can do right now to help individuals, communities, and families is actually build economic capability with what they have using their own practices.”