Lending Circles
Description
Jassmin Poyaoan:
"A lending circle generally refers to a group of people who pool money on a regular basis, and either provide rotating loans to circle members or democratically select a member to receive a zero-fee, zero-interest loan. Most lending circles can be categorized under one of the following models: 1) lending, 2) emergency, and 3) hybrid.
A lending circle focused purely on lending requires members to pool money on a regular basis, select the value of the loan, and rotate the loan on an agreed-upon schedule until each member benefits. For example, five individuals meet once a month for a total span of five months. Every month, each member contributes $300 to create a total fund of $1,500. The group democratically decides on whose turn it is to collect the $1,500 as a loan, so that each member receives the loan once. After receiving the loan, each member is still expected to contribute $300 every month to both pay off the loan received and fund the same loan to other members. At the end of the five-month period, each member will both have received and contributed $1,500 to the circle.
For communities that have difficulty building savings, a lending circle of this model can provide immediate access to funds in times of need. Lending circles also ensure that our dollars are used to instantly benefit members of our community, rather than going to a large bank that likely invests the funds in Wall Street. Lending circles offer a way for small groups to be their own banks, in essence.
In contrast to a lending circle that strictly rotates loans, a lending circle focused on providing emergency funds to its members operates more like an insurance provider. Members still pool money on a regular basis and select the value of the loan. However, instead of rotating the loan among members, the money collected is saved and issued to a member only after circle members democratically choose to do so. When deciding who should benefit from the loan, members typically consider who is most in need of financial assistance — often a member affected by illness or unemployment.
Some lending circles incorporate both models above. In this case, a lending circle issues loans to its members on a fixed schedule, but has the discretion to bypass or alter the schedule if members democratically choose to issue the loan to a specific member in need.
All of these lending circle models are an age-old practice used by various societies around the world. They are referred to as tandas or cestas in Latin America, susus in Africa, lun-hui in China, and paluwagan in the Philippines. Immigrant communities have often turned to informal lending circles as a social activity and alternative to unfamiliar and inaccessible financial institutions. As described below, today some groups have made efforts to formalize lending circles, in order to protect members." (http://www.shareable.net/blog/how-lending-circles-create-community-resilience?)
Example
Mission Asset Fund
Jassmin Poyaoan:
"Mission Asset Fund (MAF) is a non-profit organization that facilitates and formalizes lending circles in immigrant and low-income communities. MAF observed the prevalence of check cashing facilities and payday loan providers in San Francisco’s Mission neighborhood and sought to serve as an alternative.
MAF has created a system to ensure that payments and loans are made to lending circles on time and that members can build their credit by reporting timely payments to two of the major credit bureau agencies. Loans are zero-fee, zero-interest and relatively small — a typical loan is $1,000 on a 10-month period. At the beginning of the loan period, lending circle members determine the loan schedule by pulling numbers out of a hat. Each member signs a promissory note and sets up automatic withdrawals from their bank account to MAF’s account so MAF can then distribute the loans according to schedule. Loans are used for things ranging from educational expenses to security deposits. MAF also facilitates lending circles for legal fees associated with Deferred Action and citizenship applications.
MAF has made a substantial impact in immigrant and low-income communities despite only being around five years. Its lending circles boast a 99 percent repayment rate and a 1 percent default rate. Lending circle members have experienced a 168-point average increase in their credit score and an average of $1,051 reduction in debt. By participating in lending circles with the help of MAF, low-income individuals are building credit, escaping expensive debt, starting businesses, buying homes, and saving for college." (http://www.shareable.net/blog/how-lending-circles-create-community-resilience)