Mission District lending circle helps low-income earners pursue dreams

Since the banking crisis of 2008, major lenders have become much more cautious about giving out loans. That’s left many people who have low or no credit in a deep financial hole. So one local group decided to re-invent an old concept—the lending circle: Members of a community deposit money into a common pool; then they take turns using that money to start businesses, pay off bills, and send their children to college. Reporter Alexa Vaughn went to see how it works.

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ALEXA VAUGHN: Alicia Villanueva is washing dishes in a narrow kitchen, while just a few feet away her eldest son Pedro is playing a guitar on his bed.

The small Berkeley apartment is a tight fit for Alicia’s family of five, but that doesn’t distract them from making big plans outside of it. Ten years after emigrating from Puerto Vallarta, Mexico, 18-year-old Pedro is finishing up his first year at SF State and Alicia is launching her own tamale business.

ALICIA VILLANUEVA: You know everybody comes to this blessed beautiful country to follow their dreams, our dreams, no? And get a better life for your kids.

About this time last year though, it looked like the family might not even get to keep the apartment. Alicia and her husband ran a delivery business which was hit hard by the recession.

ALICIA VILLANUEVA: We were doing really good. But then October, it start our nightmare.

Then business dried up. They became saddled with debt at home, so Alicia decided it was time to start thinking of other ways to get cash to flow. She heard through friends that she could take out an interest-free loan called a cesta from The Mission Asset Fund in San Francisco.

Cesta means basket in Spanish. To set one up, a group of people come together and agree to each deposit a set amount of money into an account each month – one hundred dollars, for example. Then every month, a member takes a turn receiving the entire pool of money as a loan. Essentially, they take the collective basket. The loan can be spent on anything – paying down debt, making rent, or helping a child with college. 

Back in Mexico, where Alicia’s from, informal cestas are common – and so are are cases of one member stealing the entire group’s money. So her son Pedro was naturally skeptical of the loan program.

PEDRO VILLANUEVA: Honestly, at first, I thought it was some sort of rip-off. Some sort of scam.

But he was won over when he saw the results. Fewer bill collectors called the house. His parents were pitching in more on college expenses. And his mother finally had the confidence to pursue her dream business. Alicia’s credit score was still low, but it was gradually improving. And when she took out a third loan last month to help start her business, Pedro got a cesta too.

Since 2009, the Mission Asset Fund has formed 32 peer lending circles. They say nearly 300 loans have come from those, collectively saving borrowers about $200,000. And not one person has defaulted.

JOSE QUINONEZ: That’s, you know, unheard of in the industry. The industry standard for default rates is about 10% to 12%.

Jose Quinonez is the CEO of the Mission Asset Fund. His office is in San Francisco’s Mission District where almost half of residents have no bank accounts or credit histories. Distrust of American creditors runs high in neighborhoods full of pay-day lenders. To counter that, the Mission tries to make setting up a loan feel more personal, like a dinner party with good friends.

Pablo, who used a cesta to buy a laptop for college last year, thinks that’s the program’s main selling point.

PEDRO VILLANUEVA: Because in the bank you are treated like one more customer, like a number. And here, it's more like…

ALICIA VILLANUEVA: …like family.

Now the Mission Asset Fund will test the cesta model in five other San Francisco neighborhoods to see if it could work across the nation – something CEO Jose Quinonez has been wanting to do for a while.

QUINONEZ: So yeah, I was extremely happy. And then that happiness turned into fear. Just sort of like, oh my God, we’re really going to make this happen. But I think we’re ready. Definitely. And this is very exciting.

One major thing they’ll be studying as they replicate the program is how close the personal bond with, and between, clients needs to be to make the loan process reliable. That, in the end, is what convinced Pedro to get a cesta himself.   

PEDRO VILLANUEVA: I can see when a person has good intentions or not. Just by looking at them I can tell they actually want to help people. And that’s what they’re doing with my mom. I believe they’ll do that with me.

If the Mission Asset Fund is successful expanding the cesta concept beyond San Francisco it may do for low-income earners in America what Kiva has done for low-income earners around the world.

In San Francisco, I’m Alexa Vaughn for Crosscurrents.

Alexa Vaugn is a reporter at the UC Berkeley Graduate School of Journalism.

Would you feel comfortable about taking part in a lending circle, or any sort of financial program that doesn’t involve banks? Let us know on our Facebook page.