Formalizing the Tanda: Lending Circles 101 with MAF

Since its inception in 2007, Mission Asset Fund (MAF) has worked to identify innovative ways to provide financial assistance to low-income residents of San Francisco’s Mission District. Almost half of residents in the Mission have no credit score, which makes it nearly impossible to apply for a credit card, let alone a car loan or mortgage. Without these traditional lending opportunities, many residents are forced to turn to fringe services like payday lenders, which typically charge whopping interest rates of 391 to 521%.

In an attempt to avoid these high interest rates, tandas—a system where a group of people pool their money and take turns lending it to each other—are also popular in areas like the Mission. MAF formalized this process into a Lending Circle where the monthly transfer of a zero percent interest loan from participant to participant is reported to the credit bureaus. For many, MAF provides the first opportunity for residents of the Mission to come out of the financial shadows and build a credit history.

After MAF CEO Jose Quiñonez received a MacArthur Fellowship in September, we reached out to to organization to learn more about their mission and how Lending Circles work. We caught up with Client Success Manager Karla Henriquez and Communications Associate Adina Hemley-Bronstein to chat about what MAF has accomplished so far and what they look forward to in the future.

HipLatina: MAF seems to be part of a pretty niche type of nonprofit. How did you first become involved?

Karla Henriquez: I became involved with MAF through a study at San Francisco State—they were looking at the impact of MAF’s Lending Circles programs. I worked with the community and collected surveys to measure statistics on how effective their programs were. After that, I stayed in touch with MAF and also joined a Lending Circle myself to fund the cost of applying for citizenship. Once I saw an opportunity to work at MAF, I applied! And now it’s been almost two and a half years.

Adina Hemley-Bronstein: I joined MAF this past September. I had been working in the immigration legal advocacy world as a paralegal, interpreter, and administrator. I was interested in getting involved in the nonprofit and communications side of things, so that’s how I found my way here.

HL: How do most clients discover MAF? Are referrals common?

KH: So we actually get a lot of word of mouth referrals or referrals through other nonprofits. We get a lot of referrals from nonprofits here in the Mission District, as well as from legal providers that are working with DACA applicants and citizenship applicants. Clients also find out about us through the outreach that we do directly with different communities.

HL: What are the funds from the loans generally used for?

KH: They have different purposes. A lot of people use Lending Circles funds to pay down other debt—from credit cards to payday loans or any other kind of high cost debt. They want to take advantage of the Lending Circles program which provides a zero percent interest loan. We also see clients coming in for a second or third time to join a Lending Circle—they don’t need the money right away, so they just want to start saving. The third option would be for immigration aid—we have a few programs for citizenship or deferred action applications. Those Lending Circles are specifically for paying those application fees.

HL: Are there common hesitations you see in first time participants when joining a Lending Circle?

KH: We have two general cases—the first kind of hesitation is that they know about informal lending circles and haven’t had a good experience. There are times we see that people have been through bad experiences and have lost money if someone left their group. So they come with that hesitation and think it might happen here too. We always reassure these prospective clients that our organization is backing all of the loans and that whatever they sign for on their agreement is what they will receive through the Lending Circle.

Other people think that it’s too good to be true since the loans are zero interest. We have to explain that part as well. Then there’s the group who isn’t familiar with this practice—with them it’s more about explaining step-by-step how the program works, who funds it, and what MAF’s role is in the whole process.

HL: I was surprised to see that you maintain your default rate on loans so low at 0.7%. When you have clients coming in with these hesitations, how do you manage to keep the rate so low?

KH: Our clients are very committed to our programs, and to each other. We’re not a bank and they appreciate that we’re a community organization—it makes them even more committed. When a Lending Circle is formed, our clients meet and hear each other’s struggles and goals. We believe that having that connection to someone else in their own community makes it different. If they’re late on their payments, we help them to get back on track. They don’t just get an email. We follow up with them to get involved to see if there’s a way to help them make the payment

HL: You mentioned that some applicants are familiar with the informal lending circle practice in the form of a tanda—these groups tend to be community based with a strong sense of mutual trust among participants. Is this something that you try to incorporate into the Lending Circle formation sessions at MAF? Do participants generally know each other beforehand?

KH: It varies. Sometimes people don’t know each other but then they get to know each other and share their goals when a Lending Circle starts. Other times a family might say that they want to create a group together and ask for our help. Most of the time people don’t know each other before they join the Lending Circle, but they definitely come away with lots of new connections.

HL: Do any stories stick out from your Lending Circle clients? Is there any common feedback you receive?

KH: We have so many great stories that it’s hard to choose! I love sharing the stories of our business owners who have big goals and achieve tangible results like buying a food cart or hiring additional employees. But I also love to highlight those who come to us because they have been denied a credit card and lack credit history. So they participate in a Lending Circle and after that, doors start opening. With a credit score, they now have access to other low-cost credit like credit cards or car loans or mortgages that they need to start their financial lives here in the U.S. We get that a lot. It’s not as tangible as buying a car, but we’re realizing that a lot of the time we’re the only lender or first lender for a lot of our clients simply because they are invisible to the credit bureaus. We’re opening the door to so much more for each one of them.

Check back soon for the second part of our interview with Adina and Karla, where we chat about their community outreach programs, collaboration with other nonprofits, and goals for future projects.

–Bill O’Connor is an editorial assistant for HipLatina and Latin pop fanático. He can be found on snapchat @wro6278 singing along to his favorite canciones as he travels from Mexico City to Mumbai.