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My lender, my friend: Lending circles with a Latino twist

To build credit in pursuit of their dreams, Latinos in California are reviving an old community lending tradition, the "cesta," with a hand from local banks.

By Paul van SlambrouckCorrespondent / January 13, 2010

Olga Hernandez, member of the Fortuna cesta, sets up her tent at a local market in San Francisco where she sells her hand-stitched clothing in the traditional style of Oaxaca, Mexico, on the weekends.

Tony Avelar/The Christian Science Monitor

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San Francisco

Their names are in Spanish, but easy to translate. La Millonaria. La Fortuna. And tonight, with arms raised in triumph and a collective whoop, Los Campeones are born.

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Eight members strong, the Champions have come together in an upstairs office in this city’s predominantly Latino Mission District. Nearly all have spent the day laboring in low-paying jobs, and nearly all have dreams of brighter economic futures.

So here, over pupusas and sodas, they are meeting to take part in a pioneering program – apparently the first of its kind in the United States – that lets them pool their modest resources, disburse them among themselves at agreed intervals, and build individual credit in the process.

The program was established a little over a year ago by the nonprofit Mission Asset Fund (MAF). The groups usually consist of six to 12 individuals and are called “cestas,” the Spanish word for baskets. A longtime communal alternative to traditional banking, these arrangements had one major drawback: The activity never registered among the major credit agencies, meaning participants remained stuck in a world of either no credit or exorbitantly high-priced credit. MAF’s innovation is to link this peer-to-peer networking to the credit markets.

“It’s a breakthrough,” enthuses economist Barbara Robles of Arizona State University in Phoenix. And it’s a model that, according to Ms. Robles, “other nonprofits can replicate.”

On this night, as one cesta of eight individuals and another of six are formed, the democratic nature of the process is evident. “It’s all up to you,” MAF’s Daniela Salas, who runs the cesta program, repeatedly tells the group. “How much you want to contribute, the order of who is going to take it out, you guys have to decide,” she says.

The empathy quotient is high. Johanna Suarez, for instance, is stretched thin making interest-only payments on three credit cards each month. She asks the cesta members if she can receive the total group contribution of $400 for each of the first three months. With that $1,200, she says, she can pay off her three credit cards and then proceed with her $50 per month contribution to the cesta.

She knows she can manage the $50 per month because that is not much more than what she is already paying just to service the interest on her cards. But now, that same amount will be saved for more productive use, and she will be free of credit-card debt. The group agrees to put her first in line to receive the funds, and for three months.

In some immigrant communities, like San Francisco’s Mission District, it’s a long, uphill climb to gain access to loans with attractive interest rates, which are driven by credit scores. Here in the Mission, 44 percent of households had no credit history at all, according to a 2008 study by Social Compact, a Washington nonprofit research group. Also, more than half of Latino adults did not have bank accounts.

“This data is very discouraging,” says MAF executive director José Quiñonez. “But we decided, really our whole approach has been, to try and view the community from a positive perspective, to appreciate what they have, not what they lack, and to build on what they have.”

Founded on trust

Cestas (also commonly called “tandas” and “cundinas” in Mexico and Central America) are usually formed within families or small communities where there is a high level of trust. The pressure to obey the agreed rules, however informal, is more social than legal.

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