Systemic racism and stereotypes about lower income individuals denies them access to mainstream financial institutions. Yet they need money to buy a home, start a business and live. A time-honored way to provide loans is with lending circles. A group of people, often with close cultural ties, work together to provide members with the money they need to achieve their goals. 

“I don't call it a lending circle,” says Thandi Blom. “It was more for me an accountability circle. You know, where people were trying to get to another place financially.”

Bo Thao Urabe is the executive director of the Coalition of Asian American Leaders. We spoke with her at length about her family and her Hmong cultural traditions. 

“I always understood that money was used to help us all be able to survive, and to be able to do things that we wanted to,” she says. “So they never really talked about that, but I saw how they would save. When we would farm in the summers that was our time where everybody could earn money to put into a family pot so that we could buy a car, buy a TV, the big purchases that we needed for the family.” 

One consequence of pooling money is you don’t develop a credit history that financial institutions can use to calculate your credit score. But pooling money also meant that Bo’s family could build assets without having to wait for financial institutions to see their value. 

“So nobody knew that they had made loans and made good paying on those loans over those years, right, because people just thought of them as such poor people that they couldn't possibly do that,” she says. “But because they shared their resources, they were able to start small businesses or things like that.”

Lending circles are often rooted in cultural and ethnic communities. In recent years, there has been a push to take this informal structure and turn it into formal community organizations. The processes set up by these organizations try to copy what makes the informal lending circles work, with one big difference. These programs are designed to build or rebuild a good credit history.

Paul McClom is a school secretary to public school in Minneapolis, Minnesota. She is a member of a lending circle created by Project for Pride in Living (PPL), a nonprofit that works to provide jobs, housing and long-term financial stability for its participants. Henry Rucker works at PPL and he brought Paula into the lending circle.

“The lending circle helped me restore credit to get, like I was saving money for a new TV. And the second time I participated in the program I was gonna pay an extra car payment,” she says. “So the lending circle has helped me learn how, has taught me that I can put money back and to save for something big that I want. So it's been really good.”

Something big included her home, because improving her credit score helped her quality for the mortgage. “Because I mean, like, I'm learning how to save money now,” she says. “Before as I was not saving as much. I do need more discipline in my life, but it is teaching me to save.” 

That said, technology based lending circles don’t always work. That was the experience of Va-Megn Thoj, executive director of the Asian Economic Development Association (AEDA) in St. Paul, Minnesota.  They tried the platform developed by Mission Asset Fund (based out of the Bay Area). The Asian community is familiar with the concept. But it didn’t take with the people they work with and they dropped the program.

“We moved away from our lending circles as part of our programming because it was too much dependent on technology,” says Va-Megn. “I think the people we work with are more used to, you know, borrowing or sharing, lending to family members or extended part of the family. More informal and more interpersonal, face to face. There's that familiarity. And so part of, I think the reason that it didn't work initially was that we were asking people to work with strangers that never met before, but also that they had to interface with this technology.”

Thandi Blom is a family childcare provider. She’s the person we quoted at the top calling it an “accountability circle.”  The lending circle program she worked with was created by the Family Independence Initiative or FII. She described how the lending circle worked for her. Initially, her circle was comprised of eight women. “And if one, one member of your team is saying, ‘You know what, I want to pay my car off.’ It's just like the other members of the team. they were all talking about wanting to pay our car off also. And then it's just like, okay, let's do this.” 

Her lending circle is now a community. They share stories with each other. They’re vulnerable with each other. They socialize together and they push each other forward. She recommends lending circles for people who want to gain control of their finances.

“Because, one, it gives you, it gives you an insight on how other people are doing things,” she says. “And so and I was pretty transparent. And most everyone in our group we were pretty transparent about areas that we screwed up in, you know, and we learn from them.” 

Many of the strengths found in lending circles are the same strengths we find in communities with low and unstable incomes--individuals supporting each other and being accountable to one another. This is what financial institutions and our wider society fail to understand. Community is the best investment a person can make.

One small change you can make today is starting your own accountability circle. It can be with family, friends or trusted co-workers. You may have different goals but by being accountable and encouraging all can reach their goals faster.

Additional Resources:

Mission Asset Fund: Since 2007 the organization has helped helped thousands of lower-income people “transform barriers into opportunities, enabling them to build brighter futures.”

Family Independence Initiative: FII is leading a community-led revolution to boost and sustain economic and social mobility for the millions of Americans living at or below the poverty line by trusting and investing in families.

“Building Credit for the Underbanked: Social Lending as a Tool for Credit Improvement.” Research report on Mission Asset Fund by Belinda Reyes, Elías López, Sarah Phillips and Kurt Schroeder.

The Alternative: Most of what you believe about poverty is wrong by Maurico L. Miller, founder of FII. 2017

Credit Where It’s Due: Rethinking Financial Citizenship by Frederick F. Wherry, Kristin S. Seefeldt, and Anthony S. Alvarez. 2019. Russell Sage Foundation. An important part of the book is evaluating lending circles.