Income & Employment Winner / 2013
Building on LAs Social Capital
In Los Angeles, tens of thousands of low-income residents live on the margins of California’s economy. They have no bank accounts, credit scores or any hope of getting conventional loans to buy cars, start businesses, or apply for citizenship. Even renting an apartment may be out of reach.
By working with two Los Angeles-based organizations, we propose propose to bring Lending Circles for Citizenship and the Security Deposit Loan Program for the first time to Southern California.
Mission Asset Fund (MAF), a nonprofit organization, provides a way out of the financial shadows by capitalizing on the hidden strengths of people living on the financial fringes: networks of friendships and commitments to helping one another. In a time-honored practice of cultures throughout the world, low-income people come together to provide each other with support simply by lending and borrowing money from each other. Through its Lending Circles Program, MAF formalizes these social loans and provides financial education to participants. It reports loan repayments to credit bureaus, building credit files that improve participants’ financial standing. Many members establish credit scores for the first time, while others rebuild damaged scores. Each year, 12 million Americans who turn to payday lenders for small, short-term loans each year end up paying $7.5 billion in fees and charges (The Pew Center). With a good credit score, participants are able to rent homes and apartments, access low-cost loans and avoid predatory lenders.
In just five years, MAF’s social lending models have helped 1,700 people in six U.S. states, with annual loan capital skyrocketing from $15,000 to $660,230. Under this proposal, MAF will bring two new programs to Los Angeles to help low-income residents open the doors to citizenship and stable housing.
WHY CITIZENSHIP? Citizenship is an asset that provides individuals the ability to earn more money, lower rates of poverty, and increase financial stability. Yet, in California alone, hundreds of thousands of people eligible for U.S. citizenship are deterred by the $680 fee required to submit the N-400 naturalization application. In 2011, MAF piloted the Lending Circles for Citizenship program with three Bay Area organizations. The program has already yielded successful results, with 39 citizenship checks submitted to the U.S. Department of Homeland Security and 14 citizenship applications approved.
WHY HOUSING? Securing a first apartment and coming up with a rent deposit often keeps homeless and foster youth hopping from couch to couch or sleeping on the streets. In response, MAF launched the Security Deposit Loan (SDL) program in 2012 to help ease their transition into the mainstream financial system. This innovative approach helps young people overcome their challenges by providing the means to pay for a security deposit on their first apartment through a credit-building loan.
TWO PROGRAMS, ONE CITY: MAF will expand these two models (Lending Circles for Citizenship and Security Deposit Loans) to Los Angeles, helping struggling people attain assets like citizenship and the ability to secure stable housing. Expansion will occur over one year by partnering with two community partners that serve economically excluded populations. MAF will help 50 people gain citizenship status through social loans, while another 50 people will use rent deposit loans to secure stable housing for their families. Participants will increase their credit scores and overall financial health because transactions will be reported to main credit bureaus.
Lending Circles for Citizenship will bring groups of people eligible for U.S. citizenship together to lend and borrow money to finance $510 to pay for their citizenship application fees. After they successfully work with legal services agencies to complete citizenship classes, each participant will receive a 25% match incentive ($170). All loans are secure, provided at 0% interest with $0 fees.
The Security Deposit Loan project will transform security deposits into a responsible financial product and a savings and credit-building opportunity for disadvantaged young people who struggle to obtain stable housing. In partnership with agencies providing transitional housing, young people will sign promissory notes and program agreements for security deposit vouchers accepted by these landlords. MAF will collect monthly payments from participants, and reports payment activity to credit bureaus. By the end of their graduation from transitional housing, participants will have saved enough for a security deposit on their next apartment, and they will have spent two years establishing positive credit histories and credit scores – assets they will need to get a new apartment.
What are some of your organization’s most important achievements to date?
MAF’s Lending Circles program has received widespread national attention for its success in helping low income families gain access to capital, build financial capability, and increase access to low-cost loans for education, homes, and small business startup. To date, over 1,700 participants have made $1.7 million in social loans, resulting in a 99% repayment rate and under 1% in defaults. Because these loans have zero interest and zero fees, participants have saved an estimated $350,000. Average credit scores were raised by 49 points, often the difference between subprime and prime credit.
MAF was honored to receive the 2012 Bank of America Neighborhood Builders Award, 2012 Latino Leaders Maestro Award, 2012 Ashoka Fellowship, and 2013 James Irvine Foundation Leadership Award. Last year, our Executive Director Jose Quinonez was also appointed Chair of the Consumer Advisory Board for the Consumer Financial Protection Bureau.
Please identify any partners or collaborators who will work with you on this project.
Pilipino Worker’s Center was formed in LA in 1997 to meet the immediate needs of low- to moderate-income workers & advocate for long-term change. They have partnered with MAF since 2011. Grant funding will expand our partnership to include Lending Circles for Citizenship.
Since 1985, New Economics for Women has reduced poverty by creating & building wealth opportunities for families & neighborhoods. MAF proposes to pursue a new partnership with NEW to help 50 formerly homeless single mothers (ages 16 to 24) in a transitional housing program enroll in the SDL program. Another partner, Citibank, has the largest financial services network in the world, with 16,000 offices in 140 countries around the globe and provides access.
Please explain how you will evaluate your project. How will you measure success?
Over a one-year period, MAF will support two LA-based community organizations to successfully implement the Lending Circles for Citizenship and Security Deposit Loan models. Through the project, a total of 100 participants will be served, including 50 who will enroll in Lending Circles for Citizenship and 50 who will enroll in the Security Deposit Loan program. Process objectives will include:
• Supplying technical assistance, training, program development, and a packaged curriculum (including how-to-kits, model program agreements, promissory notes, selection criteria, etc.) to the two selected organizations.
• Engaging a total of 100 people in the Los Angeles area over the one-year grant cycle.
As a result of these activities, the project will achieve the following indicators:
• 100 participants will be enrolled.
• Lending Circles for Citizenship participants will achieve $51,000 in social loan volume (savings for citizenship).
• SDL participants will achieve an estimated in loan volume of $37,500 (based on an average security deposit of $750).
• Citizenship participants will receive a 25% match totaling $8,500.
• 100% of participants will be banked and on the road to financial mainstream.
• Participants will establish a credit score, or will build thin credit files into thick ones.
To evaluate the impact of these efforts, MAF will collect data related to: 1) the number of participants enrolled in Lending Circles for Citizenship and the SDL; 2) the percentage of individuals with bank accounts; 3) repayment rates; 4) savings accumulated toward citizenship and apartment security deposits; and 5) the number of successful citizenship applicants and apartment leases secured. Depending on the needs and interest of partner organizations, data may be also be gathered and analyzed to assess increases in individual credit scores, improvements in participant financial capability, and changes in participants’ ability to access and utilize credit as a tool to further their goals. All information will be tracked using our proprietary Salesforce.com platform.
How will your project benefit Los Angeles?
The driving force for creating the Lending Circles for Citizenship model is to simultaneously provide immigrants with tools for financial integration while enhancing the capacity of immigrant services organizations to support this process. Based on the success of the pilot, MAF is confident that the model has the potential for expansion among additional community-based partners in Los Angeles. Upon the passage of Comprehensive Immigration Reform (CIR), social lending can serve as a model for helping undocumented immigrants collectively pool their money to pay for any penalty needed to adjust their status.
With respect to its impact in Los Angeles, the Lending Circles for Citizenship model will increase civic participation among the region’s legal permanent resident population. Going beyond theoretical classroom knowledge, immigrants will have the opportunity to achieve real-life, tangible, and measurable outcomes, such as opening bank accounts at mainstream financial institutions, saving and applying for citizenship, and increasing credit scores. Moreover, the program will increase the capacity of Los Angeles nonprofit organizations to provide a responsible, trustworthy, and socially conscious financial product that improves financial outcomes for their clients.
Similar to Lending Circles for Citizenship, the benefits of the Security Deposit Loan program also have a tremendous impact on the ability of participants to achieve their goals. Through receiving an affordable loan repayable over two years, renting an apartment becomes accessible to participants. In addition to decreasing housing instability and homelessness, the program’s financial and social benefits on the Los Angeles population include:
1. Renting a first apartment will become accessible to people who currently lack savings. 2. The loan will be paid back over two years, making monthly payments affordable. 3. The process will provide a safe lending experience that models and encourages responsible financial behavior and success. 4. The loan will improve credit scores and develop a pot of savings for future rent deposits.
What would success look like in the year 2050 regarding your indicator?
By the year 2050, MAF envisions a world in which all people have access to fair and responsible low-cost credit and high quality financial products and services. In this future world, predatory lenders and fringe financial establishments have been decimated or no longer exist because improved options widely exist for lower-income and economically disadvantaged populations. Success also means that people will learn to save and keep money in their pocket as a strategy for preventing financial calamity when unexpected emergencies and life occurrences occur. A large part of this vision means that MAF must ensure people have the opportunity to qualify for prime rates and quality financial products, resources that will help them build assets and invest in their futures through things like citizenship, homeownership, and their children’s education.