citi logo
My Account
PERSPECTIVES

Microfinance: Bringing the unbanked into the financial mainstream.

May 23, 2011
Jose Quinonez, Executive Director, Mission Asset Fund

This week's fully subscribed Microfinance USA Conference in New York is just one of many signs that microfinance has an important role to play in reaching the millions of people in the United States who are outside financial mainstream. Because of poor credit or lack of credit, many people -- like the low-income and immigrant residents served by Mission Asset Fund -- lack access to quality financial services. These "unbanked" individuals and families have limited savings and investment opportunities and often have difficulty finding the capital and support needed to start and grow businesses.

Faced with these types of financial hurdles, immigrants frequently seek and develop their own solutions, often utilizing informal peer lending models from their countries of origin. Peer lending circles have many names around the world: from the Susus throughout Africa, Paluwagan in the Philippines, Lun-hui in China to Tandas in Mexico. Regardless of the name, each is built on the principle that participants agree to make regular contributions to a common fund, which is then distributed in whole or in part to each contributor in rotation. Once a member has received the fund, the cycle continues until all members receive a distribution.

Mission Asset Fund, in partnership with Citi, has formalized this model in a unique and successful program called Lending Circles. Participants hold Citibank accounts, and by recording payment activity and then reporting it to credit agencies, the Lending Circles program builds and improves the credit of participants. This program is paired with financial management education to help build understanding of financial principles and encourage responsible use of credit. Lending Circles also embeds both a savings and lending component while providing the capital needed to ensure economic empowerment.

In just three years, over 300 San Francisco Mission District residents who previously had little or no access to credit have been able to build or improve their credit scores by an average of 49 points; lower debt by $1,200; and obtain mainstream credit to pay off high-cost debts, purchase cars, homes or invest in small businesses.

With a zero default rate, MAF has processed 324 loans to 295 participants, totaling $551,000 in loan volume with an average loan amount of $1,700. We are pleased that Citi Community Development is sponsoring forums like the Microfinance USA Conference, where community-driven, locally relevant innovations like Lending Circles are profiled. This dialogue and idea exchange promises to expand opportunities for successful microfinance initiatives like ours to scale and flourish across the country.

Sign up to receive the latest news from Citi.

Select Preferences