‘Peer-to-peer’ lending cuts out the Wall Street middlemen
from Grist:
28 Feb 2013 1:44 PM
‘Peer-to-peer’ lending cuts out the Wall Street middlemen
By Isa Hopkins
Christina Ruiz and Helen Ochoa don’t seem to have much in common. Ruiz is a stylish, photogenic fashion school grad who owns and operates TopShelf Boutique, San Francisco’s first fashion truck. Ochoa is a single mother of three, an immigrant from Guatemala who lacked a credit score and struggled for years to find a decent apartment for herself and her children. But their differences are not so vast as they seem. Before she opened TopShelf, Ruiz, too, was financially flailing, suffering from a bad credit score that prevented her from financing her mobile shop. Without access to traditional loans or credit, both women turned to the same place to realize their dreams: San Francisco’s Mission Asset Fund.
The Mission Asset Fund is like a financial version of a potluck dinner: Everyone contributes something of their own, but each individual also benefits from what everyone else brings to the table. Its most popular financial product, “lending circles,” formalize the peer-to-peer lending practices common in low-income and immigrant communities. Members of a lending circle contribute small monthly amounts to a common pot, which is then loaned to a member in need. The borrower makes payments on the loan just like he or she would a bank loan, only there’s no interest or fees.
Borrowers are held accountable by the community — lending circles often include friends and even family members, so the power of peer pressure ensures timely payments. Mission Asset Fund reports the payments to credit bureaus, allowing borrowers to build credit histories and win access to traditional loans. According to the fund, the credit scores of lending circle participants have increased by an average of 49 points through the program.
And if someone doesn’t pay it back? Well, it doesn’t happen. When a borrower is struggling with payments, Mission Asset Fund sets him or her up with intensive one-on-one financial counseling and resets their payment schedule. So far, the approach has worked every time: Spokesperson Tara Robinson says the lending circles’ repayment rate stands at 100 percent. ...........................(more)
The complete piece is at: http://grist.org/living/peer-to-peer-lending-cuts-out-the-wall-street-middlemen/