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Need credit? Ask your community

Hands together on the sand

TEXT OF STORY

Bill Radke: Americans are learning to live with tight credit. Suddenly it's just not as easy to finance that new car or flat-screen TV. But in other parts of the world, stingy banks have been a way of life for years. In Mexico, people have developed a workaround. We hear about that from Marketplace's Dan Grech at the Americas Desk at WLRN.


Dan Grech: Mexico's answer to tight credit is called a tanda.

Stephen Haber: A tanda is a revolving, informal credit association.

That's economist Stephen Haber with the Hoover Institution at Stanford University.

Haber: Imagine a small entrepreneur who needs a $1,000 loan. He joins a tanda, which has 10 members. Everybody pays in $100 per week. Person who is the first in line gets $1,000 at that week, until everybody has received $1,000.

And no one pays interest. Tandas are used by working-class Mexicans to pay for things they otherwise couldn't afford.

Secretary Mirna Tames needed a few hundred dollars to fix up her bedroom closet. She knew she'd never manage to scrape the money together on her own. So she gathered nine coworkers and started a tanda.

Mirna Tames (voice of interpreter): A tanda is better than a bank loan, because you're obligated to set aside money each month. You made a promise to other people, and they made a promise to you.

People who've received their lump sum pay it back by continuing to contribute to the tanda. The risk is someone who's already collected could decide to stop paying. Unlike a bank loan, there are no debt collectors or credit scores with a tanda. But there is a cost to not paying up.

Othon Ruiz Montemayor is the former head of the Mexican bank Banorte:

Othon Ruiz Montemayor: If you don't pay a tanda, everybody -- either in the neighborhood or in the family or in the community where you do your small business -- will know. So you're out of the system.

In societies with close social ties, there's less risk of someone bilking the other investors. In any case, tandas raise relatively small amounts of money.

For centuries, credit associations like tandas have been used around the world -- in Africa, in Asia, in the Caribbean, and more recently in the United States. Undocumented immigrants who otherwise couldn't get a loan can borrow money to start a small business using a tanda.

I'm Dan Grech for Marketplace.

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I own a condo and have an outstanding balance of $140k, consisting of $104k primary and $36k secondary. I took the home equity to consolidate debts. At the time the property was valued at $163k but now it is valued at $134k. I'm looking to sell because i am engaged and will be moving into my fiancee's home. Check http://obamamortgage2009.blogspot.com/2009/03/obamas-mortgage-modificati... If I have a buyer who offers me within say $5-7k of the outstanding, can i agree to assume a loan on the residual and pay the bank the difference over time with interest? The same bank holds both mortgages.

Growing up in Pakistan I have seen the same system called 'Committee' in which you are in a Committee of revolving credit. I have also seen the same system in the Pakistani community in Houston and other cities. There is one other benefit that people use it because there is no interest to pay for the credit. The same thing can be done with the credit union in America if we save money each month and this will work for the small business owners.

I loved the introduction to "tandas" on today's morning broadcast. In our community, 12 miles west of New York City, we share toys, clothes, books, CDs and sports equipment through a quarterly "swap" held at an elementary school. Conceived by Jane Marcus, this free event invites residents to drop off items they no longer want or need the day before the swap, and then come the following Saturday to pick out any items they might like: all for free! Families in need--as well as neighbors who just love a bargain, take home baby clothes, Star Wars videos, the latest Stephen King novel,ice skates--all sorts of cool stuff, and no money is exchanged! It's a great community service and everyone feels good participating.

In south india , The same system is called "Chit Fund" . Every month each depositor pays fixed amount and each month one person get thro' drawing lotter or betting for less money . There is a famous big organization do the business in the name of SriRam Chit funds. It gets tax advantage from govt too.

When I was in still in college during the late seventies, two of my close friends and i created a co-op. We contributed money say 5 pesos each week until the fund reached P100.00. And if anyone between needed to borrow money, the 2 other members would approve. Then the borrower would have to pay back in installments or in full with no interest. It was our emergency fund.

When I was in still in college during the late seventies, two of my close friends and i created a co-op. We contributed money say 5 pesos each week until the fund reached P100.00. And if anyone between needed to borrow money, the 2 other members would approve. Then the borrower would have to pay back in installments or in full with no interest. It was our emergency fund.

I found your story about "tanda" very interesting. Listeners would also like to keep in mind the Community Development Financial Institutions. Many are special purpose. Some are for home ownership issues. Ours is for business development and non-profit community projects. Ours is THE CAPITAL DISTRICT COMMUNITY LOAN FUND serving the New York State Caital and its surrounding 11 counties. We do loans to women, minority, and diadvantaged entrepreneurs. We have no lower limit and will lend a start-up up to $10,000. Our average loan size is $17,000. Established businesses can borrow up to $35,000. There are thousands of CDFI's across the country and many of them support small businessses. We have loaned more then $21 million in our 25 year existance. This is more than 460 loans. Our revolving loan fund has grown from its $10,000 beginning to more than $8 milllion currently through the help of grants, the Treasury Department's CDFI Fund and more then 250 socially concerned investors. We have done projects from lending $500 for a small sewing business to small construction contracting and restaurants. Most of our non-profit lending is in afforable housing through groups like Habitat for Humanity and the Community Land Trusts.

I experienced this system while growing up in India in late 70s and early 80s. It used to be and is still called "Committees". It started with a group of relatives forming a committee with each member of family contributing small amount of money. With time and ambition of a few people this system extended to friends and then to friends of friends.

At one point, this system got out of control. Members started to rely on committee money to pay for their very basic needs like groceries, utility bills, and kids’ tuition. In a few instances, the sum of money for each week's or month's committee contributions got large enough to challenge a few members' commitments. A few people intentionally got locked in dozens of committees to collect money for their businesses. And, if business didn’t pay good returns, once these businessmen got paid from each committee by their turn, they vanished from their communities. Within a couple of years this committee system got such a bad name that it almost disappeared.
In mid 90s this system became more sophisticated. House wives from upper middle class started getting together on weekly or monthly basis to enjoy company of their friends, talk about their family problems, and enjoy good food. This committee system evolved to become part of these gatherings. With time, these feminine gathering morphed to become parties for couples, not only from upper middle class of society but also from the middle and even lower middle class.

Now-a-days, I see that these parties have modified into religious or meditational unions for couples and families. In spite of this drastic modification in objective of gatherings, the so called committee system is still integrally associated with these family unions. It will be interesting to see what social modification it will become part of next. May be online gatherings and internet based Committees…..

The other similar concept in India is called "Bee Shee". Here a bunch of families meet everymonth, have dinner, go picnics, basically have a good time. At the end, the host is given a decided amount by each family. Typically the lady of the house has the money for her. Next month its somebody else's turn. So this gives the family (mostly the wife) to buy something which she is eyeing for a long time.

I would like for you to have mentioned that "susu" is another name for Tanda. It's true "tanda" or susu is all over the world, with its Latin American origins coming from Africa. I grew up with susu clubs from Honduras. Conventional bank loans just weren't available. But susu still exits even when regular bank loans are available. I witnessed one susu club in Cameroon, West Africa, where 30 members placed as much as $1000 per month --$30,000+ circultated every month with the same stipulations that you outlined in your story--brought back humble memories.

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