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Need credit? Ask your community

Dan Grech Jun 18, 2009

Need credit? Ask your community

Dan Grech Jun 18, 2009


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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