Backyard Bankers Initiative

Describe the context, scale, and impact of the specific problem that your project is designed to address.

Immigrants have created new enterprises a twice the rate of other Americans. This has little to do with banks or even cooperatives or even CDFIs, impact investors or government programs. In large part immigrant businesses are financed through an informal economic system that finances and supports these businesses,

While some businesses start with savings from families and friends, many are financed though rotating “money clubs” based on small group savings traditions brought from their home countries. These susus, tandas, chit funds, dhikutis, panderas, every country has their own name, have enabled villages to survive and even thrive even during times of war and famine over generations in their home countries. When immigrants (including those were part of or who organized these groups) arrive here they draw on that knowledge.

Whether immigrants come from Latin America, Africa or Asia, the way these groups are organized is remarkably similar. Twenty or so immigrants who are trusted workmates, relatives or neighbors agree on an amount each will save each week or month. Instead of spending a few dollars here or there, if deposit $100 each week in a common pot and each member receives a payout of $2,000 over the course of the twenty week cycle. (Depositing $200 per week yields a $4,000 payout. $20).

To not pay on time means that the others in the group will suffer. Not paying is “social suicide.” Every twenty weeks after each has received their $2,000 payout the cycle starts again. While one or two may leave others might join and the amount of the contribution may increase or remain the same.

With a lump of capital in hand they can pay the rent and utilities, launch businesses, get medical care, and amass enough money for a downpayment on a house. If they need money right away or have an emergency the other members of the group pitch in to help them.

When immigrants arrive here, they bring these savings traditions with them. The difference is that instead of saving a dollar a week back home here they most often save $100 every week, and more often $200. Over a year this adds up to $5,000 to $10,000 over a year. With these payouts immigrants payoff usurious debts, have a reserve to pay the rent, or fix the car and, over time launch a business or rehab or purchase a house. Sometimes members pool their payout to purchase shares in a business. All this occurs without paying a penny of interest with no outside help and scant connection with financial institutions.

These groups, because they are built on strong cultural traditions of mutual support and strong families within a context of disciplined savings, mutual accountability, and trust work so well that there are few documented cases of someone not paying,

When new immigrants move into a neighborhood that is often on the skids because this is the only place where new they can afford live, within a few years micro and small businesses spring up ranging from one or two person landscaping businesses to Ubers and taxis, to restaurants and daycare and elder care facilities. Immigrants pay taxes (even if they are undocumented and will not benefit), their motivated children help schools succeed and crime decreases. Neighborhoods once in decline begin to improve.

How these groups work in over a dozen immigrant communities is detailed in the book I wrote with Kim Wilson, “Backyard Bankers: Money Clubs and the Pursuit of the American Dream.

The issue is that while for many immigrants savings clubs provide a vital lifeline for those who arrived earlier and have more social capital, or are part of networks where local organizers abound, many have not joined these groups. They lack the connections or social capital. Our project, “The Backyard Bankers Initiative” addresses this issue by including (mostly) those who have never been part of a savings club. The next section of this proposal profiles how this is done.

Description:

As a financial inclusion practitioner, I promoted microfinance around the globe and in the United States for two decades. After I gave up on microfinance – too costly and increasingly risky for the users who were losing land and assets with defaulted loans - I spent another two decades promoting savings groups, but not of the type discussed here. Instead of building on savings clubs, we crafted our own intervention.

As the Director of Oxfam America’s Saving for Change Initiative (SfC), our twenty-eight local partners trained savings groups in Mali, Senegal, Cambodia, El Salvador, and Guatemala - serving over 700,000 women in some of the poorest villages of the world.

The results were impressive, the lives of extremely poor women improved, and the groups continued functioning without outside support for years. My book, “In Their Own Hands: How Savings Groups Revolutionized Development” recounts this experience.

Getting Started on the Wrong Foot:

My mistake was assuming that we could simply introduce the same savings group model we used abroad to this country. Working through a nonprofit in Wilmington Delaware, despite our best efforts, we found that virtually no one wanted to join the kind of groups we promoted abroad. “Why be part of a savings group…” they told us, “…when we must meet every week and use this complicated record keeping system? Thank you but I’ll just drop my $100 off at Maria’s house.”

We spent $30,000 and not a single group was organized. Unlike the villagers we worked with in poor countries who had the time to meet weekly, immigrants were too busy juggling two jobs and arranging for childcare to attend. And who were these outsiders anyway? They were suspicious of our motives.

Through this experience I gained a deep appreciation for how informal money clubs work in this country and their power and potential for mobilizing useful lumps of capital. Money clubs work because they use a system their members understand with people who not only speak their language but who may come from the same village. Although they are living in America, they joined money clubs that work in a way that is familiar to them and led by people just like them.

Getting it Right the Second Time:

With the Wilmington experience fresh in our minds, we pivoted 180 degrees and accepted that immigrants already know how to save in small groups. We do not need to tinker with a proven model.

Our objective of what we now call the “Backyard Bankers Initiative” was to include more immigrants into money clubs so that they could start saving and moving their lives forward the same as those who were already part of these groups were doing. But no one had reached out to them.

Getting Started:

We were introduced to the Latino Support Network (LSN) in Lynn, Massachusetts, through an Ecuadorian banker friend of mine. In Lynn 40,000 of the city’s 100,000 residents are immigrants. Most are from Central America with a substantial number from Guatemala.

LSN called a meeting where many Guatemalan immigrants attended. We asked them questions about their traditional money clubs that they call “cuchubales.” Soon after the meeting, LSN selected three Guatemalan immigrant women who had organized (or been part of) cuchubales for years. The three “Backyard Bankers” were working full time and included a dump truck driver, a clerk in a clinic, and a daycare worker.

We provided each a $2,000 stipend to encourage them to train new cuchubales exactly like the ones they had already organized. Unlike other financial inclusion projects I had designed, because we asked them to do more of what they were already doing, there were no operational manuals to write or any staff training. We visited the organizers periodically to see how their groups were progressing.

Since they were using the cuchubal system that they thoroughly understood and could tap into their networks of friends and connections, the three organizers organized three groups within weeks. We thought the process would take months.

Each member of the three groups invested $200 every week. Some had two “numbers” and made a $400 payment. In groups with twenty members, each received a $4,000 payouts in turn, over the twenty weeks of the cycle. Those with two numbers received payouts of $8,000.

To our knowledge this small pilot project in Lynn was the first time that a “financial inclusion” project was built on local savings traditions and not a system designed by outside experts.

As we learned more about how their groups worked, we began to appreciate the sophistication and the care that went into making their groups work and their commitment to their communities. There has not been a single late or missing payment over these three years. When one member was deported, his brother stepped in to make his payments.

Members and Outcomes:

Only a fifth of the members had ever been part of a cuchubal, and most were low income, so this initiative met both of our outreach objectives. Many used their payouts to pay off usurious debts, as a reserve for ongoing expenses, to buy or fix up a car, to invest in a business, or for a down payment on a house.

The Lynn Initiative Today:

Now the three Backyard Bankers are managing 190 numbers, each worth $200. Each week they mobilize and distribute $38,000, nearly two million dollars a year, considering both cycles.

The organizers charge a $40 fee for each number to cover their time and the risk of nonpayment that they would need to absorb, The $7,600 they collect in fees over each twenty week cycle is divided among the three organizers. As no further subsidy is required, sustainability has been achieved.

A key part of their strategy – that they came up with, not us – was to not divide the payment for their work until the last payments by the group members were made. If there was a missing payment, they could use their fee income to cover it.

Replication in New Bedford:

The cuchubal project developed in Lynn was replicated in New Bedford, a city of 100,000 with 20,000 immigrants, many of them Guatemalans. As in Lynn, we were invited to a meeting by our partner, in this case the Community Economic Development Center of New Bedord (CEDC). We asked those attending the meeting about their money clubs, followed by a Guatemalan feast.

Soon after our meeting, a delegation of immigrants organized by CEDC traveled to Lynn to meet the Cuchubal organizers in Lynn. The New Bedford delegation was so inspired that they organized their first group with twenty members on the trip back to New Bedford. (The video of that meeting with English subtitles is attached.)

In New Bedford, the value of a contribution is $100 (since most have family incomes of $30,000 or less per year). For the first group with twenty members, the payouts were $2,000 over the twenty-week cycle. On completing the first cycle, the three Backyard Bankers, all of them Guatemalan women – a food truck owner, a scallop sorter, and a community organizer for CEDC – organized another group of twenty. By the third cycle, the number saving $200 each increased, so the organizers are now mobilizing and distributing $18,000 each week, close to one million dollars per year.

Showing their problem solving ability, when a member died soon after receiving a $4,000 payout, the organizers drew down on the fee they collected and called the group members to a meeting where each agreed to contribute $35 to make up for the missing payment. This was their idea, not ours.

Since with this model there are no staff, no credit committee, or no external technical assistance (although members help each other), costs are one cent per every $1.00 saved. As the Backyard Banker’s Initiative continues to operate cycle after cycle, the cumulative ratio of dollars mobilized and distributed to the subsidy will continue to decrease.

In the next phase we will carry out studies to determine how the members have used their payouts and how (or if) they are moving their lives forward.

The Expansion Phase:

Recently we received a $100,000 grant through the donor advised funds managed by the Boston Foundation. With this funding we plan to increase the number of organizers, double the number of groups, and start a project in at least one more city.

We will also launch an ambitious research effort to track the performance of the groups, the characteristics of the members, and how they mobilize money for their groups and use their payouts and the difference that makes. We will also study how the informal economic and financial systems operate in immigrant communities. The new initiative will start in April 2025 and continue until June 2026.

Funding through ICC:

If we secure funding through our connection with ICC, we hope to replicate this project in additional cities with large immigrant populations. We calculate that a startup grant for launching a two year pilot project in a new city will total $25,000. This includes exchanges between organizers from Lynn/New Bedford with the organizers in the new city and integrating the new groups into the group monitoring system. Additional funding would also enable us to continue our research efforts.

Each replicated local project would operate through a local non-profit, church, or local immigrant organization. Following the pattern in Lynn and New Bedford, each local partner would select three or more immigrant Backyard Bankers (preferably women) from the immigrants with whom they are working.

Each partner will be expected to organize and manage three local groups with approximately sixty members each. That is, if expansion in the new cities follows the pattern established in Lynn and New Bedford. By the end of the second year of the grant to a new partner, the organizers would collect and distribute $15,000 per week; $750,000 per year. As each initiative proves itself through the pilot phase, it should be easier to mobilize additional funding locally,

·       Through the pilot project, proving the validity of a project that had never been tested. The idea was to reverse the development paradigm and build upon a project based on their ideas and approaches, instead of ours.

·       Showed that immigrant women who had experience with, or had organized, these groups could quickly organize new ones.

·       That they effectively selected those members who would make their payments.

·       That their record keeping systems were adequate for tracking payments and making distributions.

·       That the members of the new groups trusted the Backyard Bankers.

·       That the members of the new groups would keep paying after they had received their payouts, showing their commitment not only to themselves, but to the other group members.

·       That the organizers could resolve demanding situations within the groups – a member being deported, or a group member dying – without outside intervention.

·       That almost all those who started with one cycle would continue participating, cycle after cycle.

·       That the group members used their payouts for purposes that would move their lives forward, including: paying debts, creating a reserve to take care of immediate needs, and investing in businesses or vehicles.

·       That the local organizations were able to serve as a home for the project without interfering or imposing their view of how the groups should be organized/managed.