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Sunday, June 17, 2018

GIVING CITY: Nonprofit offers small business loans based on trust

What a thought.  Trust-based lending here in Austin based on a model that"uses the power of peer-based accountability to manage credit risk and ensure repayment."  And guess what?  It's working—maintaining a 99 percent repayment rate!  They magic rests in their not really being "lenders," but community organizations.

This reminds me of the early work of Dr. Carlos Velez-Ibañez from the School of Transborder Studies who studied Rotating Credit Associations called "tandas" and how they get utilized by Mexicans and others worldwide in financially difficult straits to not just surviving, but truly getting ahead.  For more information, check out this Youtube video.  

When you don't have a credit history or collateral, then you rely on that Velez-Ibañez terms, "social credit" that is "scrupulously honest."  The trick then is to transform from informal to formal contexts which is what this Austin nonprofit called Just featured below seems to be accomplishing.  

This all speaks to the creative, entrepreneurialism—collectivist values, organizational strategies, and ultimately, their social capital to accomplish as a group that which they cannot secure as individuals.  Exciting stuff!

Angela Valenzuela
c/s

GIVING CITY: Nonprofit offers small business loans based on trust

   
Posted: 10:30 a.m. Friday, June 15, 2018


Highlights

Entrepreneurs start with a loan of $750, with more available to them as they succeed.
The trust-based model uses the power of peer-based accountability to manage credit risk and ensure repayment.
Austin has been named among the top cities in the country to start a small business, and many credit the city’s robust ecosystem that supports and nurtures entrepreneurs. But not everyone who wants to start a small business has access to the capital and support they need to succeed
Across the country, women and minorities, particularly when they’re low-income, are rejected for business loans at a higher rate than their male, white counterparts.
An emerging Austin nonprofit called Just seeks to provide capital, coaching, and community to Austin’s low-income entrepreneurs through a microcredit model based on trust-based lending. Starting with a loan of just $750 with more available to them as they succeed, entrepreneurs are able to buy a chair at a salon, launch a cleaning business, or sell a handmade good. Applicants aren’t vetted based on their credit score, business plan or even collateral. Instead, they’re vetted and invited to participate in the program by current Just entrepreneurs.
“Low-income people pay more for almost everything,” said Bill Wood, co-founder of Just and a successful venture capitalist. “Nowhere is this more prevalent than in financial services in general, and lending in particular.”
Wood says Just’s trust-based model uses the power of peer-based accountability to manage credit risk and ensure repayment. The group trains leaders, typically Just graduates, to create teams of Just entrepreneurs, with each member having been vouched for by other members.
“This results in a tight-knit, peer-based group, which is naturally mutually supportive and mutually accountable,” said Wood.
As of March 2018, Just has maintained a repayment rate of 99 percent.
The model allows Just to fund the start-up costs of small businesses and change the trajectory of a low-income family. In fact, because low-income Hispanic women often have the most barriers and burdens toward success, all of the Just entrepreneurs are Hispanic women, with 98 percent of them mothers and 38 percent being single mothers.
In creating Just, Wood says he was seeking a new way to engage in philanthropy, and Just applies many of the same strategies as a start-up. The first thing he did was recruit Steve Wanta as a co-founder and CEO. Wanta spent almost 10 years at Whole Planet Foundation, traveling the world to support microcredit programs aimed at alleviating poverty in 60 countries before accepting the role.
Then, Wood says, they focused on creating a sustainable and low-cost business model, one that relies on trust-based lending for compliance and technology for automating as much of the business as possible. Wood says it also borrows the start-up strategy of seeking rounds of funding as the model proves its sustainability.
The approach is different from typical nonprofit fundraising.
“It’s also allowed us to be more experimental,” said Wanta. When Just launched, for example, the plan was to require entrepreneurs to attend weekly meetings. But the working mothers found the requirement stressful, so it switched to its current team-leader approach.
“Our higher purpose is to help clients live with less stress and more joy,” said Wanta. “We’re not really a lender. We’re a community organization that uses credit as a tool to build trust. The women alone can figure it out and we can just be a nudge of support.”

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