Long an informal tool among families, friends, and close-knit ethnic communities, lending circles are gaining credence with nonprofit groups and financial institutions as a weapon in the war on poverty that can help people gain a foothold in the credit economy, writes The New York Times.
With no credit history, millions of Americans cannot rent an apartment, get a credit card, or obtain a mortgage, car loan, or business financing, excluding them from the mainstream economy and forcing many to rely on expensive payday lenders and check-cashing stores, say anti-poverty and immigrant advocacy groups.
In August, California became the first state to authorize nonprofits to make small no-interest, no-fee loans, enacting a measure that won unanimous legislative support. "It crosses party lines, it crosses ideological lines because it's so simple," said state Sen. Lou Correa, the bill's sponsor. "Access to credit is very important in breaking the cycle of poverty."