2013: Over the years, we have seen hundreds of people who have been on the margins of the financial mainstream walk through our doors looking for a way to help themselves navigate the world of finance. We’ve seen how our program changes lives though smiling faces, tears of joy, and lots of hugs. We’ve heard stories of money saved, lines of credit approved, and lives reclaimed. While witnessing these experiences made us believers, it’s been difficult to communicate these different impacts to the world. Through these countless voices and experiences we know that Lending Circles alters lives, and now we have the numbers to prove it.
After over two years, more than 600 participants and countless hours of analysis, MAF and the Director of the CCI present two reports from a team of dedicated evaluators at San Francisco State University’s César E. Chávez Institute detailing the impact and replication of Lending Circles. For the Executive Summary, click here.
Building Credit for the Unbanked
In the first report, "Building Credit for the Unbanked," evaluators used a control group composed of individuals similar to our clients who were not enrolled in a lending circle in order to compare the effects of our members to isolate the credit building impact of a lending circle. This process, known as differences-in-differences, helps to provide a more robust method of analysis by controlling for any change unrelated to lending circles that may have affected the group. It’s clear that lending circles work, as the treatment group (those who participated in a lending circle) experienced dramatic improvements in several indicators of financial health, while the control group experienced no such gains.
- Lending Circles is proven to establish credit scores - with a 69% success rate. Social loans are a successful vehicle to get the unbanked and underbanked into the financial mainstream. Nearly one third of the treatment group (29%) started with no credit score. After just 10 months in the program, this went down to 9% - a 69% success rate. The control group (who did not participate in Lending Circles) showed only subtle improvement, from 31% to 27% - with just a 13% success rate.
- Lending Circles has a dramatic impact on credit scores - by an increase of 168 points. The average credit score improvement for the treatment group was 168 points. The average credit score of participants in the treatment group rose to 603 by the end of the Lending Circle. In comparison, the control group showed only a small increase to overall credit scores - a 41 point increase.
- Social loans decrease debt levels - by over $1,000. From 2011 to 2012, following a severe recession that devastated the housing market and raised the unemployment rate, the average person in the control group increased their outstanding debt from $9,000 to $12,000 - adding $3,000 in their level of debt. With access to social loans, participants in Lending Circles had a very different result: the average person in the treatment group decreased their outstanding debt by over $1,000 for a total difference of over $4,000.
Lending Circles Succeed with a Diverse Range of Nonprofit Partners
Lending Circles have similar results with a wide range of communities and organizations, including recent Chinese immigrants and the LGBT community, demonstrating its wide appeal. All it takes for Lending Circles to succeed is a dedicated group of people committed to helping each other save money and increase their credit. In the second report, "Replicating Lending Circles," the research speaks to the success of replicating Lending Circles through nonprofit organizations across the country. The report also helps to crystalize best practices for implementing lending circles with future partner organizations on a much larger scale.
- Participating in financial education increases credit scores - by an additional 27 points. Financial education matters for those without credit scores; participants who started without a credit score and received financial education increased their scores by an additional 27 points.
- Non-profit organizations are an ideal vehicle for implementing Lending Circles. In interviews, participants at both MAF and partner organizations said they were much more willing to participate in Lending Circles offered by a non-profit organization as opposed to if the program had been offered by a bank or financial institution.
Thanks to all of our funders and supporters for making this work possible. A special thanks goes to CFSI, Citi Community Development, Levi Strauss Foundation, and the Ford Foundation for supporting this evaluation and seeing it through. Your partnership means more than words can say.
The César E. Chávez Institute (CCI) is a multi-ethnic research center committed to academically rigorous and socially engaged scholarship with the overall goal of empowering communities of color in their struggles for inclusion, equity, and self-determination. http://cci.sfsu.edu/