When Hilda Robles remembers her early years in the United States, tears well up in her eyes.
When she arrived in San Antonio, Texas, about 20 years ago, even simple daily chores like going to work or going to the doctor were challenging, because she didn’t have a car, didn’t know English and had almost nobody to ask for help.
Opening a bank account seemed impossible. “When I first entered a bank, they said I couldn’t open an account because I didn’t have a social security number,” she says, referring to the record that every citizen of the country has with the American government.
“Someone told me about a bank where I could open an account without a social security number, but the language barrier prevented me.”
It was then that Robles started a tanda, a popular informal savings club in Latin America, with contributions from his relatives.
Each club member contributes a fixed amount to a fund on a regular and periodic basis. The total sum goes to one member each round, until everyone gets paid.
This means that members get back what they put into the fund over the course of the plan, but by obtaining it in the form of a fixed amount, the money can be used for purchases, investments or debt payments that they otherwise could not afford.
Members who take the amount earlier are effectively receiving an interest-free loan, while those who receive it later in the cycle are essentially withdrawing some of the “saved” money.
With the $ 5,000 he received from his tanda, Robles bought his first car. His relatives and friends at the savings club were able to make house payments, pay university tuition fees, and now, in the midst of the covid-19 pandemic, they use that money to survive because they have become unemployed or sick.
Since that first savings club 14 years ago, Robles, who is now 49, manages them continuously, with just a few months between them.
“I am very happy to see people achieving their goals because of the tandas, without having to drown in loan debt. It is proof that, among us, Hispanics, we can make progress here.”
Clubs give immigrants access to credit during pandemic
This old savings mechanism has parallels around the world. It is generally known as revolving savings or credit association.
In Mexico, they are popularly called tandas, but they are also known by other names in various parts of the world. Immigrant communities continue this practice in the United States.
As economic difficulties accompany the public health crisis caused by covid-19, for some families, traditional savings methods outside the banking system have become a lifeline, especially for hard-hit immigrant communities with little access to main sources of credit.
This became an increasingly urgent matter in 2020. Even before the pandemic, the United States was behind other wealthy countries in terms of access to credit.
About 7% of Americans over the age of 15 had no bank account in 2017, compared to less than 1% of Canadians and less than 4% of Britons, according to the World Bank.
A quarter of American adults, that is, more than 80 million people, were “unbanked”, meaning that they did not have accounts or that they needed to use alternative services to traditional banks to get enough money to meet their obligations and achieve their goals .
The families most likely to fall into the two categories were black or Hispanic, without university qualifications and poor. To access loans, they sometimes need to resort to non-bank loan options, such as informal lenders or loan sharks.
These options can be risky, charge high interest rates and have dire consequences. A tanda can provide a safer and more reliable alternative.
“These systems are really useful when we have banking systems with finite possibilities,” says Caroline Hossein, a professor of business and social studies at York University, who studies these systems in communities in Canada.
“Banks only have a certain amount of money, and if you only have a certain amount, you’ll only give it to those who are less risky. So it makes perfect sense for people to get involved in these kinds of mutual aid or money concentration systems. ”
The ‘bankers ladies’
They are often run by women, whom Hossein calls “community bankers”.
“The banker can be who’s organizing. You can contact her at any time of the day, it can be someone who lives in your neighborhood, so it’s easy to get to her. The paperwork is not as treacherous as it would be at a bank. formal, and there is a kind of connection, because they are people who like and know each other. ”
While these tend to be “another lifeline for people who have difficulty accessing banks, especially to obtain loans”, these savings schemes are also used by more established members of communities.
In addition to accessing a money fund, “a major benefit is building ‘bonds of mutual trust’ in a network of trusted people,” says Lee Martin of the University of California. Tandas are particularly beneficial for people without access to the main forms of credit, he says.
But as they are used by marginalized communities, studying their prevalence has been difficult, says Hossein, who participates in a tanda, known as su-su in his Afro-Caribbean community, as part of his research.
“Many of them, especially in places like Canada, the United States or Europe, tend to be clandestine,” she says.
Many fear that the venture will be seen as a form of financing that is not respectable or even illegal. Obviously, unlike a savings account, they do not generate interest.
However, economists believe that they are probably quite common in the West. A survey of Korean-American clothing company owners in Los Angeles in 2004 found that 77% of households participated in a version of this system.
System has unexpected benefits and risks
Self-credit within communities can have unexpected benefits. A tanda-like system among Chinese immigrants in Spain, for example, helped expatriate entrepreneurs to overcome the euro crisis in the late 2000s and 2010.
The Chinese business community was “largely isolated by the vagaries of the country’s faltering retail banking system,” reported the Financial Times in 2014.
In the 2020 covid-19 crisis, families that participated in the tanda that Robles is managing were able to pay their bills when their members became unemployed or sick.
For most, it was the only source of money, says Robles. Only one of the families received the government benefit because they did not have the documents to pay unemployment insurance.
Like any investment scheme, however, tandas are not without risk. A participant may fail to pay or take his share and escape. Robles says that it rarely happened and that he had to make up the difference from his own pocket.
As they operate on the basis of trust, usually within a deeply connected community, the social consequences of bad actions deter such cases.
But as they are privately managed, there are few legal remedies against cheating. And, unlike putting money in a bank savings account, there is no interest payment.
Schema faces obstacles to become popular
Can tandas become even more popular?
An attempt by Yahoo Finance to popularize a tanda app in 2018 was unsuccessful. The scheme ended after just a few months, apparently due to a lack of participation.
There are two major obstacles, in Hossein’s opinion: the stigma associated with a non-traditional financial tool used by ethnic minorities; and the barrier to trust that must be overcome to put faith in other people to deal with money.
But with the covid-19 pandemic, participation in the tandas of a younger generation of Americans with an interest in sharing resources and technology efficiently, can make the scheme a more common saving method.
For Mayra Martinez, 30, who works with university administration in Dallas, Texas, being in tandas has helped her learn about trust and foster a sense of obligation to save, which can be difficult for young people, she says.
“It’s not like a commitment to yourself, where you can easily say ‘I’m not going to do this this month because I just don’t want to’.”
It is an additional layer of economic security in a world that has been unpredictable for young professionals, as Martinez’s experience attests. Her sister and brother-in-law recently tested positive for covid-19 and were unable to work. “She just received her tanda this week,” said Martinez.
The tanda in which Martinez is now involved consists of family members of all generations and is administered by his mother.
Would she create and manage one for herself and her brothers and cousins when the older generations no longer participated?
“I wouldn’t mind …”, she says, adding with a laugh: “But it depends on which cousins.”
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