José Quiñonez is leveraging existing cultural assets of immigrant and low-income communities to create a new class of full economic citizens.
The New Idea
José is positioning citizen organizations (COs)—starting with his—to become bridge-builders between unbanked and underbanked communities and the mainstream financial sectors in a way that builds new pathways to economic inclusion. With his team, José identifies popular informal financial activities (such as lending circles) and translates those activities into formal transactions that banks can formally recognize. The magic is that neither citizens nor financial institutions are asked to change much at all in the process. Low-income communities continue to engage in lending circles as they normally would, and José’s organization plays largely a facilitation role. Importantly, José reports every loan made and taken out to a credit bureau by issuing promissory notes, thus formalizing the activity. The benefits experienced—such as improving credit scores by 20 to 36 points—builds trust and captures people’s attention and imagination. José uses this opportunity to build pathways for the unbanked and the underbanked to integrate the financial mainstream as informed consumers, slowly graduating from one financial product to the next and transitioning them as quickly as possible to financial institutions—which are eager to absorb a new client base with virtually no effort on their part. Recognizing that these new clients will need guidance to make healthy financial decisions, José is using partnerships and policy initiatives to create incentives for banks to become more clear and transparent about their products and services.
Since 2008, José and his team have facilitated more than $2.4 million in zero-interest, zero-fee loans to more than 1,800 people. José has transformed the vehicle for this idea—the Mission Asset Fund—from an organization focused on the financial inclusion of the Latino community in San Francisco’s Mission district, to an initiative with national ambitions. José is currently replicating his approach through carefully selected community-based organizations in California, Nevada, and Minnesota.
Nearly half of the U.S. population has little to no credit history and thus is invisible to the mainstream U.S. financial system. As “unattractive” borrowers, low-income consumers turn to alternative lenders, often settling for loans with high costs and predatory terms. An increasing number of low-income families are struggling to keep up with their bills, and to pay the spiraling costs of essentials like healthcare and housing.
While this is a sobering reality, it is also only half of the story. And it is that half that most financial inclusion initiatives focus on, often exclusively. What this deficit-based lens fails to take into account are the assets of low-income individuals. When one takes an asset-based perspective, like José does, all of a sudden one can start building on what people already have and do—lending circles, for example—to survive outside of the financial mainstream, in the informal economy.
In addition, the focus of financial inclusion efforts on literacy first (omitting practice) often fails to translate education into positive financial experiences. Many of these approaches thus become unsustainable. Alternatively, when the approach emphasizes practice it usually mimics middle-class or upper-middle class experiences. These tend to feel so foreign to low-income consumers that they turn saving and asset building into burdens. This disconnect is partly the result of mainstream financial institutions’ unwillingness to take ‘risks’ by developing financial products and services that cater to low-income consumers, keeping in mind that clarity of language and transparency are as important as the products themselves.
What is most needed, which José is positioning himself to do at the national level, are approaches that focus first on translating informal economic activities into formal ones—recognizing them as assets. This does not require changed attitudes and behaviors at first, neither from consumers nor from financial institutions. Once a common language is developed, then the environment is ripe for greater literacy, helping low-income consumers graduate from interacting solely with the informal economy to becoming informed consumers ready to integrate the financial mainstream.
José has developed three interlinking strategies to ensure the financial health of low-income communities.
The first focuses on developing financial products and services that cater specifically to low-income consumers. The point of entry is always an activity that his ‘clients’ are already accustomed to. For example, José noticed that lending circles—or cestas in Spanish—were prevalent in the Mission District among Latinos (and all over the world across cultural communities). José understood that if he could get these transactions recognized officially, they could contribute to building each participant’s credit history. (About 13 percent of José’s clients are unbanked, and the rest are underbanked.) Submitting promissory notes on behalf of the lending circles and reporting the transactions to the credit bureau was the way to do it.
In order to participate, clients have to open a bank account, sometimes for the first time. Many don’t open bank accounts, either because their income seems too irregular to warrant it; because they are constantly moving, following jobs; or because they are undocumented and don’t know that banks don’t always request a Social Security number. José and his team have crafted subtle opportunities to introduce their clients to these facts, demystifying an important piece of the financial inclusion puzzle in the process. Transferring loans to their clients’ bank accounts, as opposed to handling cash, is also the only way the Mission Asset Fund was ever going to be able to operate at scale.
Thus far, the Mission Asset Fund has facilitated over $2.4 million of zero-interest loans at no-fee to more than 1,800 participants. Had they had to borrow from financial institutions, the participants would have had to pay an estimated $350,000 in interests and fees. José’s clients gain an average of 20 to 36 points on their credit scores as a result of participating. At the same time, by working with groups, Mission Asset Fund strengthens the self-esteem and social fabric of the communities they work with. Though José expected a 10 percent default rate on cesta loans, and prepared accordingly for his organization to take on this financial risk, not a single person has defaulted in the last three and a half years.
Once José’s clients have completed a few rounds of lending circles, José starts to introduce them to other savings products. Some are traditional such as IDAs and matched savings accounts and others are innovations, such as citizenship tandas—lending circles that help immigrants save for their naturalization form. (Roughly 4 million people eligible for citizenship don’t apply, either because they can’t afford it, or because they don’t know they are eligible.) Graduating from product to product not only helps them integrate the financial mainstream, it also provides them with experiential financial literacy opportunities: José’s third area of focus. The goal is that by the time people have interacted with a few different products, they have become informed economic citizens. José does not want to become the go-to financial institution for low-income consumers, rather he wants to provide them with the experiences and information needed for them to tap into the asset-building opportunities mainstream financial institutions can provide. By the time José is done with them, his clients are ready to access mainstream credit, and to go into any bank with their head held high.
José also recognizes that the banking system has a role to play in facilitating his client’s full economic citizenship, and for that, they need to be incentivized. Recognizing that most financial institutions speak in terms that are neither easily understood nor transparent, José invented the Financial Facts labels—modeled after nutritional facts labels. They highlight important loan information to help borrowers make healthy financial decisions and introduce a “% of Monthly Debt Budget” metric to help borrowers quickly evaluate their ability to afford a loan by connecting income, debt and cash flow into a single figure. This will help consumers compare across different types of loans and determine which is most affordable and responsible for them. The state of California is currently reviewing legislation mandating any loan provider under a certain size to disclose their terms using the labels.
The last piece of the puzzle that José has identified as critical to the financial inclusion of low-income individuals is to help citizen organizations become more efficient at referring their clients to existing resources. José and his team have created an online screening and referral tool, built on the Salesforce CRM platform, which effectively and efficiently connects low-income people to an array of government programs, community services, and financial products. Presently used by thirty-six community-based organizations, schools, and public departments, Resources Match matches individual socioeconomic profiles against eligibility criteria and utilizes a sophisticated scoring engine to match client data to services in the system. While it was originally designed to link Mission area residents to services, the system has been met with great enthusiasm from service providers beyond San Francisco.
When José joined the Mission Asset Fund in 2007 as its founding Executive Director, he was given a very broad mandate: to stabilize the community financially. People thought he was crazy to go work at the community level given his focus since graduate school on shifting national policy for the benefit of low-income people. However, his experiences in government convinced him that this was where change needed to start. José brought his vision and skills to the organization, built the strategy and an entrepreneurial team of eleven, and diversified the board and the organization’s funding stream, growing the current budget to $1.3 million. Most importantly, while the initial focus was on the Latino community of San Francisco’s Mission District, José always recognized they had the potential to build something much bigger. He quickly convinced his board and founding funders that it made sense for them to have national ambitions and built the organization and a smart franchising model accordingly. In the next year, José plans to raise more money from earned revenue, specifically from license fees to gain access to loan management infrastructure and the Resource Match platform. The goal is to raise 30 percent of funding from earned revenue; 20 percent of funding from government grants; and 50 percent from philanthropy. José and his team are in the process of rebranding the Mission Asset Fund to reflect their national ambitions.
José had developed a three prong strategy for scaling his model of bridging financially excluded communities into the mainstream: (i) lifting up Mission Asset Fund’s innovative and successful lending circles model to inspire and enable other communities and institutions to do the same (ii) replicating Mission Asset Fund’s model through the non-profit infrastructure by providing training, technical assistance, loan servicing and support, and (iii) challenging conventional approaches to asset building and financial education with hard data on the effectiveness of social loans, thus opening up the field to more innovations. José has already forged partnerships with other COs—including Ashoka Fellow Maurice Lim Miller in California, Minnesota, and Nevada.
José has always been an entrepreneur by necessity. He was born in Durango, Mexico in 1971 and lost both his parents by the time he turned nine. Financially, he and his five siblings were poor, living life day by day. They were rich, however, because they had each other. José and his siblings worked hard to support themselves: José sang in crowded buses while his brother tried to collect contributions from bus riders; they sold newspapers and gorditas (stuffed corn cakes) to passers-by in busy downtown intersections; and made body wash scrubbers from agave fiber, selling them house to house. They did what they had to do to survive. Soon after his mother passed in 1980, extended family brought José and his siblings with them to the U.S. They got jobs at the local flea market, the only place where kids could earn cash for a day’s work. They worked in the flea market for years, living in the shadows of society, hoping that the INS would not notice them. Luckily, by 1986 they were able to apply for amnesty and became legal permanent residents.
While his brothers chose to run a small, thriving business selling automotive accessories at the flea market, José took a different path. He went to college where he took on many student leadership roles throughout his undergraduate career at the University of California, Davis. Eighteen years after he came to the U.S.—almost to the day that they crossed the border in the dark of night—José received his master’s degree in Public Affairs from Princeton University. He wanted to change the world and to him, that entailed understanding the ins and outs of the political system. After completing his master’s degree, he went to D.C. to work for a Member of Congress and began understanding the disconnect between policies and immigrants’ realities. There, José gained a nuanced understanding of what government could accomplish and what it could not.
In the early 2000s, José developed the “United We Dream” campaign, when the DREAM Act was first introduced. He was in charge of organizing students across the country, educating them about the bill and bringing the message back to members of Congress to get them on board. Against the recommendations of his colleagues, José organized the first mock-graduation in front of the U.S. Capitol: one of the first powerful symbols that united DREAM activists around the country.
The ten years prior to joining Mission Asset Fund, José consciously accumulated experiences that would better prepare him to become a good solutions-builder: someone who knows how to leverage the strengths of communities and mainstream institutions alike. José says he has always been an entrepreneur by necessity and now he is a social entrepreneur by choice.