Pilot Study of Lending Circles and Financial Inclusion among Lower-Income Immigrants and Minorities: The Mechanisms of Behavior Change

Awarded Scholars:
Frederick Wherry, Yale University
Kristin Seefeldt, University of Michigan
Anthony Alvarez, California State University, Fullerton
Project Date:
Dec 2014
Award Amount:
Project Programs:
Behavioral Economics

Low-income minorities and immigrants have difficulties integrating into the financial mainstream. A 2011 Federal Deposit Insurance Corporation study showed that over 30 million U.S. households are either unbanked or under-banked, including 55 percent of Black households and 49 percent of Hispanic households. Much like poverty, households enter and exit periods of being unbanked and under-banked. This presents unique problems for those trying to achieve financial stability. For example, being unbanked may occur as a result of periodic personal economic crises that are exacerbated by the fees associated with over-drafting, insufficient funds, and low balance penalties. However, it is not clear how the process of “re”-banking occurs.

Lending circles, also known as rotating savings and credit associations (ROSCAs), are widely utilized in the developing—and to some extent, the developed—world. A given group of people meets regularly to deposit a previously agreed-upon sum into a communally-held pot. The pot is then loaned out to one member of the group per meeting, either by predetermined order, or by a bidding process. The members of the group are, therefore, both borrowers from, and lenders to, each other during the course of a full “circle.” A June 2013 study conducted by Mission Asset Fund (MAF), a nonprofit that helps low- income populations in the U.S. build assets and credit, showed that 69 percent of those who participated in lending circles without a credit score had a score after participating. Scores improved by 168 points on average, and participants were able to reduce their outstanding debt by over $1,000 on average.

Sociologists Frederick Wherry, Kristin Seefeldt and Anthony Alvarez will use the Mission Asset Fund’s lending circles program to investigate the mechanisms of financial decision-making and behavior change of low-income immigrants and minorities in the San Francisco MSA. Through in-depth interviews, they seek to answer three key questions: 1) What are the mechanisms that lead to greater participation in mainstream financial services for low- and moderate-income minority households? 2) How does the collective experience of a formalized peer-lending circle affect the rules-of-thumb people use to manage their household finances? Do people change the way they account for money (in practice) as a result of participating in a lending circle? 3) What strategies do people use to deal with intra-household pressures for acquiring high-cost debt? How do people differentiate between “good” and “bad” debt?


RSF: The Russell Sage Foundation Journal of the Social Sciences is a peer-reviewed, open-access journal of original empirical research articles by both established and emerging scholars.


The Russell Sage Foundation offers grants and positions in our Visiting Scholars program for research.


Join our mailing list for email updates.