The Good Debts Communities have challenged the system by figuring out how to create their own debts — the good kind.scroll down arrow

YES! Photo by Paul Dunn

How a new generation is rethinking lending and borrowing

The Debt Sketchbook: Edel Rodriguez

Investor member-owners and debtor member-owners of Salish Sea Cooperative Finance: Left to right, Rose Hughes, Douglas Indrick, Nathaniel Blair-Stahn, and Erika Lundahl. YES! Photo by Paul Dunn

The 82-year-old artist Mary Frank traces her earliest debts to the prehistoric images in books that her mother kept around the house. Their shadows have reappeared throughout her sculptures, paintings, and photographs. But she knows none of their creators’ names; there is no address where she can send a royalty check. The best repayment she can offer is the work of her own hands.

Nathan Schneider

Nathan Schneider is the author of, most recently, Thank You, Anarchy: Notes from the Occupy Apocalypse. Follow his work on Twitter @nathanairplane and on his website, TheRowBoat.com.

Sometimes, like the ancient artists, she doesn’t bother to put her name to her works. Claiming that credit, that repayment-by-recognition from her audience, doesn’t seem necessary. “People bug me because I don’t sign things,” she told me. “But in clay, at least, my fingerprints are all over.”

Those of us who came of age in the millennial period have learned to think about debt and credit quite otherwise. Debt does not motivate so much as it inhibits and stigmatizes. We accumulate it in order to have an education, to make a home, to pay for medical necessities. (Student debt, at upward of $1.3 trillion, is rising in the United States even as other kinds of household debt have fallen.) Servicing debts can prevent us from doing work we believe in, compelling us into better-paying livelihoods that might compromise our values. Our lenders’ identities may seem as obscure as those of ancient artists, since they trade our debts on mysterious secondary markets, but the sums we owe are as precise as they are daunting — and the collection agencies won’t let us forget them, even briefly. These debts ruin lives.

The creditors that Frank can name are those who have motivated and influenced her. She talks about studying dance under the legendary, demanding choreographer Martha Graham, about El Greco and Proust and Gerard Manley Hopkins, about a pair of Guggenheim fellowships, about Peter Matthiessen, her recently departed friend, and about music. When she was broke, she’d trade pictures for things she needed. (“Dentists, you know, have great art collections.”) As time went on, her debts grew larger and even harder to quantify. She lost her two children; all the world’s children came to feel like hers. The first thing she always wants to talk about is her advocacy for low-cost solar cookers in places where women would otherwise have to cook over flames fueled by scarce wood or poisonous garbage. “I feel a debt to the sun,” she says.

That’s very different from the debt, for instance, underlying every dollar we pass around to each other. Money appears from nothing through bank loans, according to rules set by the government. This debt-based money is a lever of power for the state and a means of profit for banks. Communities of color, to which banks once refused to extend credit, became targets for predatory lending before the 2008 crash; new financial “products” and government bailouts ensured that the banks won regardless of what happened to the lives of borrowers.

Abroad, debt maintains the international pecking order — subtler than armies, though no less vicious. From Athens to sub-Saharan Africa, globe-spanning lending agencies dangle new loans (needed to pay old ones) as rewards for slashing public services and lowering trade barriers that protect local economies. Whether through dollar bills or the International Monetary Fund, rule by debt is as omnipresent as the debt Frank acknowledges to the sun.

It is now considered quaint to refer to the time when premodern Christian, Jewish, and Muslim civilizations were united in their prohibitions of usury — the definition of which could range from merely the charging of any interest at all to the most abusive lending. (Financial regulations in a few Muslim countries still take these rules seriously today.) We might ridicule the medieval metaphysicians’ stipulations against money begetting money through interest. But as more of us break the silence and shame of our financial indebtedness, perhaps we’re forced to recognize that they had a point. These religious traditions — built on notions of sin, fealty, and mercy — regarded debt as a precious and sacred thing to be handled with care. They insisted on clarifying the difference between the debts worth having and those that are not.


When Marisa Egerstrom, a seminary student, needed $2,000 for a summer training program a few months ago, she said so on a Facebook status. Within days, she’d easily gotten it from her network; the restitution her lenders asked for included making puppets for a church in Fiji, designing “some kind of subversive liturgy,” and simply to “pay it forward.”

“I get to multiply the connectedness of the community by including others in the so-called transaction,” she told me.

For all that debt contains and constrains us, debts worth having are all around when we care to look for them. Egerstrom’s story reminded me of a couple — graphic designer Ellen Davidson and sometime house-painter Tarak Kauff — who live in a small house just outside Woodstock, New York. It’s a place I’ve come to know over the years because of the gatherings and retreats they host for activists. To an unusual degree, I can attest that guests there feel license to act as if they were at home — to peck at the piano keys, to warm some milk and whirl it into foam. Perhaps this has something to do with the nature of its owners’ underlying debts.

When they were looking for a place to live, Davidson and Kauff could’ve gotten a bank loan, but as longtime activists against corporate overreach, they wanted something better. Kauff refers to what they got instead as “non-oppressive debt”: a mortgage made of loans from family and friends. Over the years, those they borrowed from have grown closer through the arrangement, and some have stopped cashing the payment checks. To the lenders, it’s enough to see the house become a home to Davidson and Kauff, as well as to an extended community. “The loan has turned into a gift,” Davidson says.

This is something that happens all the time. People lend to and borrow from people they know and trust; they share the responsibility and the outcome. In these cases, it would be senseless to design predatory terms since nobody wants to see their friends or family go broke. But not everyone can find the resources they need — to buy a house, to start a business, to build a skyscraper — in their immediate communities; maybe there’s not enough capital available or maybe the community fails to understand a good idea well enough to support it. We need institutions, as well, that offer loans worth having. We need a whole financial system worth having — and we can’t expect that every loan will turn into a gift.

Consider, for instance, Salish Sea Cooperative Finance. It began with a series of intergenerational meetings in Washington state, where the Gen Xers present began to grasp just how much student debt was crippling recent college graduates. The respective groups got over their mutual resentments — the jadedness of the young, the affluence of their elders — and designed a cooperative that would refinance the graduates’ debts under less burdensome terms. After the refinancing, rather than leaving the borrowers to fend for themselves, the model calls on well-connected friends to mentor and help them find the sources of income they’ll need.

“The people with capital are taking some systematic responsibility for student debt and the effect it has on society as a whole.” — Erika Lundahl

The benefits go both ways. “My partner and I were never burdened with student debt, and so we feel obligated to help those who are,” says Rose Hughes, who is both an architect of Salish Sea Cooperative Finance and an investor member in it. “We also get to network with younger people who are doing fascinating things to help our society.”

In the process, says borrower member Erika Lundahl, “the people with capital are taking some systematic responsibility for student debt and the effect it has on society as a whole.” Lundahl herself holds more than $16,000 in student debt. There are currently just over a dozen people signed on to participate — about evenly split between borrowers and investors — and the cooperative is now evaluating its first loan applications.

When organized like this, financial institutions can resemble the loans that happen among friends and family. They can incline us toward trusting each other more and strengthening communities, rather than giving up on both and maximizing profit above all.

Many varieties of socially minded lending already exist, and we each may have our favorites. There’s the “community-supported industry” model being developed in the Berkshires, where people can support local businesses the way CSAs support farms. There’s the Workers Lab, a union-funded organization that is trying to reimagine venture capital for worker-centered technology. Online, new peer-to-peer lending platforms are appearing constantly. My neighborhood credit union has a whole office just for foreclosure prevention.

A financial system worth having can include all these approaches and more. The Catalan Integral Cooperative, an impressive regional organization around Barcelona, has a financial ecosystem that includes grants from the central assembly, an interest-free investment bank, and a crowdfunding website. Each serves a different purpose, but each is designed to benefit the whole community, not just the lenders. A diverse economy needs diverse debts.


It was to me at first perplexing, and then instructive, that the debts Mary Frank has remembered decades later are the ones she will never really pay back. How could she — to the ancients, to the sky? The question of repayment doesn’t compute. These were the debts that called on her to be better and whose traces kept showing up in her art. They connected her to people. They also involved no collection agencies, no tarnished credit scores.

To imagine what a financial system worth having looks like, we can begin with how we lend to and borrow from those we love. (It is written in the Book of Romans: “Owe nothing to anyone, except to love one another.”) In those circumstances, the chief reason for lending and borrowing isn’t profit for the lender. Debt is a relationship. The lender already holds the position of advantage and should take on at least as much risk as the borrower. The borrower’s well-being, and that of the joint undertaking, should be the priority of the arrangement from start to finish.

“All the rules are written assuming a profit motive is what drives everything for the benefit of the lender, not the borrower.” — Rose Hughes

If finance isn’t moving wealth from the top downward, it isn’t working. On a visit to Kenya not long ago, for instance, I was struck by the proliferation of small credit unions at the level of an office or company or farm. They are formidable tools of necessity, providing small doses of credit where and when needed. But they’re not enough. Kenya’s poverty evinces the credit unions’ powerlessness to right the wrongs of global inequality alone. We need financing that makes capital available to those who couldn’t otherwise get it, to span the gulf between haves and have-nots.

Rose Hughes’ involvement in community-based finance has brought her into the twilight zone of trying to develop community-oriented institutions around existing financial regulations. “All the rules are written assuming a profit motive is what drives everything,” she says, “for the benefit of the lender, not the borrower.”

What if we rewrote the rules of finance for the common good, for a truly democratic society? If banks were controlled by the communities where they operated, for instance, their outcomes would be measured in ways other than just money — like how Marisa Egerstrom is repaying her lenders. Democratic debt also means giving lenders less control over the enterprises they finance. Today, lenders’ interests typically prevail over those of founders, employees, customers, and neighbors — people whose lives are likely far more directly affected by an enterprise.

Worker-owned cooperatives, in contrast, preserve their democracy by making sure lenders remain lenders, rather than becoming bosses. “Our model has been to rent capital from the outside and give it no control,” says Rink Dickinson, a founder of the fair-trade worker cooperative, Equal Exchange. His company pays interest and fees for the money it borrows, but the workers don’t give up any governing power.

The debts worth having, it seems to me, are the ones that allow us to be more fully ourselves, that we honor with our freedom rather than our servitude. This is hard to imagine during a moment in history when the captains of finance have come to claim significance and wealth far in excess of the social value they provide. But perhaps one day financiers will be content to better resemble Frank’s anonymous ancient artists — who live on not by collecting royalties and enforcing constraints, but through the inspiration of their debtors.

Nathan Schneider

Nathan Schneider is the author of, most recently, Thank You, Anarchy: Notes from the Occupy Apocalypse. Follow his work on Twitter @nathanairplane and on his website, TheRowBoat.com.

How to build credit without the corporate hassle

1.

Home Ownership on a 4-Year Plan

Alex Cedeño and children

Alex Cedeño at home with his children, Marzia, who just turned 1, and Yalex, 2. YES! Photo by Paul Dunn

Alex Cedeño quit renting two years ago. Now, he has just two years left until he owns his own home. And it’s all thanks to his employer, Evergreen Cooperatives.

Yessenia Funes

Yessenia Funes is an assistant editor at YES! Magazine and a recent graduate of the State University of New York at Plattsburgh. Follow her on Twitter @yessfun.

Evergreen started this unique home-buyers program three years ago. Today, nearly half of its worker-owners have purchased homes through the program. Home ownership was unlikely for them before; many have bad credit or criminal records. Cedeño simply couldn’t afford the traditional route, which would have meant a down payment — and debt. “I didn’t want to have debts so large,” he explains, “so this opportunity came, and I took advantage of it.”

The cooperative accomplishes this by selling formerly foreclosed or boarded-up homes in Cleveland neighborhoods. This keeps worker-owners close to work and allows them to contribute to Cleveland neighborhoods’ revitalization. Today, nearly half of Evergreen’s worker-owners have purchased homes through the program. Cedeño’s house is in Glenville, a neighborhood where two sectors of the cooperative are located. Through weekly payroll deductions and property tax abatement, these $15,000 to $30,000 homes are theirs within four to six years. Cedeño calls his maravilloso, or wonderful.

To be eligible, however, worker-owners must be accepted into the home-buyers program. Evergreen CEO John McMicken says about 75 to 80 percent of worker-owners are accepted. They take financial training classes with the Cleveland Housing Network, a partner with the program. The loan approval process is the last step. If all goes as planned, they can finally purchase a home.

McMicken sees the home-buyers program as a win-win-win. The community fills its houses. Worker-owners, instead of fleeing neighborhoods like Glenville, remain and feed their economy. As for Evergreen? It’s a step closer to accomplishing its mission of building local wealth.

Glenville could use a win. The real estate crash and Great Recession hit the neighborhood hard. It suffered devastating foreclosure rates, among the highest in Cleveland. This is what made it so easy for Evergreen to find houses for its program: So many were empty.

The home-buyers program is the only one of its kind for now, but McMicken is in talks with municipalities in Detroit, New Orleans, and Baltimore that are keeping their eyes on Evergreen. Cedeño wouldn’t mind seeing the program expand. After all, he pays less now than what he used to pay for rent. “It’s helped me so much,” he says. “I paid $400 for rent, and now I’m paying $300 for mortgage, for something that will be mine one day.”

That day is only two years away.

Yessenia Funes

Yessenia Funes is an assistant editor at YES! Magazine and a recent graduate of the State University of New York at Plattsburgh. Follow her on Twitter @yessfun.

2.

Lending Circles for Cash in Hand

Maral Kharadjian hosting lending circle

Maral Kharadjian, at the far end of the table, hosted this month’s shirket, so she got to keep the $1,000 pot. She plans to use that money to pay a credit card bill. YES! Photo by Samantha Morrissey

A few years ago, Maral Kharadjian decided to join the women in her family — including her mother, sister, sister-in-law, aunts, and cousins — at their monthly get-togethers at her aunt’s Los Angeles home. She was looking for a way to stay connected with the women in her extended family, despite her busy schedule. Each month the 10 women get together, cook food, and exchange stories. And one ends up with $1,000.

Liz Pleasant

Liz Pleasant is an assistant web editor at YES! Follow her on Twitter @lizpleasant.

Each woman puts $100 into a pot every month, and at the end of the night the host keeps the money. Most recently they met at Kharadjian’s house, so she got to keep the $1,000. She plans to use that money to pay a credit card bill. Next month someone else will host the party and keep the cash.

“I knew about these meetings since I was a child in Syria, where I was born and lived until I was 16,” Kharadjian said. “Shirket, as we call it, was very popular among Armenian women. I would join my mom sometimes at these gatherings. They made amazing food, and they all dressed up.”

This type of system is called a tanda in Latin American cultures. It is seen throughout the world with many different names, but the principle remains the same: A group of people — usually relatives, neighbors, or close friends — gets together and agrees to contribute a certain amount of money over a certain period of time.

These systems are great for people who either don’t have a bank account or can’t qualify for conventional loans. The beauty of this system is that it provides interest-free community loans or a group savings tool, depending on where you fall in the cycle.

But why pool your money into a group fund when you can save it privately instead? “Sometimes you have money you don’t need right away,” explained Bill Maurer, the director of the Institute for Money, Technology, and Financial Inclusion at the University of California, Irvine. “Other times, you need a lot of money all at once — for a hospital bill, a car repair, or a funeral, for example. Tandas help provide money to those in the group who need it when they need it.”

They’re based on trust, said Lourdes Gutiérrez Nájera, an assistant professor of anthropology at Drake University in Des Moines, Iowa. “It is a form of helping each other out, but one that implies much closer relations than a loan seems to imply.”

Many people use them primarily to save, like Gutiérrez Nájera’s aunt, who lives in Mexico City. “[She] told me she was able to save up for a new refrigerator this way,” Gutiérrez Nájera said. “While she waited her turn, the money she put into the tanda was ‘safe’ from spending.”

Tandas are usually small and informal, but the model is being scaled up. Mission Asset Fund (MAF), a San Francisco-based nonprofit, helps connect clients interested in this type of system, which they call “lending circles.” In the eight years since the program started, it has facilitated almost 4,000 zero-interest tanda-style loans.

The lending circles were inspired by the long and rich history of tandas in Latin American communities around the Bay Area. “It really started from this idea that low-income communities are savvy,” explained Tara Robinson, MAF’s chief development officer. “When people don’t have access to bank accounts, credit cards, or bank loans, they turn to each other.”

MAF has partnered with credit bureaus to report the community lending so it can count toward their clients’ credit scores. “We tweaked the model people were familiar and comfortable with and transformed it so the financial marketplace could recognize the activity,“ said Robinson.

By helping build new credit scores or repair existing ones, the lending circles have helped many clients enter the “financial mainstream,” she said. And they have also helped launch new businesses.

Luis and Zenaida Estrada used a tanda to help their family business, D'Maize Catering.

Luis and Zenaida Estrada used a tanda to help their family business, D’Maize Catering, offering Salvadoran cuisine. Photo by Sarah Peet

Luis Estrada entered his first lending circle after his wife, Zenaida, used MAF to build her personal credit score. Both of them worked long days — he as a chef, she as a nanny — and they wanted to start their own business. For Luis and Zenaida, a family business meant they could set their own schedule and spend more time with their son. So they decided to open their own Salvadoran cuisine catering company, D’Maize Catering.

“In the beginning we wanted to pay everything in full — in cash,” explained Estrada. “Mission Asset Fund taught us about credit scores and how to build them.” When it was his turn to take home the money, he bought a more reliable car for the business. The new car helped them deliver food to additional customers in a timely manner. Soon business began to pick up. Today, D’Maize Catering has 12 employees, and the couple finally has the flexible schedule they wanted. They still participate in lending circles and say the gatherings are a great way to meet other small-business owners in their community.

Back in Los Angeles, Kharadjian now belongs to three shirkets, one of which is made up of 22 people who pay $200 a month. When it comes time for Kharadjian to take home the cash, she’ll walk away with $4,400.

Even with all the financial benefits, Kharadjian said her favorite thing about participating in shirkets is still the monthly gatherings. “I’m so glad I did it,” she said. “It provides us a chance to step away from our daily routine and enjoy each other’s company for a couple hours.”

Liz Pleasant

Liz Pleasant is an assistant web editor at YES! Follow her on Twitter @lizpleasant.

3.

Worker Co-ops Rebuild After Sandy

Henry Lezama helped start his own construction worker cooperative.

With The Working World funding, Henry Lezama helped start Roca Mia, a construction worker cooperative that is rebuilding Rockaway after the hurricane. YES! Photo by Stephen O'Byrne

A month after Hurricane Sandy hit, 10,000 residents in the Rockaway neighborhood of Queens, New York, were still living without power. Rockaway, a peninsula less than a mile wide with Jamaica Bay on one side and the Atlantic Ocean on the other, was devastated by the storm, and more than half of its local businesses remained shuttered long after Sandy struck.

Araz Hachadourian

Araz Hachadourian is an online editorial assistant at YES!.

“It looked like a nuclear bomb had hit. I’d never seen that kind of destruction before,” said Henry Lezama, a construction worker and Rockaway resident of 14 years. He took his family to a local church, where others had gathered for aid and shelter. That’s where he met organizers from Occupy Sandy and The Working World, an organization that provides low-interest loans and technical support to help cooperatives get started. “They were talking about ways to restore the community,” said Lezama. “They said they could help us start a co-op.”

Lezama was hesitant about the idea at first. He had already attempted to start his own construction business once but found the paperwork and bureaucratic process difficult and expensive to navigate, leaving him unlicensed and with a limited pool of customers. A co-op, however, held the promise of job stability and better wages; he would get a say in how many hours the co-op took on, and his co-owners would be people from his own community. The Working World gave him start-up money. He doesn’t have to start paying it back until his business turns a profit.

Traditional banks won’t loan to small businesses if there’s too much risk involved, said The Working World founder and Director Brendan Martin. If they do issue a loan, it comes with high interest rates — often far greater than the business’ rate of return. The result is that 50 percent of small businesses don’t make it out of the first five years, and owners lose everything trying to pay off the loan. That’s why The Working World co-ops are given a chance to stabilize before they begin repayment.

Ten months after the meeting at the church, Lezama and four others launched the construction cooperative Roca Mia. They are still learning how to work in the cooperative model — group decision-making can be a challenge, said Lezama, but there are also benefits. “This is the first time in my life I’ve had a salary,” he said. With their $20,000 loan, they have helped rebuild from Sandy and are training two new apprentices to join their ranks. When they repay, the interest will go into a fund that will be reinvested in three more Rockaway co-ops already in development, allowing Roca Mia to put its debt to work for the local community.

Araz Hachadourian

Araz Hachadourian is an online editorial assistant at YES!.

IN DEPTH