Interest-Free Community Lending
From Social Collaborative Singapore
What is it?
Low-income families sometime borrow from licensed and unlicensed money lenders for needs like paying rent, children’s education and medical fees. Sometimes such 'payday' loans trap them into a cycle of debt and deplete their already low assets.
We hope to establish an interest-free community lending initiative, intended to meet the short-term credit needs (urgent loans) of residents in low-income neighbourhoods and displace the need for licensed or unlicensed moneylenders.
The objective of the lending is not financial assistance or subvention (expected to pay back); nor is it microcredit for starting small businesses. The loans will not charge interest or require collateral (unlike moneylenders or pawnshops).
Why do it?
- Fundamentally, this solution prevents insolvency and debt cycles faced by vulnerable groups by reducing their need to borrow from predatory lenders (licensed or unlicensed). It helps to meet the short-term urgent credit needs of marginalised and under-banked populations.
- There is low operational costs as an entity like a credit co-op already has the capability to disburse loans. Unlike other programmes where funds are used to pay for manpower or operations, the community fund will continue to exist if loan defaults are low.
- The project also strengthens community through an opportunity to address a problem based on the community’s own design and sustained through their own decisions.
How to get it started?
- Roving Labs will help convene a conversation with local residents and partners who indictae interest in setting up the Community Fund.
- We will share different possible models such as group lending and individual lending. Roving Labs will help to co-design process so that the community can make decisions about the features of this Fund, such as eligibility criteria, group size, loan use and mechanisms for monitoring and enforcement of repayments.
- We will help to broker relationships with Social Service Agencies in your area to see if they want to support this initiative.