With Tandas, Small Savings Become an Economic Lifeline During the Pandemic

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With great speed, Litnis pulls out several sets of shirts and pants from a box and starts folding them. She moves quickly around her new store located in San Francisco’s Mission District, keeping an eye on every detail. She plans to open up for the first time on Sunday, selling clothing, shoes and other accessories.

“This is a blessing. To have the opportunity to open up again despite everything,” Litnis says in Spanish. We’re only using her first name due to her immigration status.

This summer, a fire broke out in a restaurant neighboring her original store on Mission Street. While her particular store wasn’t damaged, her landlord asked her to leave, citing damages to the overall property from the fire. But finding a new site proved very difficult during the pandemic.

“With the restrictions and so many people without a job, we were losing so much already. Losing the store felt like a punch I couldn’t get back up from,” she explained.

Determined to open up her store again, but with limited cash on hand, she decided the best thing to do was wait. Her turn to collect the tanda was coming up.

For more than five years, Litnis has participated in tandas, first learning about them in her native Honduras. Here in the U.S., her family comes together virtually each month and agrees on an amount each person will contribute to a pot. Each time, a different person in the group gets to keep the money in the pot, and everyone in the circle gets a turn.

The amount each participant receives will be equal to the total of what they’ve given each month. While the net gain is zero, the goal of a tanda is not to make a profit.

“I get to save money this way by putting away bit by bit an amount I don’t have upfront,” Litnis explains. “After it’s been my turn to receive the tanda, I keep paying my part each month until everyone in the circle has gotten their turn.”

When the tanda finally got to her, she invested the funds into a new locale on Folsom Street, just a few blocks away from her original store.

“There are so many expenses each month that I can only put away a little. But I wouldn’t have been able to start again during the pandemic without the help of my tanda,” she says.

Tandas, juntas, colectas and cundinas are only a few names in Spanish to describe people coming together to support each other financially without relying on banks. They’re not just popular within the Latino community, but with diasporas from all over the world as well — specifically with migrants who don’t have access to formal credit markets.

In the U.S., they’re also known as lending circles or clubs, and have become essential tools during the COVID-19 pandemic recession.

“We’ve seen that many clients use lending circles as a way to save during the pandemic,” says Binh Ngo, communications and engagement manager at Mission Asset Fund (MAF). Based in the Mission District, MAF organizes its own lending circles.

Some cut back, others just hang on

The coronavirus health restrictions and a drop in consumer spending have disproportionately affected small businesses and low-income households, specifically their ability to save. While the national personal savings rate shot up this year — 13.6% in October, almost double from where it was this time last year — not everyone is saving equally.

While the richest households are cutting down on expenses, those with the least resources are using up more of their savings as the pandemic keeps dragging on.

Stay-at-home orders restrict the operations of high-risk businesses like restaurants and gyms, but also limit employment options for low-income workers. On the other hand, higher-paying white-collar employees have transitioned to working from home, reducing expenses for leisure and eating out.

The top quartile of income-earners in the U.S. cut down their spending by 9.2% in October when compared to the same time in 2019, according to data gathered by Opportunity Insights, a Harvard-based research institute. Households at the bottom 25% of the income distribution have barely had the chance to cut down on spending — saving almost nothing in October 2020 compared to October 2019.

In California, both geography and income feed into this inequality. The data from Opportunity Insights for December shows that in San Francisco, a city with a 2018 median income of $112,376, savings rose by 10.4%, but in places with a much lower median income, like Kern County ($51,579), spending went up instead, by 4.7%.

When higher earners spend less, smaller businesses are those that suffer the most, and with them their employees. Opportunity Insights compared the revenue losses of small businesses with the unemployment rates of low-income workers in New York City from January to April of this year and found a positive correlation between the two factors.

A drop in consumption at the top and the latest stay-at-home orders have created additional burdens to workers that were already struggling to keep up before COVID-19.

“Almost all I made before the pandemic went to rent and food before the pandemic. It’s the same case for the other people who are in my tanda,” Litnis says. “The little we can keep now, we have to make sure it counts.”

These expenses can pile up, especially during the holiday season. With unemployment still high, some people like Litnis are teaming up with family or friends to split up costs of gifts, repairs or just to cover the bills as an option, whether that is through the casual tanda or the more formalized lending circle.

If you’ve never done something like this, we looked for the best ways to start, while keeping in mind risks and accessibility.

Starting a tanda, while controlling the risks

For Santa Clara County Deputy District Attorney Hugo Meza, making sure people go about partaking in tandas safely is not just a part of his job, but also something close to his heart. Growing up, his mother participated in tandas with her coworkers at a printing press in the South Bay.

“That was a great way for my mom to save money. To learn how to save money. It was great when she got the pot for her and it was a good way to socialize with other people at work,” he says.

Now, some of the cases he investigates are tandas gone wrong: when the person organizing disappears with everyone’s contributions or a participant refuses to pay their part.

“There’s no section in the penal code here in California that prohibits people from organizing or partaking in a tanda. However, if the tanda doesn’t go according to plan or someone doesn’t keep up their end of the bargain, those acts related to a tanda could become illegal,” Meza explains.

While these kinds of issues with tandas are infrequent, Meza says there’s always a potential risk when exchanging money with a group.

“A big part of having a tanda is understanding that there exists the risks of being defrauded, risks that someone could take advantage of the people participating,” he says.

But there are practices people considering a tanda can adopt to make it safer, Meza says, whether they are newbies or experienced.

First, make sure you are close with everyone in your tanda. If a friend or relative is organizing the tanda, check who else will participate.

“Keep that circle very close and tight-knit between people you know,” Meza says. Those close relationships can include coworkers, but Meza says it’s best to avoid people you’ve never met in-person or who work in another part of the country.

You could also ask those joining to share with the group their contact information, including address, email and even an emergency contact. Each participant could also share why they want to be part of the tanda, which can strengthen the relationships within the group.

Once you have your list, Meza suggests you keep it small. And you might want to do the same with the amount of money that tanda members will contribute. While a bigger individual contribution means a bigger pot, it also translates into a bigger risk.

“But if the amount is smaller, $50 or $100, your risk is a lot lower,” Meza says.

While the informal nature of tandas may appear attractive, Meza says it could be a good idea to add a bit of formality and draft up a document that clearly states out the participants and their roles — despite the fact that that may discourage some participants.

“It can be frowned upon to have a document or some kind of contract. Someone might think, ‘Well, if I’m putting my name and signature down, all this information or a copy of my ID, I might as well just go to a bank,’ ” he says.

But this document doesn’t have to be overly complex. And since not all tandas are the same — some can pay out each week, others every pay period — putting these distinctions down on paper can avoid possible mix-ups.

It’s the ground rules, Meza says: “How much money is going to be involved in the pot? When and how will the money be collected and distributed? What happens if someone doesn’t pay their amount, or someone doesn’t have the money that month?”

If someone does break the rules and refuses to amend their actions — or has run away with the tanda — the best thing to do at that point is contact the police. And remember: Just because you agreed to be part of a tanda does not mean that you agreed to be a victim of a possible scam.

Depending on how the investigation goes, the prosecution might decide to press charges of embezzlement against the suspect.

Meza adds that anyone can report an incident like this, regardless of their immigration status. The California Values Act prohibits local police departments from sharing information on the immigration status of a victim with federal agencies like U.S. Immigration and Customs Enforcement.

“Here in San Jose at least, to us in law enforcement, we don’t care about your immigration status, a victim is a victim no matter where they come from. That information is not relevant at all and we don’t share it with any federal agencies,” Meza says.

Opting instead for a lending circle

While the casual and quick nature of a tanda can be the perfect fit for some, others may be looking for a more structured alternative. That’s exactly the niche that lending circles intend to fill. Around half a dozen of these nonprofit organizations, like Mission Asset Fund, exist in the Bay Area.

The participants of a lending circle may not know one another before coming together, but MAF takes on the responsibility of electronically collecting payments each month, distributing the pot to the designated person and providing an accountability mechanism.

“We formalize the cultural practice so that every time someone makes a monthly payment, we report that payment activity to the three major U.S. [credit] bureaus. We do this without charging interest. It’s a very simple way for people to establish and improve their credit and save,” Ngo, from MAF, explains.

To join a MAF lending circle, you’ll first have to fill out an online application, complete a financial education webinar and sign a promissory note. Once you’re matched with a group, you can discuss what the contribution amount will be. But when you join the lending circle, you’re technically borrowing from MAF — not from your group members. That’s what enables the organization to report your payment history to credit bureaus.

While there are a few more requirements to join a lending circle than a tanda, the process is still much simpler than getting a bank loan, especially for those without a bank account or legal immigration status.

“Folks don’t have to have a credit history to join our program. You don’t need a Social Security number to join the program,” Ngo says.

She points out that even if you don’t live in San Francisco, you can still participate in a lending circle. There are dozens of organizations across the country just like MAF that form part of the Lending Circles Network. The Network's website includes a searchable list of organizations sorted by ZIP code. And all Bay Area ZIP codes are eligible to enroll into one of MAF’s lending circles.

If you join a lending circle now, you probably won’t get your turn in the circle before the year ends. But, as Ngo points out, forming part of a lending circle can boost your long-term objectives, like improving your credit score to qualify for a car loan or mortgage.

“I would recommend that participants think deeply about their financial goals and what they hope to achieve by joining a lending circle,” she says.