The Bronx Ink

Denisse Lina Chavez keeps her cash savings in a Heineken bottle that she hides behind the counter of her store in Mott Haven, a practice she has kept for at least 10 years. This unique  savings method helped Chavez pay for her expansion to a neighboring store and then later to open a Mexican restaurant she ran for a while before selling it. While she could have placed that money in a bank and collected interest, she said she doesn’t trust banks and prefers her system instead.

Chavez is one of thousands in the Bronx shying away from the formal financial system. According to a June 2010 report released by the Office of Consumer Affairs Department of Financial Empowerment, the Bronx, at 28.6 percent, is the borough with the highest percentage of unbanked people. While 13.4 percent of New York City residents are without bank accounts, a staggering 56 percent of the roughly 86,000 residents of the neighborhoods Mott Haven and Melrose are unbanked.

But just because many people are not using formal banks does not mean they lack access to savings and credit services. Mexican immigrants bring their cultural practices to the Bronx in the form of informal savings groups called sociedades.   They consist of a group of people who contribute some amount of money on a regular basis. Then,  each member takes the entire pool of money weekly or monthly.

“The point is that you are forcing yourself to save,” said Adrian Franco, director of financial advocacy non-profit Qualitas of Life. “It’s a way to develop an attitude to saving money.”

Chavez is the organizer of a sociedad. In hers, 11 women each contribute $400 weekly, and the pot of $4,400 is given to a different member over the course of 11 weeks. Although the formal group is only 11 women, members without enough money during any given week may ask family and friends to contribute.

“We don’t get rich,” said Chavez. “We just help each other.”

But her group has a much greater chance of bigger returns than most other savings clubs like it. Franco explained that the $400 weekly contribution is extremely high for sociedades, with people normally giving more like $50 a month or $15 or $25 a week. He said he wouldn’t be surprised if there were as many as 50 or 60 people indirectly participating in Chavez’s sociedad.

Chavez explained that in her sociedad, no interest is charged and the group functions to create opportunities for people to make bigger purchases that may be necessary like clothing and rent, or to cover an emergency. She said that a member and her husband have bought two houses in Mexico with their shares of the money.

Sociedades are not replacements for banks, however, because they don’t provide people with a formal credit history. Experts and financial advocates said they serve to help people, especially women, collect savings and attain some financial independence by creating a social structure through the sociedad. Belonging to a sociedad carries with it certain cultural practices and assumptions.

“There is a social pressure attached,” said Alicia Portada, a financial literacy coordinator at the Union Settlement Federal Credit Union, a non-profit group that works in all five boroughs. “You don’t want to be the one who didn’t give the money. Everybody will wonder why and you’ll get left out in the future.”

It is difficult to track how many sociedades actually exist because members are often undocumented and there is no paper trail. But it’s easy to understand why they are so popular.

In all of Mott Haven and Melrose, there are only eight banks, as compared to the 44 across the river in Manhattan’s Upper East Side.  Financial illiteracy also plays a big role in pushing these alternative systems forward, “It might be that they don’t know better.” said Portada. “It takes time to learn the minimum required.”

Lack of English skills also drives people to sociedades, said Adrian Franco, director of Qualitas of Life, another non-profit  group providing financial literacy classes to Hispanics. Immigrants who don’t understand a bank’s policies and complicated procedures prefer these informal savings groups where they can communicate with other members in their native language.

Sociedades and other groups like them have their pitfalls as well. It’s easy for people to run away with the money, which is why these functions work best with friends and family members. “They must be managed well or people can fail to pay and the system collapses,” said Deyanira del Rio, who works at a financial advocacy non-profit organization called the Neighborhood Economic Development Advocacy Project. “If it works well, it can be a disciplined form of savings.”

Margarita Gutierrez, a former member of Chavez’s sociedad, used her savings to buy her store on 138th Street. Four of the 11 members of Chavez’s group were recommended by Gutierrez. “It’s good because it gives credit to people who don’t have social security numbers or documents,” said Gutierrez.

Advocacy groups working toward increasing financial literacy in immigrant populations see the value in being part of an informal savings group like sociedades, but are careful to also acknowledge their limitations.

“It’s a tool,” said Catherine Barnett, vice president of Project Enterprise, a non-profit that administers small business loans to immigrants. “It’s filling a gap. It’s not the total gap, but it’s a start.”