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December 23, 2004
Bushwick Cooperative Federal Credit Union Democratizes Financial Service in Brooklyn
    by William Baue

This three-and-a-half year-old community development credit union fills the gap left vacant by formal sector financial institutions, empowering members through financial education.

Unemployment hovers at about 17 percent. Median household income for a family of four is about $23,000, with more than a third of residents living below the federal poverty line. About forty percent of eligible residents receive some form of public assistance. This is Bushwick, a north Brooklyn neighborhood of about 100,000, according to the 2000 Census.

In 2000 only two bank branches served Bushwick, creating a significant gap in access to formal sector financial services. Inspired by the successful startups of other New York City community development credit unions (CDCUs), a state assemblyman, a local nonprofit, and Central Brooklyn and Neighborhood Trust Federal Credit Unions decided to organize a CDCU in the neighborhood.

Bushwick Cooperative Federal Credit Union offers basic financial services to anyone who lives, works, or worships in Bushwick and their family members.

"The demand that we address is for very simple saving instruments, payment services, and credit products, and the demand comes mainly from poor households, mostly Spanish speaking, but also from some organizations and microenterprises that have a difficult time accessing credit from formal sector financial institutions," said Jack Lawson, Bushwick's manager and financial officer. "We are basically a cooperatively organized bank, working with low income, low wealth members who operate in an environment where formal sector financial institutions are in extremely short supply."

In the absence of easy access to formal financial institutions, the only other options community residents have for loans and check-cashing are so-called "fringe banks"--namely, pay-day lenders, pawnshops, and illegal loan sharks (or "prestamistas" in Spanish). While these "fringe banks" provide necessary payment and credit services, they also prey on clients' desperation and lack of choice by jacking up interest rates to $100 monthly on a $1,000 loan until it is completely repaid.

"The problem is that, when provided by "fringe banks," these services hinder rather than enhance a poor family's ability to maintain financial savings," Mr. Lawson told "They are a costly alternative to formal sector financial services, a disturbing example of the way in which the poor are too often compelled to pay more."

Bushwick Cooperative Federal Credit Union seeks not only to fill a vacant niche in the market, but also to empower its members.

"We do much more than just correct market failures--we are also engaged in deepening democracy in the community," explains Mr. Lawson. "The concept of being a stakeholder in a neighborhood institution, of having a voice in its growth and development, is not one that is widely known in a neighborhood like Bushwick--a sense of disenfranchisement and lack of political control are the common currency."

"By building a financial institution that is open to all members of the community and directly accountable to them, we are working to change that," he adds. "Our members are not simply clients and they are not just beneficiaries of a small loan fund; they are shareholders with a political voice in the institution that holds their savings--in this sense, the model is actually quite radical."

Bushwick expresses its radicalism not in lofty philosophical pronouncements but rather in straightforward explanations (in English and Spanish) of how CDCUs are organized, what rights and responsibilities they entail, and the importance of timely loan repayment.

"Perhaps most importantly we take almost every loan request seriously and give the applicant attention, no matter what the amount under consideration," Mr. Lawson says. "It is probably also quite important that our fee structure is very simple and transparent."

Despite the absence of mainstream bank branches in the neighborhood, formal sector financial institutions Chase Manhattan and Citigroup supported Bushwick by committing substantial funding to start-up expenses. As a relatively young CDCU, Bushwick continues to rely on grants to subsidize operations.

"We also turn to institutional depositors to place funds at below market rates of return, ranging from zero to three-and-a-half percent, with the weighted average hovering right around one percent," says Mr. Lawson.

Such institutional investors also earn a social return, supporting an institution that not only provides banking services to the formerly "unbanked," but also empowers its members by educating them in fiscal responsibility and the accountability of cooperative ownership.


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