Do-It-Yourself Financing

When Do Van Tron escaped from Saigon to San Jose in 1982, no bank would take a chance on his business prospects. Do lacked a credit history, had no money and spoke no English. Today, however, the 31-year-old refugee publishes a Vietnamese-language newspaper, tools around town in a silver Jaguar and has started plans to build a shopping center. The reasons for his rapid rise: long hours of work, plenty of thrift and $4,800 in start-up capital from an unconventional source. Like thousands of other immigrants, the budding entrepreneur tapped an ethnic loan club for his seed money.

Such clubs amount to informal, small-scale banks organized primarily by immigrants to help one another. Though the loan clubs are not legally prohibited, they operate outside regular U.S. banking laws and safeguards. Even so, they have nurtured fledgling businesses from the barrio to Chinatown in cities as diverse as Houston, Los Angeles, Chicago and New York. With loans ranging from a few hundred dollars to $20,000 or more, Vietnamese hui (associations) in Texas played a crucial role in reviving the moribund shrimping industry in the Gulf of Mexico by financing the purchase of dozens of boats. An estimated $10 million in Korean keh (contracts) has financed the purchase of houses, restaurants and small grocery stores in the San Francisco Bay Area. "This is Horatio Alger all over," says David W. Engstrom, a research associate at the University of Chicago who studies immigrant merchants. Thanks to loan clubs, he adds, "most of these people open their businesses in three to four months after arriving here."

Most of the clubs operate on the same basic principle: a group of people, often ten or 20, contribute the same amount of money each month to a kitty, which is immediately loaned to one of them. All club members, including the borrower, continue to make the monthly payments until everyone has received the purse once. By that time, each participant has borrowed and repaid the entire loan. The organizer, who is typically female, keeps a record of payments and vouches for newcomers until the club disbands. "It's like Weight Watchers," says Ivan Light, a professor of sociology at the University of California, Los Angeles. "If you want to be in the group, you have to save money."

In one type of West Indian su-su (among us) in Brooklyn, for example, ten people contribute $200 a month for ten months. Though many clubs assign the pool by drawing lots, each $2,000 collection in this kind of su-su goes to the person who everyone agrees needs it most urgently. After ten rounds, each member has contributed ten $200 installments and received one lump-sum payment of $2,000.