Mutual Aid Finance in Montreal

Some people face difficulties getting loans because they are written off for being in debt, having bad credit, or lacking collateral. This is often tied to discrimination on the basis on their race, class, or immigration status. Instead of getting loans to help them build a business or return to school, they are denied and sent home empty handed.

Borrowers need access to lenders that understand their loan history, financial products that meet their needs, and repayment schedules that don’t punish them for having unpredictable income. Communities left out by banks and lenders need mission-aligned investors who understand that value is more than just profits and are willing to trust the borrowers and their communities.

Finance needs to be controlled by the people it is supposed to serve—or it can exploit them, as many “microlending” initiatives around the world have. Community-controlled finance is about building power. Consider an example from Quebec, a province known for its long history of cooperative entrepreneurship and innovation around social finance. MicroCrédit Montréal puts into practice the original ideals of the movement that shares its name. Aware of the potential risks of microlending, they have developed measures to avoid the cycles of extraction and exploitation into which some other microlending has fallen.

MicroCrédit Montréal emerged in 1990 from the Milton Park neighborhood, the site of important housing rights organizing that led to the creation of a multi-unit housing cooperative in the early 1980s. Organizers noticed the lack of investment in this mixed-income area, where affluent blocks are in close proximity to poverty. A committee studied this issue and created a local loan fund inspired by the 1977 Community Reinvestment Act in the United States, which outlawed certain discriminatory credit practices (like redlining) in low-income areas. Listening to the needs of the community, the organization now manages a business-loan fund for new entrepreneurs, and offers loan products for immigrants seeking local recognition of their foreign credentials. In both cases, MCM prioritizes lending to women.

Currently, over 70 percent of MCM’s business loans are extended to entrepreneurs of color, many of whom encounter barriers to loan approval, because they might lack local credit history, assets for collateral, or people to act as guarantors.

MCM’s Foreign Credential Recognition loans aim to end the common assumption that first generation immigrants must work low-wage jobs and hope that their children might do better. New immigrants to Quebec need to demonstrate their credentials to the Ministry of Education and professional associations. It can cost the equivalent of tens of thousands of US dollars to obtain official licensure. This type of loan helps fast-track the credential-transfer process so new immigrants don’t have to fall behind or sustain gaps in their professional work experience.

MCM analyzes every business project and meets with each potential borrower to listen to their needs and approach their venture from an informed perspective.

Marc Nisbet, who served as a loan analyst and business development coach at MCM, explains that applicants often express that it is refreshing to show up somewhere and be treated in a way that is aligned with their self-image, as entrepreneurs. “We could see it in their body language,” says Nisbet, “They would arrive with a defensive posture, that changed after we spoke with them for half an hour.”

MCM’s loan fund is financed by a mix of large and small investors, from the cooperative Desjardins Group to individuals willing to contribute at least $500 CAD. Anyone can support the program—the youngest investor was only eight years old. Investors receive interest payments of up to two percent and are updated about their investments and the capital pool twice per year.

MCM’s loans are repaid with ten percent interest—a rate far preferable to those of predatory lenders or credit cards, which on average charge 22 percent. MCM’s average loan is $6,000, up to a maximum of $20,000. All the fund’s earned interest is returned to the capital pool, which covers the interest paid to investors, as well as any losses. Then, that growing capital pool can go out into the community as new loans.

MCM’s employees, whose wages come from outside fundraising, support prospective borrowers throughout the entire loan-application process. A committee composed of volunteers and a member of the board of directors reviews completed applications; investors do not have a voice in that process. The majority-immigrant staff uses its knowledge of cultural practices around money to guide applicants. The board determines whether to approve or deny the loan, but entrepreneurs who have been denied can request an appeal to better understand the reasoning behind the rejection.

Although loans officially last up to three years, loan officers are flexible about life’s uncertainties and have the power to postpone loan repayments in some situations, in order to avoid placing borrowers in a situation where they are unable to repay.

What began as a local project has created spin-offs across the province, with 17 agencies under the umbrella of Micro Entreprendre. This is a model that depends on local knowledge and local power, but it can be replicated in many contexts.