Jun 17 2019

Star Finance: A Mortgage Solution for Somali Refugees in Minneapolis

The Transform lab focused on creating culturally appropriate and non predatory mortgages for Somali immigrants in Minneapolis looks like it’s going to create a real answer to the problem. Mission Driven Finance, an innovative finance company, has signed on to build the “plumbing” of the mortgage product (underwriting criteria, credit enhancements, etc) for a Somali led startup called Star Finance, in cooperation with the Transform Series.

The model is simple: as Star co founder Said Sheik Abdi laid it out, he will recruit 1,000 Somalis to each put up $500 to buy the first two houses. Mortgage holders will rent the houses to own from Star Finance.

The current plan is for Star to be a for profit llc, that is majority owned by a Somali community based non profit, which gets at least 51% of the profits from the mortgages. This is modeled after my successful experience with Evergreen Lodge as a co investor with the Calvert Foundation, Social Venture Partners and Pacific Community Ventures, a community development venture capital firm. Those institutions and individual investors understood that there was a cost to the social mission that would be taken out of their mortgage payments. In Evergreen, there was a hard cost of $300,000 per year for capacity and wrap around services to the at risk youth who were learning to work in restaurants and hospitality. Investors who could accept that were welcome. The project is a success and has replicated.

There is also an abundance premium in the model, which is highly experimental, involving a community led donor advised fund (DAF). The idea is that, rather than a donor come into a community with programs to solve the community’s problems, donors would follow and add to what the community, through its collective action has chosen to do. They would be pooling their resources for the benefit of each, in the model of immigrant savings circles everywhere but at higher scale.

Non Somali, mission aligned for profit investors would get their mortgage payments directly, but the investors who came in through the community DAF would have their premiums go into the monthly abundance premium distribution, to be decided on by a council led by the system entrepreneur.

This would create a regular monthly habit of deciding what to do with abundance distributed for the collective good. This follows the model that most agree is the best element of the fair trade system; the fair trade premium; the amount that coop owners make above the industrial wage for their quinoa, chocolate or coffee, comes with no strings. The non profit, on behalf of the community has to decide what to do with the abundance from the natural working of the system.

I want to use a model I know works. I was an investor in the only successful venture investment and exit with mission insurance from a fair trade company and I got to watch what happened every year with Alter Eco’s coops. They almost invariably did one of three things first with premium. They fixed a clinic or built a clinic. They fixed or built a school. They solved some water and sanitation problem. After that they would do things that brought in more profit, like better quinoa storage, etc. The community, if it is coherent enough that 1,000 people will invest in each other’s future and liberation from rapacious finance, knows what to do with the abundance.

I think that monthly abundance premium councils could change the fundamental nature of donor and grantee relationships; reversing the party with agency in this one space from donor to community, if not actually reversing the power. As Said says of donors and aid agencies “let them sit in the back seat for once.”

Said will lead with Somali community engagement, and connectors like Rob Scarlett are opening important doors to the project, along with Said. Jeffrey Ashe’s research on the savings circles and economic resilience strategies this summer of not only the Minneapolis Somali community but the 66k Hmong and 44k Ecuadorians, the majority of whom only speak Kechua will provide guidance and validation. It is anticipated that the rent to own model could also be tried simultaneously with those communities. The focus of Star itself will be on the Somali enclaves in San Diego and Seattle after becoming established in Minneapolis. But sharing the innovation is a key element in a platform that reaches across communities and helps them learn from each other.

The job of creating a collective intelligence, peer learning, innovation sharing will be done, if we succeed, by the Transform Network. Scheduling conference calls, bringing in experts, doing case studies on methods that are working, etc. And Transform would also help enable local pop up Transforms, using our still evolving Field Guide to Transformation. Transform also anticipates a conference in Minneapolis in the spring of 2020 is a realistic possibility. I am a co founder of Star with Said; we have together 4.5 % founders equity options, a figure in line with what is considered acceptable in coops. S

My job is telling the story and figuring out where to take it, which venues with what tweaking. In Asheville, I am working on behalf and at the request of the immigrant Mexican savings circles I’ve been working with for two and a half years to come up with a buy one, give one strategy with local merchants, with the automatic gifts coming into a DAF that donates to or invests in the savings circles buying the land under their trailer parks to keep them from being displaced by gentrifying developers. What I learn in what works and what doesn’t can instantly apply across the Transform Network to Minneapolis. Other partial solution sharing will I hope be equally strong and resonant.