The Ultimate Neighbourhood Bank

Anearly mile-long stretch of Oak Tree Road in Edison, New Jersey is known as Little India for good reason: Every single store there—grocers, clothing retailers, restaurants, jewellers and even an auto repair shop—is owned by an Indo-American. “Everyone from India knows about Oak Tree Road,” says Bipin Patel, the 55-year-old founder of Speedy Mart Food Stores, which operates 35 convenience stores in New Jersey, New York and Pennsylvania. “It is as well known as Calcutta.”

Patel sits at a table in a restaurant on Oak Tree named Chowpatty. It is the nerve centre of the street, where the computer screen is fixed to  ESPN.com’s cricket page, traditional Indian dishes like poori and bhel are washed down with a sweet lassi, and the power brokers of Edison’s Indo-American community meet to discuss their particular brand of alternative investing—in their own community.

With Patel are three other business owners: Dilip Patel (no relation), a 57-year-old liquor and convenience store owner; Mahesh Shah, a 62-year-old pharmacist who owns a string of drugstores in New York and New Jersey; and Manher Shah (no relation to Mahesh), a 73-year-old accountant. All emigrated from India 20 or more years ago and scratched their way up the ladder. And now, with the money they’ve made and the expertise they’ve gained, they’re helping more recent Indian immigrants start their own businesses.

Together these four men have helped fund (sometimes with interest-free loans) more than 200 small businesses owned by fellow Indo-Americans. Doing so, they believe, makes for a stronger neighbourhood and a thriving downtown area, and perhaps creates a bit of good karma. “It is better than investing in the stock market,” says Mahesh. “It lifts everybody up. It’s better to help somebody to be independent so he can support himself. And maybe in the future someone will help you.”

It is, in some ways, the antithesis of Lendingclub.com , where return-hungry investors make high-interest-rate loans to anonymous strangers based on their credit scores.

Bipin, Dilip, Mahesh and Manher prefer the old-fashioned practice of investing in people you know—often by face and name but at least through common cultural norms. Craig Galbraith, a professor at the Cameron School of Business at the University of North Carolina Wilmington, who studies ethnic economies, calls it “social capital.” Says Galbraith: “In economic terms it means the unique cultural attitudes and well-understood behaviours within an ethnic community that encourages people to do business with each other, almost like members of a club.”

The use of social capital is fairly common in immigrant communities, according to Miliann Kang, a professor at the University of Massachusetts Amherst. Sometimes there’s a monthly pot that a group of people pays into. Each month a different participant takes home the pot, using it to fund a business, education or even a wedding.

In the Korean immigrant community these pots are called kyes. In the Mexican community, tandas. The Vietnamese refer to them as hos. Says Kang: “The reason they are so popular is because many in these communities don’t have access to bank loans. The funding functions as the glue that holds these societies together and as a way of helping each other out. There are very few things one person can accomplish alone.”

The Indo-American entrepreneurs of Edison feel the same way but have gone about it in a different manner: They individually help out others in the community. And together, in 2007, they created a federally insured community pot. Bipin helped raise $20 million from 70 primarily Indo-American business owners in the Edison area to start the Indus American Bank in nearby Iselin, New Jersey. The bank now has $200 million in assets and four branches. It has been profitable for the last two years, netting $257,000 in 2011. The bank makes loans to younger members of the community who might not qualify for financing from a big bank. Established community members vouch for their creditworthiness.

Dilip, whom Mahesh refers to as “the godfather of the whole thing”, helped start the Asian American Retailers Association. The 1,000-member organisation hosts seminars to help newcomers learn about credit cards and legal and insurance issues. A smaller group of 300—the Indian Business Association—holds a monthly meeting at Chowpatty. Manher acts as the accountant advisor for both groups.

“When we started our businesses here in the US, we didn’t know which way to go,” says Dilip. “We were the pioneers. We want to make it easier for people now.”

Bipin has helped well over 100 people in the community start businesses through personal loans and contacts at the bank. When employee Chirag Patel (again, no relation) wanted to start his own stores a decade ago, Bipin pitched in with a no-interest loan for $100,000.

“I knew that Chirag was hardworking and honest,” says Bipin, who also helped him negotiate with vendors and contractors. Chirag is now a partner in six Speedy Marts and owns two on his own, with the most recent purchase in 2010. He has paid back Bipin’s original investment. “I know if I needed more money, Bipin would help,” says Chirag. “And I now can help others who were just like me.”

Mahesh and Navin Mehta, an ear, nose and throat doctor, recently helped a famous Indian actress get back on her feet after she had struggled financially following a move to the US. They discreetly refuse to name her, but the woman now owns dance studios and is happily married. “Occasionally something doesn’t work out and an investment goes sour,” says Mahesh. “But you don’t punish everyone for that.”

The men’s efforts have transformed the neighbourhood. In the early 1990s Oak Tree Road was a cesspool of biker bars, prostitutes and abandoned buildings. Now it’s a thriving marketplace, filled with foot traffic on the weekends. There were no vacancies during or after the 2008 financial crisis. In 10 years’ time property values on the street have more than doubled—a nice payoff for those, like Mahesh, who own land there.

The downside to this community-focussed investing? UNC Wilmington’s Galbraith says insularity is the main danger. “These businesses can only grow to a certain level because it’s hard to break out of the community,” he says.

But the Edison group has already branched out geographically. Mahesh’s pharmacies, and Bipin’s and Dilip’s stores, are mostly outside of Edison—all over New York, New Jersey and Pennsylvania—and serve mostly non-Indians. The businesses they have helped fund are primarily off Oak Tree Road, too, operating as far away as Missouri and Tennessee.

While these men have achieved their American dream from their Edison base, there is perhaps a natural evolution taking place. Mahesh has a daughter who is a lawyer and a son who is in medical school. “They probably won’t come back to Oak Tree Road, but that’s okay,” he says. “The younger generation wants something bigger. But that’s why we did it, why we helped. We all get big satisfaction from it.”

And, perhaps, some karmic rewards.