If you were starting a credit union, you might assume that financial expertise was the most important factor. But, as two North Carolina cities have seen, there's another element you can't do without--people. Researchers call it social capital -- an established network of relationships.

"Social capital is the underlying construct that allows people to come together," said graduating senior Lorraine Elliot. For her senior honors thesis in the Department of Public Policy Analysis, Elliot studied the role of social capital in efforts in Durham and Charlotte to create community-owned credit unions for the cities' growing Hispanic populations. Such credit unions offer low-cost services and bilingual staff and forms. She was advised by Michael Stegman, professor of public policy and analysis.

The topic was a natural for Elliot, because she speaks Spanish and while at Carolina did volunteer work in the Hispanic community. She also had contacts in Charlotte, having moved there from Argentina when she was 10 years old.

Elliot found that while the efforts to start Latino credit unions began in both cities at around the same time in 1997, Durham's effort moved much faster. Durham's credit union has been open since June of 2000. "And as Durham is making plans to expand, Charlotte is still in the organizing stage, having just submitted its charter application to the state in mid-March of 2001," said Elliot.

To find out why Durham's effort has been more successful, Elliot first conducted background research such as focus groups with local Hispanic citizens and document analysis of newspapers and marketing materials. Then she did in-depth interviews in both cities--23 people in Durham and 9 in Charlotte,concentrating more on Durham because of its success.

Elliot found that, from the beginning, Durham had plenty of well-established social capital in the Hispanic community, such as El Centro Hispano, a Hispanic community center that provides such services as women's and youth groups, English classes, and free legal help. Also nearby are El Pueblo, an advocacy organization in Raleigh, and La Fiesta Del Pueblo, Chapel Hill's annual two-day celebration of Hispanic culture.

Durham's effort also attracted media attention throughout and included committed Hispanic leaders with a knowledge of the community. John Herrera, for example, was one of the founders of La Fiesta Del Pueblo and was already well-known to Hispanics and community leaders. He brought together the three organizations that eventually backed the Latino credit union--The State Employees' Credit Union, Durham's Community Center for Self-Help, and the N.C. Minority Support Center.

Social capital was also at work when these potential backers met, Elliot said. The presidents of all three of these organizations had known each other for 15 years. "These parties already knew what each other's motives and values were, so the process of deciding whether to back the Latino credit union went faster and smoother," Elliot said.

Even some of Durham's simpler organizing tasks benefited from social capital. An early step was obtaining signatures of 500 people who would be interested in joining the new credit union. When El Centro staff canvassed neighborhoods for these signatures, residents knew and trusted the staff and would point them to neighbors who they thought would also be willing to sign.

By contrast, Charlotte's effort had large commitments from banks. The organizing group also worked with some credit unions, though it did not accept an offer of assistance from the State Employees' Credit Union. None of the organizations involved had long-term relationships with one another, and in the planning stages there was some board turnover because of personality clashes and a disagreement on their approach. Charlotte had to spend time building social capital and trust, while the Durham organizers were able to skip that step, Elliot said. And though Charlotte is a bigger city than Durham, it lacks the established, trusted Hispanic institutions that Durham has.

The National Credit Union Administration has asked Durham for information to use as part of a model for other Latino credit unions. Some of Elliot's findings will be included in that information. "I'm glad that my thesis is not just going to be shelved and never looked at," she said.

Why a Latino credit union?

* In the 1990s, North Carolina has had greater growth in its Hispanic population than any other state, according to 2000 census data.

* Of Hispanic households, 29 percent do not have accounts with mainstream financial institutions.

* Some reasons: difficulties with the English language, perceived discrimination, distrust of banks stemming from banks' instability in many Latin American countries.

* Because of the perception that Hispanics keep cash at home rather than use banks, they suffer increased home invasions and armed robberies.