This article on inclusive investing was previously published on Green Money Journal in its February 2022 edition.
After spending a decade working nationally to advance social and environmental justice through land conservation, I was looking for a way to continue purpose driven work while also establishing roots within the community where I was living. There was no turning back after I discovered CDFIs.
For those looking to invest in a solidarity economy, Community Development Financial Institutions (CDFIs) offer a proven way to achieve the instant gratification of knowing one’s investment will immediately make a positive impact on someone’s life and contribute to a long-term shift in who participates in our nation’s economy. Attuned to the greatest needs of underrepresented communities, investments in CDFIs represent an opportunity to place one’s money where it has meaning, to generate a return on relationships and to join a movement of some of the most influential corporations in the world.
Nowhere do dollars invested make a greater difference than those invested in CDFIs led by and located in communities of color. HOPE, a Black and Women Owned CDFI Credit Union, has helped generate $3 billion in financing that has benefited nearly 2 million people across the most economically distressed areas of the Deep South. Far too often, communities of color are overlooked and underserved by the banking sector. As a result, these capital starved communities simply do not have the wealth traditional banks require to qualify for and meet the demand for small business or mortgage loans.
CDFIs have a long track record of importing dollars into these communities to address this challenge. Since 1973, CDFIs have worked for economic, social, and political justice and now manage more than $200 billion, creating jobs, affordable housing, access to financial health, and a chance to build wealth for many that would not otherwise have that opportunity. I see this every day at Hope Credit Union (HOPE), where I work. Take for example the town of Itta Bena, MS (population of approximately 2,000, where nearly 1 out of 2 residents live in poverty). The deposit potential for the entire community is less than $1.5 million. Even if HOPE had every dollar on deposit at our Itta Bena branch, the only financial institution in the community, we could not meet every financial need. Resources from the outside are essential for fostering economic mobility.
When impact investors deposit money at HOPE, it doesn’t just fill financial gaps – it changes lives. HOPE member, Dominique is a prime example. A single Black mother of a 3-year-old child, she became a first-time homebuyer through HOPE. When she did not have the resources to save for a down payment, HOPE had the financial products to get her into a home. HOPE’s Affordable Mortgage Product provides financing up to 100% of the value of the house being purchased. Additionally, HOPE also taps networks to make Down Payment Assistance available to cover closing costs. Dominique took advantage of HOPE’s mortgage program and is a proud homeowner today. (For more on Dominique’s story watch this Banking On Us video)
These products are a tangible response to the historic and structural disadvantage caused by the racial wealth gap. The gap is about 10:1 – $171,000 in median net worth for white families in contrast to $17,150 for Black families (source: Brookings). CDFIs like HOPE use financing tools like the mortgage program summarized above to close – rather than widen this gap. At HOPE, 8 out of 10 mortgage borrowers are people of color and first-time homebuyers; sixty-five percent are women.
Along the path towards building a more just economy, we are used to hearing all of the promises of technology. While I see daily the efficiencies created through technology, I also know there are lessons learned, trust built, and other efficiencies created by interacting with another person. For many in HOPE’s Deep South region, a region with a long history of disinvestment in people of color, a lack of trust toward financial institutions creates barriers to accessing capital. CDFIs build trust first by being present. In many communities, rural and urban, HOPE is the only responsible financial institution to offer affordable loan products and advice. Perhaps this is why Ms. Fannie Dotson, a Black woman who spent her entire life in the Mississippi Delta, waited until her 100th birthday to open her first bank account at Hope Credit Union – the first financial institution she felt listened and treated her with respect.
This approach extends to building relationships with impact investors by providing transparency on the impacts of one’s investment, an understanding of the community challenges the organization is working to address, and excellent customer service.
For fixed-income investments, many CDFIs offer notes with varying rates of return and terms as well as certificates of deposit (CDs). Both of these offer low-risk and little barrier as they can be opened at $1,000 or sometimes less. For CDFI banks and credit unions, investments like these fuel the loans like the one made to Dominique.
Recently, the U.S. Treasury announced awards for 84 CDFIs and minority designated credit unions through the Emergency Capital Investment Program (ECIP). ECIP was created by Congress in late 2020 to provide community development credit unions and banks with long term (30 year), low-cost capital to help businesses, homeowners and individuals recover from the economic crisis. As a result of the federal program, there is an unprecedented opportunity to leverage deposits and expand the impact of organizations like HOPE in the nation’s most economically distressed region. For HOPE, this means our $88 million ECIP award, a loan that can be treated as regulatory capital, has an opportunity to raise over $700 million in deposits – every dollar of which can be deployed in places like Itta Bena. These deposits will work alongside hundreds of existing deposits from major corporations like PayPal, NIKE, and Netflix to small nonprofits, individuals, and others. By investing cash reserves in HOPE’s Transformational Deposit program, a low-rate money market or CD account, one contributes to scaling impact in the Deep South more than any other time in our 27 year history, all with the safeguards in place of a federally insured and regulated institution.
In a nation becoming more Black and Brown, HOPE’s Transformational Deposit program represents an investment in the potential of the nation as a whole and the values on which it was founded. If you or your clients are looking to prioritize social profitability instead of purely financial profits, track records show CDFIs are positioned to advance economic opportunity for all. Now more so than any other time in our movement, we have the opportunity to scale this work together.
Image credit: August de Richelieu via Pexels
Mary Bruce Alford is Senior Vice President of Investor Relations at Hope Credit Union. She directs HOPE’s capitalization strategy with impact investors and mission depositors. Prior to HOPE, Mary Bruce worked at The Trust for Public Land where she Co-Directed the Conservation Almanac, the premier resource for tracking U.S. investments in protected lands and supported the passage of ballot initiatives resulting in hundreds of millions of dollars for the enhancement of public spaces.