Now is the Time for Financial Institutions to Innovate in Communities of Color

Co-authored by:
Karoleen Feng, Director of Community Real Estate
Luis Granados, Executive Director
Jillian Spindle, Chief Operating Officer

National politics inevitably generate public discourse; unfortunately, these conversations have now become increasingly divisive based on political affiliation, race and income level. The dialog has become so polarized that it is now deemed mainstream to opine on who belongs in the United States — and who does not.  

These divisions have brought to light the crucial role of financial institutions in addressing disparities between the population as a whole and communities of color. It is imperative for companies with vast financial reserves, a highly skilled staff and a sizable geographic footprint to leverage their myriad resources to address the increasing needs of these communities of color.

MEDA’s experience indicates that some of these financial institutions have already exhibited a strong track record of implementing impactful work that directly benefits underresourced communities. As MEDA has grown exponentially over the past five years, our relationship with these companies has become increasingly involved and complex, and we anticipate that these relationships will become all the stronger in the years ahead.

Organizational culture is crucial to a successful philanthropic and community-investment partnership. There is an inherent power dynamic in all grantor-grantee relationships. How this power differential is addressed depends largely on the organizational culture of the grantor. For financial institutions to have a positive impact, they must create and value an organizational culture that truly values partnerships with communities of color. Such an organizational culture gradually dissipates the power dynamic, thereby abetting innovative work. Conversely, the absence of this type of organizational culture maintains the power dynamic, translating to seemingly transactional interactions.  

Bolstered by an organizational culture that supports equal partnership, there are a number of ways that financial institutions can have a positive impact on communities of color:

  1. Appropriate loans and products for constituents. The key indicator of a quality financial institution is with regard to the products and services that it offers. There are three questions that must always be asked:
    – Are people of color valued as an important part of the client base?
    – Are the products provided accessible, culturally relevant and reasonably priced?  
    – Are there branches located in communities of color?
  2. Capacity-building grants. Larger, multi-year, general-support grants can allow an organization to strengthen its existing capacity or pivot toward a newly defined set of work.
    Example: MEDA worked with JPMorgan Chase & Co. to advance and share our service-integration model. Our organization also used Citi’s Community Progress Makers monies to develop our innovative real estate work, and even become a CDFI.  
  3. Problem solving. Financial institutions invariably attract highly skilled staff who can assist communities of color in solving entrenched challenges. Just as MEDA coaches families to understand how to manage debt, income, savings and credit, smaller non profits would benefit from financial institutions partnering with them to build their financial assets with financial tools and knowledge that fit the non profits’ sophistication.
    Example: For the purchase of our Plaza Adelante neighborhood center, MEDA worked closely with U.S. Bank in developing a complex financing structure, including everything from equity and tax credits to permanent financing and construction loans. Additionally, we are now working with U.S. Bank to develop a capitalization strategy for Adelante Fund, MEDA’s community lending arm.
  4. Project-by-project debt. Organizations must be able to access debt at the right term, and at the right time.
    Example: Working with Boston Private and Mechanics Bank, in just 15 months MEDA has purchased 15 buildings, saving 93 apartments that are home to residents vulnerable to no-fault eviction by speculators.
  5. Investment pool of funds. These are investments of millions of dollars, offered at low interest rates, that the nonprofit manages and can readily deploy to serve communities of color. MEDA is now actively working with all bank partners on accessing $20 million by 2018, with $100 million the goal by 2020.   
    Example: Citi has invested $50 million to support the San Francisco Housing Accelerator Fund (SFHAF).
  6. Catalyst for community investment. Banks at times have invested in communities of color as a means for driving a larger community agenda. Such investments more comprehensively, structurally and deeply combat the challenges found in underresourced communities.
    Example: JPMorgan Chase & Co. has implemented such a community-investment strategy in Detroit and, most recently, in Chicago.

The above are strong examples of how financial institutions can — and should — create positive change in communities of color; however, this track record is inconsistent across the sector, not always sustained over time or generally not fully leveraged.  

To deepen and expand impact, it is essential that the nation’s most powerful financial institutions own their enhanced importance and critical role in supporting communities of color, especially given today’s divisive national dialog.

Some positive steps would be: partner with organizations, such as Greenlining Institute and California Reinvestment Coalition, to strengthen the Community Reinvestment Act; create a collective-impact approach among financial institutions, as a means of leveraging each other’s work and explicitly connecting services to systems change; and identify ways to use investments in such high-priced markets as the San Francisco Bay Area to address the wholesale displacement of communities of color.

There is no better time than now to take a stand.


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