Following the Covid-19 crisis, disparities the viability and sustainability of minority and women-owned businesses and other businesses have broadened, according to an analysis by Robert Fairlie, professor of economics at the University of California at Santa Cruz and NBER research associate affiliated with the economics of education and productivity, innovation and entrepreneurship programs.
These businesses have been hit hardest and are recovering the most slowly from the pandemic. To some extent, the Paycheck Protection Program (PPP) has helped, but, to ensure that minority and women-owned businesses thrive in the long term, access to affordable loans is necessary.
Over the past 40 years, community development finance institutions (CDFIs) have provided affordable loans to underprivileged communities with low rates of loss and delinquency and no loss of investor principle. Funding creates or maintains jobs and grows underserved small businesses.
CNote, a fintech company that facilitates investment in communities by investing in CDFIs, has been challenged by companies to create the infrastructure and technology that could enable them to invest millions, even billions dollars in low- and moderate-income communities. “[CFOs and corporate treasury department heads] asked “how do I use my balance sheet as a tool for social good?” “, Said Catherine (Cat) Berman, CEO of CNote.
In February 2020, CNote launched the Promise Account, a cash management solution for businesses, foundations and other institutional investors (as well as high net worth individuals). The Promise account is optimized for both financial returns and social impact. CNote invests in FDIC and NCUA insured CDFIs and designated low income credit unions (LIDs). The investments increase the deposit base of CDFIs, which lend to minority and women-owned businesses, affordable housing and economic development.
More recently, CNote announced a personalized service responding to the demands of shareholders and employees to generate not only financial returns, but also social impact. The company simplifies investing in black-led CDFIs and underserved communities. Black-led CDFIs remain underfunded, despite a surge of interest following the racial justice protests last summer. the Hope Politics Institute found that support for minority-led CDFIs was declining: From 2014 to 2017, assets of white-led CDFIs increased by $ 21.8 billion (a 163% increase), while the assets of white-led CDFIs increased by $ 21.8 billion (a 163% increase). Minority-led CDFIs grew only $ 682.5 million (13.6%).
Businesses and their employees care deeply about their local communities. They want to invest in the communities where businesses are headquartered or where their employees live, Berman commented. Dozens of conversations revealed the importance for companies to align their diversity and inclusion efforts with the values of customers, employees, suppliers, communities and shareholders.
When CNote launched Promise Accounts, companies weren’t sure what CDFIs are and their background. “The lack of awareness was one of our biggest challenges,” Berman said. Just a year ago, when speaking to people in large institutions, the initial conversation was to educate the person on CDFIs. “Now the first conversion focuses on what CNote is doing.”
The media have written about the importance of CDFIs in distributing Paycheck Protection Program (PPP) loans to the most vulnerable small businesses. Many CDFIs have been added to the PPP distribution system. The federal government is investing more in CDFIs, as are banks and foundations. New investors in CDFIs are retail, technology, financial services, and fintech companies, as well as large not-for-profit organizations.
CNote, in partnership with ICA Fund Good Jobs, a community development finance institution based in Oakland, California, undertook research and found:
- Women are less exposed to credit risk than men.
- Women of color are no more risky than other groups.
- Women entrepreneurs get smaller loans and can pay more for them.
CFOs and corporate treasury managers have started talking about CNote. “Incoming calls have increased tremendously,” Berman said.
Companies’ supplier diversity programs can connect their minority and women-owned suppliers to CDFIs. An additional opportunity channel where companies can make a difference with their customers.
Another exciting area is employee engagement around community investing. Employees want to go beyond a day of volunteering to discover other meaningful ways to make a difference. “Enabling employees to make investments in the community is a very exciting and obvious next step,” said Berman.
How do you align your investments with your values?