Through Innovative Loans, Investing, and Other Products, B Corps Connect More People of Color with Bank Services
The systems and policies that guide the U.S. financial industry have helped create a wide and long-standing racial wealth gap. In 2019, the typical white family had eight times the wealth of the typical Black family and five times the wealth of the typical Hispanic family. People of Color have been underserved by the banking industry as well: In 2019, 14% of Black households and 10% of Hispanics had no bank accounts, compared with 3% of unbanked white households.
But some people and companies in the financial industry are working for greater economic inclusion and positive social impact. These include several Certified B Corporations that are shifting capital to People of Color and other communities that traditionally have been underserved by banks and other financial institutions.
Some are doing this by providing traditional financial products and services in new ways. Some are developing innovative products and services that connect entrepreneurs with capital. And some are stepping in where and when needed to give small businesses and their workers a lifeline in times of crisis.
By building on their founding missions and developing new products and services with a racial equity lens, these B Corps are pursuing a similar goal: To benefit their clients and the people they serve to amplify positive social and environmental impact. The B Corps featured in this article can serve as examples for how to use business to shift capital and bridge the racial wealth gap.
Clearinghouse CDFI: Connections That Benefit Communities of Color
One of these B Corps is Clearinghouse CDFI, which is part of a new initiative to tackle the racial wealth gap. “The FVLCRUM Fund brings together community impact and private equity,” says Doug Bystry, CEO of Clearinghouse CDFI, “to connect underserved business owners with capital and build generational wealth.”
“We’re providing private equity investment to minority-owned businesses who traditionally have been overlooked to help them get to the next level,” Bystry says. “We have the right partners and the right people in the right place — people who know how to do equity. The impact won’t just stop at the business owner level but will get transferred down the line. There’s a true connection to benefiting communities of color.”
While public calls for racial equity have amplified since the murder of George Floyd, the FVLCRUM Fund was in development before that. The fund’s partners are lining up investors now for the first close of about $100 million in mid- to late November 2021, Bystry says.
It’s just the latest example of how Clearinghouse CDFI lives its B Corp values as a financial lender. “We only make loans on projects that have a tangible community benefit,” Bystry says. “As a B Corp we are always trying to adhere to those standards.”
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Bystry established Clearinghouse CDFI 25 years ago after he grew frustrated with the financial industry’s reluctance to use capital for community good. “In creating and coordinating Clearinghouse CDFI, I took a big tent approach to community impact — various projects have included community centers, affordable housing, and even a train engine and railroad track as part of collateral for economic development,” he says. “If it’s a project where we can get paid back, then I say, ‘Let’s figure out a way to do this.’”
Bystry says Clearinghouse CDFI also steps up during times of financial crisis, including the 2020 application period for the Paycheck Protection Program (PPP) that provided federal loans to help businesses pay workers during the early months of the COVID-19 pandemic. Data analysis has found that business owners who are Black or other People of Color were faced with more challenges in applying for and receiving PPP loans — following the industry’s historical treatment of these communities. Through redlining and other discriminatory practices, People of Color historically have been refused mortgages and other loans.
“We jumped in. CDFIs initially weren’t eligible to help with loan applications, but I told my staff, ‘We’ve got to find a way to help,’” he says. “I just feel like that’s why we’re here. Our average loan size was $40,000, about a third of average banks, and some were as small as $5,000. Other banks would ignore that, but that’s part of who we are.”
Clearinghouse CDFI has locations in California, Nevada, Arizona, and Texas, and historically has operated in the western United States. But after helping businesses across the country with PPP loans, Bystry says Clearinghouse CDFI is serving customers across the country. The company is also in the midst of a recapitalization effort, he says. “We’re still waiting for socially responsible investors to embrace the work we do and provide equity to help us grow, to make money, and continue to create a tremendous impact.”
Modernist Financial: Providing Philanthropy and Pro Bono Work
B Corp stakeholders — people and planet — play a key role in Modernist Financial’s company mission and its wealth management services for individuals and businesses. Since its founding, the Portland, Oregon-based, queer-woman-owned B Corp has upheld a core value to invite and include in its work and decision-making, says Georgia Lee Hussey, Founder and CEO.
“With that in mind, we take the work we do with clients and spin it out as free tools and pro bono resources for our community,” Hussey says. “This supports our commitment to more equitable distribution of financial tools and empowers our community to make better financial decisions in a culture with a significant lack of financial literacy.”
Examples of these initiatives are pro bono workshops co-hosted by Black-led organizations, a commitment to pro bono clients, and creating and distributing tools for the community to explore their relationship with money and the idea of social justice philanthropy.
In addition, the B Corp’s philanthropy plan is an example of how to focus philanthropic giving on organizations that impact racial wealth inequality. Modernist Financial allocates 60% to 80% of its giving to organizations with a history of success in promoting wealth equality, especially organizations run by People of Color to benefit People of Color. The rest of the B Corp’s giving goes to community organizations supported by its friends and allies.
These values stretch into its services, too. Tax planning discussions with individuals and CPAs include an examination of how tax structures benefit white communities and negatively affect People of Color. “When clients ask about charitable giving, we start the conversation by asking open-ended questions about whether they would like to consider a 3% donation for reparations when they sell an asset,” Hussey says.
During tax planning conversations with CPAs, Modernist Financial has incorporated a stronger focus on understanding how the benefits of high-net-worth people exacerbate structural inequality, Hussey says.
“Our philanthropy plan continues to evolve and be refined as we live and work with an intention to reduce racial wealth inequality, especially as a company that’s part of an industry that exacerbates the problem,” Hussey says.
The B Corp minimum credit for charitable giving outlined in the B Impact Assessment has been a helpful benchmark for Modernist Financial’s philanthropic aspirations. The company increased its annual giving from 1% of total revenue in 2016 to 1.5% in 2018, to 3% in 2020.
“The recent B Corp tax planning guidance has been a helpful resource to provide to skeptical tax advisors and allied professionals who misconstrue the fiduciary duty as meaning they should be working to save clients as much money as possible,” Hussey says. Like B Corps, tax clients are encouraged to consider how their financial decisions could affect other stakeholders.
Modernist Financial says the B Corp community is helping more consumers understand the potential impact of their financial decisions. More financial clients are interested in investing with an eye on benefits beyond the bottom line. This includes sustainability-focused investments that reduce greenhouse gas emissions or values-based investments that promote positive labor practices or animal welfare and avoid private prisons or weapons.
“The social movements and political landscape of the past two years have helped investors connect their values with who is actually managing their money and how it’s being managed,” Hussey says. “If there’s a misalignment, people are motivated to make more conscious consumer decisions.”
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Beneficial State Bank: Modeling New Financial Practices
Founded with a goal of creating positive impact through its loans and other services, B Corp Beneficial State Bank continues to add financial services that support healthy living and regenerative communities.
Maria Kei Oldiges is the Director of Social Impact Research and Evaluation for Beneficial State Foundation, which is the bank’s primary investor and owner. If the bank makes a profit and distributes dividends, the foundation is mandated to reinvest the bank’s profits back into underserved communities. As a nonprofit organization, the foundation’s primary mission is to change the banking system. They recognize that a few good banks are not enough to undo the harm done over centuries by the financial services industry. And as a CDFI, the bank must meet requirements to ensure that most of its loan dollars go to low-income and underserved people and communities.
“Part of our role is to define what impact actually means for the bank,” Oldiges says. “What are its loans doing in the world? What good is it providing to the communities that it’s intending to serve? What impact is the bank making by operating with a different business model?”
By breaking away from extractive and exploitative banking models that historically have limited access to financial services and widened the racial wealth gap, Beneficial State Bank evaluates its loans to make sure they are aligned with its mission and make a positive impact. Beneficial State Foundation is also convening a national working group that has started to examine how loan underwriting can be changed to advance racial justice, Oldiges says. The group is working to counter the banking industry’s historical role in creating and exacerbating the racial wealth gap. This includes examining the factors used to determine whether someone is worthy of a loan and how that loan is priced.
“We don’t invest in any industry engaged in environmental or social harm: no fossil fuels, no prisons, no arms, no predatory lending,” she says. “Those are the overarching things that people often care about when they are looking for social impact banks. We evaluate loans against these and other criteria, to ensure that first and foremost we do no harm; we also evaluate our loan portfolio for all the good that our borrowers are doing in the world. We provide financing to tons of nonprofits, local anchor businesses, small businesses, and many kinds of makers. Our borrowers are doing inspiring things in our communities with our support.”
Like Clearinghouse CDFI, Beneficial State Bank played a key role in helping thousands of small business owners apply for PPP loans during the COVID-19 pandemic.
“We responded to and served people and organizations regardless of the size of the loan or what the bank could make off the loan. We served everybody who reached out to us,” Oldiges says. “That program supported a lot of small businesses and nonprofits who weren’t able to get support from their existing bank, so they came to us or were referred to us because they knew we would help.”
Beneficial State Bank and Beneficial State Foundation also administer a program designed to help low-income Californians access clean vehicles, primarily in California’s Central Valley, a large agricultural region. A partnership with the California Air Resources Board, the Clean Vehicle Assistance Program provides grants of up to $5,000 for qualified residents to purchase electric or hybrid vehicles.
Through this single program, Beneficial State can make a positive impact both socially and environmentally. “By providing these grants to low-income residents, we’re addressing equity and access to banking,” she says. “The Central Valley also has some of the worst air quality and health outcomes in the country. It’s very rural, with very little public transit infrastructure. People who live there need vehicles but they don’t need more polluted air. So we set them up with reliable transportation that yields cleaner air for all.”
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