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As a result of the Covid-19 crisis, disparities in the viability and sustainability of minority- and women-owned businesses and other businesses have widened, according to an analysis by Robert Fairlie, a professor of economics at the University of California, Santa Cruz and an NBER research associate affiliated with the Economics of Education and Productivity, Innovation, and Entrepreneurship Programs.
These businesses were hit the hardest and are recovering the slowest from the pandemic. To some degree, the Paycheck Protection Program (PPP) helped but, to ensure that minority- and women-owned businesses thrive long term, access to affordable loans is needed.
Over the past 40 years, Community Development Financial Institutions (CDFIs) have provided affordable loans to disadvantaged communities with low loss and delinquency rates and no losses of investor principle. The financing creates or retains jobs and grows underserved small businesses.
CNote, a fintech company that makes it easy to invest in communities by investing in CDFIs, was challenged by corporations to create the infrastructure and technology that could enable them to invest millions, if not billions of dollars in low- to moderate-income communities. "[CFOs and corporate treasury department heads] were asking 'how do I use my balance sheet as a tool for social good?' "said Catherine (Cat) Berman, CEO at CNote.
In February 2020, CNote launched the Promise Account, a cash management solution for corporations, foundations, and other institutional (as well as high net-worth individuals) investors. The Promise Account is optimized for both financial returns and social impact. CNote invests in FDIC- and NCUA-insured CDFIs and low-income designated (LID) credit unions. Investments grow the deposit base of CDFIs, which lend to minority- and women-owned businesses, affordable housing, and economic development.
More recently, CNote announced a customized service responding to shareholder and employee demands to make not just financial returns but social impact. The company simplifies investing in Black-led CDFIs and underserved communities. Black-led CDFIs remain underfunded, despite a wave of interest following last summer's racial justice protests. The Hope Policy Institute found that support for minority-led CDFIs was declining: From 2014 to 2017, the assets of white-led CDFIs grew $21.8 billion (a 163% rise), while the assets of minority-led CDFIs grew just $682.5 million (13.6%).
Corporations and their employees care deeply about their local communities. They want to invest in communities where corporations are headquartered or where their employees live, commented Berman. Dozens of conversations revealed the importance of corporations aligning their diversity and inclusion efforts with customers, employees, suppliers, communities, and shareholders' values.
When CNote launched Promise Accounts, corporations were unaware of what CDFIs are and their track record. "Lack of awareness was one of our biggest challenges," said Berman. Even a year ago, when she spoke to people at large institutions, the initial conversation was educating the person about CDFIs. "Now, the first conversion is focused on what CNote does."
The media wrote about the importance of CDFIs in distributing Paycheck Protection Program (PPP) loans to the most vulnerable small businesses. Many CDFIs were added to the PPP distribution system. The federal government is investing more in CDFIs and so too are banks and foundations. New to investing in CDFIs are retail, technology, financial services, and fintech companies, as well as large non-profits.
CNote, in partnership with ICA Fund Good Jobs, an Oakland, California–based community development financial institution, undertook research and found:
- Women are at a lower credit risk than men.
- Women of color are not riskier than other groups.
- Women entrepreneurs get smaller loans and may pay more for them.
CFOs and corporate treasury heads started talking up CNote. "Inbound calls increased tremendously," said Berman.
Corporations' supplier-diversity programs can connect their minority- and women-owned suppliers to CDFIs. One more channel of opportunity where corporations can make a difference with customers.
Another exciting area is engaging employees around community investing. Employees want to move beyond a volunteer day to other meaningful ways of making a difference. "Enabling employees to do community investing is a very exciting and obvious place to go next," said Berman.
How do you align your investments with your values?
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