The path to financial advancement is blocked for 22% of Americans. Unbanked or underbanked, many find themselves in financial services deserts and left behind by a system that makes wealth largely inaccessible to so many.
Business leaders often speak out about their commitments to creating an equitable society, and when things like racial inequality and the disparate COVID recovery make headlines, donations are pledged and resources committed. But too few are taking advantage of this simple approach for meaningful long-term impact – putting money where it can work for the communities that need it most.
Community Development Credit Unions (CDCUs) and Certified Community Development Financial Institutions (CDFIs) provide underserved communities with safe and accessible tools to manage and improve their finances. Over the past five years, CDFI membership has grown by 16% to 14.5 million, many of whom would otherwise likely have been unbanked or underbanked, with little or no access to credit. But branches are closing, and that’s where corporate deposits can help.
Businesses with cash to deposit can compound the societal benefits of these credit unions while enjoying competitive rates, asset preservation, and quick ratio management.
In communities where CDCUs are at work, fewer consumers turn to predatory lenders, more underrepresented minorities are able to start businesses, and families who would otherwise be excluded from traditional mortgages can buy homes. These credit unions specialize in providing fair loans, bank accounts, financial education, and credit counseling for low-income and underserved populations. They offer a level of financial choice and the potential for upward mobility where none existed before.
But CDCUs and CDFIs generally do not have cash. In fact, they are often pushed to join forces in order to expand their operations and provide comprehensive services to their membership base. These mergers and consolidations mean that those that remain have better technology and more holistic services, but some communities are losing their branches. There were 571 minority depository institutions in 2017, for example, and 518 in 2021.
To continue and grow their impactful work, CDCUs need a stable source of below-rate capital, such as deposits. These deposits pay off multiple times.
For every dollar invested, CDFIs can leverage up to $12 of additional private capital. For example, Self-Help, a North Carolina-headquartered CDFI with 72 branches and over 180,000 members, can collect an additional $7 in deposits for every dollar. For example, a recent NerdWallet deposit of $2 million has an impact of $16 million that can be given directly to community credit union members. The Financial Equality Project is asking other companies to make similar investments. The alternative, depositing commercial cash in large banks, simply doesn’t have that impact – not even close.
An estimated 22% of Americans are either unbanked or underbanked, according to the Federal Reserve, and the CFPB estimates that about 26 million are invisible to credit. People of color are disproportionately represented in these groups. They are caught in a financial services wasteland, with no access to credit like traditional loans or even a bank account to protect their income from some of the effects of inflation. They are more likely to turn to high-interest loans with exorbitant fees when an unexpected expense arises or prices rise beyond the reach of their paycheck, and they are less likely to own a home or to be able to afford their retirement.
The work that has been done to address financial inequities is notable, but should not overshadow the work that remains to be done. Those of us who have the power to decide where a company puts its money have an obligation to put it where it can do the most good. That has no price. No one loses in this scenario.
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