Jim is moving $250,000 that his business keeps on hand in cash to Hope Credit Union, a black owned financial institution. Selling him on #BankingBlack was easy; it cost nothing, carries no risk yet makes a big difference.
This earlier blog post talks about why there is a need; black-led nonprofits, businesses, and churches were denied the government backed PPP loans by white led banks in Allentown PA, site of our first pilot, despite healthy balance sheets and track records. In Jackson, MS, where Hope operates, a reputable 100 year old HBCU college like Tougaloo College was denied a PPP loan by white led banks, but got the loan through Hope.
Jim wants to do the guarantees to provide collateral for the emergency $500-$2,500 consumer loans that will run through Resurrected Life UCC Church in Allentown, our pilot node in the network of congregational based credit union nodes. Besides increasing liquidity, the money to make loans to black led financial institutions like Hope, we are focused on wiping out payday lending.
During Covid, the emergency loans to the unbanked could lose up to 5%; so someone putting up $1 for those loans would receive 95 cents back. But that nickel you gave up creates a dollar of community wealth; it enables someone to get that emergency loan at a reasonable rate compared to the 25% starting rate at a payday lender. In addition, Hope and Resurrected will establish credit repair services at the Allentown node that follow the successful 25 year program Hope has been deploying in the Mississippi delta. That means, once they get a bank account, instead of having to pay $7 a pop for a money order to pay their mobile phone bill or their rent or any other bill, the credit union member will be able to simply write a check.
It’s expensive to be poor in America. The combination of eliminating payday loans within the social network of the congregation and the people the church knows will cut that cost and enable the creation of real intergenerational community wealth. We are hopeful that affluent churches will pledge their deposits as collateral to the emergency loans that come with a five cent loss and a return of 95 cents to enable the transformation to happen.
It can be thought of as accepting a loss of a nickel to unlock a dollar that can make a real change in someone’s life. Having investors who are will to accept that 2.54-5% loss is the key to to whether their money is just a deposit (which still does tremendous good) or whether it can be used as a guarantee for emergency loans to the unbanked.
Right now, Jim can’t get his business partners approval to lose 5% of the cash they keep on hand, so he will keep his cash safely as a deposit in Hope for the moment. We need to find the $12,000 in philanthropy needed to cover the historic 2.54% of the loan repayments that won’t come through.
Since that default is less than $5,000 per $100,000 that we would lend out, we think that amount can perhaps be covered by a donor advised fund donation (we are talking to two large DAF platforms in the next couple of weeks). Rebirth, a project which arose out of Faith+Finance, is creating the church based network, partnering with Hope over the long term. The Rebirth team is talking to the board of one DAF and the CEO of another in the next few weeks. They liked the story that they can perhaps sell their donors on the potential super power their philanthropic dollars would have, where accepting a $5,000 loss can unlock $100,000 and thus help eradicate predatory payday loans.
Payday loans can cost 400% or more in compounding interest; we are replacing them with 8% loans from Hope, through a church in Allentown that we hope to replicate with other churches in what could become a national network. For people who believe that black lives matter, this is a chance to put their money where their mouth is and get the cocktail party/zoom call casual mention bragging rights that go with it.
In looking at Jim (not his real name), customer number one, and modeling him into an iconic customer profile, I think he represents a likely set of characteristics we want to look for:
1. The decision maker in a private business that has relatively large cash reserves as a normal part of doing business (he is a small developer of gas stations and such).
2. A faith based person who wants to act on his beliefs to do justice.
3. Someone actively involved in his local community, ideally through investment. Jim is a member of a local community development collaborative.
Finding all three might not be that hard; but some people still think giving is the only way to do good and don’t yet see investing as a legitimate alternative.
We have folks on the Faith+Finance team who have done political, nonprofit, and faith-based campaigns who can work with white Christians on that. We will be working up a letter of intent to talk to foundations to raise support for that campaign.
This is the body of an email I sent to some justice oriented white clergy friends:
“We are giving affluent Christians who believe black lives matter an opportunity to put their money where their mouth is. A tax deductible gift of $50 unlocks a $1,000 loan. A gift of $5,000 unlocks $100,000 in low interest loans via a black owned community development credit union through our predominantly African American pilot church in Allentown, PA. These are loans to unbanked people who now are forced to go to payday lenders who charge 400% and more a year for emergency $500 to $2,500 loans for medical bills, emergency car or home repairs, etc.”
I am encouraged. Selling businesses that need to keep liquidity on hand on putting in their deposits into Hope is an easy. The other part needs some financial/philanthropic engineering.
But with Jim we’ve made a start. And I think our first customer looks like a lot of others we can find. If you’re interested in learning more or want to get involved email firstname.lastname@example.org.