A blog by IFF CEO Joe Neri
On April 15th, IFF CEO Joe Neri published a blog post about “Racial Equity in Times of Crisis,” pointing to inequities in how the Paycheck Protection Program (PPP) was being distributed (or not) to nonprofits and other small businesses led by people of color and asking financial institutions to find a way to interrupt this cycle of systemic injustice. IFF followed its own advice, finding a way to interrupt our own formulas in order to bring the PPP to more nonprofits throughout the Midwest. This follow-up piece describes our efforts.
The COVID crisis. The economic crisis. The (historical and ongoing) racial justice crisis. They are inextricably intertwined. And this Crisis Convergence is disproportionately affecting Black Americans.
As a mission-driven organization, the concept of equity has always been close to our heart. But it’s clear that financial institutions must move beyond good intentions and manifest our commitment to equality directly into our programs and policies. We are charged to step beyond what is legally required of us, and actively work to correct longstanding systemic biases that have led to the unequal wealth and health of communities of color.
So, how do we do that? IFF does not have all the answers, of course. But we believe strongly in sharing openly our experience with “equity in practice”—the real-life examples of how our commitment to equity is playing out and what we are learning along the way. In that spirit, we offer some lessons from our recent effort to more equitably distribute resources from the Paycheck Protection Program (PPP)—the now well-known federal forgivable loan program to help sustain small businesses (including nonprofits).
The systemic problem
The PPP was pushed out through our current banking infrastructure. But businesses owned by people of color have historically had difficulties obtaining capital from traditional banking systems for myriad reasons: too new, too small, not enough collateral, not enough wealth, etc.
Those able to defy the odds and stay alive despite these systemic barriers often did so at the fringes, while operating on slim margins. When the pandemic hit, they needed the PPP assistance more than anyone—but they often had the least access to it.
They didn’t have access because they didn’t have strong banking relationships. And they didn’t have strong banking relationships because of the persistent racial wealth and income gaps resulting from decades of racial inequalities.
The interruption formula
I’ll be honest with you: If this had happened 5 years ago, IFF might have been a bystander. We might have rationalized that there was nothing we could do: We are not an SBA-qualified lender. We don’t do working capital loans. We work with nonprofits ready to own facilities. We don’t have enough capital to make a difference.
But over the last 3 years, IFF has committed to a more explicit focus on racial equity. All staff are undergoing intense anti-racism training, and a core team is executing an action plan to examine our policies and programs to ensure a grounding in equity in everything we do.
Our ongoing racial equity work provided a foundation that allowed us to manage this Crisis Convergence in a way that we wouldn’t have before—to interrupt this cycle in this crisis.
It wasn’t easy. Or pretty. Or perfect. But we did our best to interrupt what I like to call the Four Horsemen of the Equity Apocalypse.
Horseman #1: Lack of Time. Emergencies are the ultimate time crunch, and we all succumb to making fast decisions. Financial institutions—including CDFIs—have a certain culture. We ask certain questions. We look for certain criteria. But we must make a conscious effort to incorporate an equity-mindset into that culture. One way to do that is to always ask ourselves: Who benefits from the activities we are focused on right now? Who doesn’t benefit or might be harmed from those activities? If we are only focused on current borrowers, what potential future borrowers might be wiped out?
When our senior team reviewed this list of questions through an equity framework, we realized that the people who would be harmed would be future borrowers who were more likely to be applicants of color. That motivated us to overcome the reasons not to do it.
An essential step was to form a partnership with fellow CDFI Community Reinvestment Fund, an established SBA-qualified lender with a strong infrastructure for processing SBA loans. We also made a conscious decision to offer loans to any nonprofit in the Midwest—not just our existing clients or those who met our typical lending criteria (like 3 years of audited financials).
Bottom line: If we are committed to equity, we must raise these questions and listen when the answers compel us to action.
Horseman #2: Lack of Resources. PPP loans require upfront liquidity, and this was a brand new program—so no one knew how long it would take the SBA to repay lenders, how many loans we would make, or what our average loan size would be. This prompted another tough conversation with our senior team: How will we handle the volume?
This kind of scarcity mindset dominates the nonprofit world. But our racial equity training kicked in, and we also asked ourselves: How can we divide our available resources in a more equitable way? How can we find additional resources if we focus on equity as a goal for their distribution?
Ultimately, our Board approved $10 million of our capital for the program, and CRF committed $40 million specifically for Midwest nonprofits. But when we reached out to our investors with an equity lens, many were willing to help us find even more capital if needed. And, ironically, we learned that the agencies that needed the most help also needed much less capital; we made far more loans than originally contemplated (158), but with far fewer dollars ($20 million), because our median loan size was just $40,000.
Horseman #3: Lack of Relationships. IFF’s typical target market is nonprofits ready to buy real estate—in other words, groups that are pretty well-established. So when we committed to working with smaller, newer agencies who were not existing customers, we knew our mailing list would be a problem.
In a white-dominated world, many connections tend to be white. But to effectively reach communities of color with programs and funding, we must develop broad, deep, and authentic relationships and partnerships with them.
IFF turned to our networks, leveraging relationships with philanthropy and nonprofits throughout the region to share our info on their social media, forward our emails to their lists, and invite our staff to their webinars. They did an amazing job spreading the word, and the majority of our PPP loans went to very small organizations who had never contacted us before; they told us repeatedly: I had never heard of IFF, but I got this email…I saw this post on LinkedIn…my program officer told me…a member of my congregation said I should check this out.
We overcame the challenges—in part, this time. But this experience highlighted a relationship weakness we need to tackle. We must go beyond our own networks and mailing lists into new partnerships that introduce us to new communities where we have not had a strong presence in the past.
Horseman #4: Lack of Diversity. Diversity of thought and experience benefits our decision-making and our collective soul. But diversity alone is never enough. When time is crunched and resources are threatened, organizations tend to fall into old patterns of tightening circles (not inclusive) and putting blinders on to questions of who is harmed and who benefits (not equitable). We must interrupt that habit by constantly re-evaluating our commitment to including and being accountable to diverse voices on our teams.
IFF has been working hard to diversify our staff and to include more voices in our decision-making. This was definitely felt in the PPP discussions. When we started talking about why we “couldn’t,” someone was always there to say: That doesn’t work for me. We’re not pushing ourselves enough. If we say we’re committed to equity, we have to find a way to do this.
It seems like such a rude word—to disturb, intrude, interfere, butt-in. But when the thing we’re disturbing is systemic injustice, we have an obligation to be a little rude.
In a way, CDFIs were built to interrupt. We see a problem, we try to fix it. We see a gap, we try to fill it. We can’t do something alone, we find a partner to go further together. Now more than ever, we need to push ourselves to interrupt more and interrupt better. It is time—in the words of the late, great Congressman John Lewis—to cause good trouble.