A blog by IFF CEO Joe Neri
Crises are the fulcrums of who we are as a society. The current COVID-19 pandemic is no exception. From the front-line health care and emergency workers to those building toilet paper igloos in their homes, this crisis spotlights how our past experiences and decisions shape our current behaviors and reactions. And racism is our country’s most powerful shaper.
In the fifth week of wall-to-wall coronavirus news coverage, we began seeing data on the dramatic consequences of racial inequity. In Chicago, more than 70% of virus-related fatalities were among Black people — a percentage more than double their share of the population. In Michigan, Blacks make up about 15% of the state population but represent 52% of COVID-19 deaths. The same story is playing out in East Coast cities and Southern states where the virus has emerged (data source).
We are told that viruses don’t discriminate, that this is an equal opportunity threat. Epidemiologically that may be true, but the dye cast for the virus’ existential consequences has been years in the making.
Our finance industry is not immune. Congress has approved an unprecedented amount of money aimed at softening the pandemic’s economic consequences. The U.S. Small Business Administration’s Paycheck Protection Program (P3) provides forgivable loans to protect small businesses (including nonprofits) from being wiped out. However, the SBA is pushing out those loans through our current banking infrastructure, which has historically failed communities of color.
Thousands of small businesses and nonprofits applied to banks’ P3 programs, only to be told that the bank was only accepting applications from current borrowers (even depository relationships are not qualifying at many banks). Once again, the fulcrum of crisis sharpens our ability to see the consequences and self–perpetuation of systemic racism.
Businesses owned by people of color have historically had difficulties obtaining capital from traditional banking systems for myriad reasons: too small, not enough collateral, not enough wealth, no co-signers with wealth, etc. Those able to defy the odds and stay alive despite these systemic barriers often did so at the fringes and while operating on slim margins. Now faced with the pandemic’s titanic challenge, they are asking the government for the assistance they were promised. And being denied again.
They will not be turned down because of race – that’s illegal. They will be turned down because they don’t have existing relationships, which they don’t have because of the persistent racial wealth and income gaps resulting from decades of racial inequalities.
And the result will be that these established, Black-owned businesses will be destroyed.
Fast forward to 5 years from now. New Black-owned businesses will emerge, and they will apply for loans. Banks will turn them down, saying those new businesses are too new, too small, and don’t have enough wealth. Will we remember that the more established businesses were wiped out in the last (this current) crisis?
We must interrupt this cycle in this crisis. We must, now more than ever, be focused on equity.
The first call of action is to loudly support the Opportunity Finance Network’s advocacy in Congress and with the U.S. Department of Treasury to open the P3 to the CDFI industry. CDFIs, unlike most banks, have strong relationships with, and understandings of, small businesses and nonprofits that serve lower-income communities.
But we must also look at ourselves. Every CDFI I know is working around the clock to protect themselves, prepare for coming economic onslaught, and figure out how to protect and help their customers. There is little time for anything else. And that is the first problem. We know that “lack of time” for intentionality is an age-old barrier to equity. And emergencies are the ultimate time crunch. But now is the time to interrupt. So, pause, and make sure you ask yourselves and your staffs:
- Who benefits from the activities you are focused on right now?
- Who doesn’t benefit?
- Who might be harmed from those activities?
- If you are only focused on current borrowers, what potential future borrowers might be wiped out?
- Are those potential future borrowers more likely to be applicants of color?
Interrupt! In the more equitable world that we aspire to, we have a duty to both our current borrowers and our potential future customers.
“Resources are scarce” is another age-old axiom that is problematic for equity. Ask yourself: How can you divide your available resources in a more equitable way? How could you find additional resources if you focused on equity for those resources? At IFF, we are closely working with our arts and culture clients on their current loans, which are guaranteed by a foundation. But the foundation also allowed us to expand the program to a number of new grantees led by people of color that had been shut out of capital in the past.
Every CDFI will have a different formula for interruption based on their size and resources, but make no mistake – every CDFI can interrupt. So, consider:
- Commit that that for every 10 customers you help, you will intentionally help 3 or 4 or 5 new customers of color.
- If most of your existing customers are already people of color, then commit to making sure that for every 10 you already know, you find 1 or 2 or 3 more entirely new customers that might be more challenged in finding you.
Whatever your formula – interrupt.
At IFF, we are working on how we can both help our current customers and greatly expand our outreach to nonprofits shut out of traditional finance – and therefore shut out of the P3 in particular. We are committing to reaching out through our foundation and government channels to help Midwest nonprofits that do not have a willing bank partner to apply for the P3. Honestly, we are nervous about liquidity and staff resources to make this move, but our senior management team unanimously agreed that we will not return to the status quo – we must interrupt.