Community Development Credit Unions (CDCUs) are on the front lines of closing the racial wealth gap in the United States — an achievement that could add an estimated $1.5 trillion to the economy, according to research from McKinsey & Company. If CDCUs are to succeed with their unparalleled ability to turn deposits into impact, they must find innovative ways to connect with impact investing to make it easier to import wealth into their communities.
CDCUs share a commitment to closing the racial wealth gap in our country and many are in a unique position to cultivate tangible impact in their communities. This is because CDCUs are an inextricable part of their communities; their staff reflects the surrounding demographics and the life experiences of their employees parallel those of their customers. The limited availability of repositories should in no way impede the ability of CDCUs to meet the needs of their communities.
With CDCU’s missions in mind, here are four concrete steps to consider when considering how to grow your repository base:
1. Import wealth and deposits from across the country. Like many CDCUs, Hope Credit Union (HOPE) imports capital to boost its lending in the Deep South, where the deposit potential for entire communities is often unable to meet loan demand. Unlike traditional banks that use low-cost or no-fee checking and savings accounts to finance their lending activities, HOPE operates in impoverished areas where families simply do not have access to basic financial services. HOPE has traditionally relied on capital in the form of certificates of deposit, often from depositors seeking a high rate of return, to meet the needs of its clients. As a result, HOPE’s overall cost of funds was nearly double the rate of banks and credit unions operating in wealthy markets.
That’s why, in 2020, Hope Credit Union launched its Transformational Deposits program to break free from these constraints and import $100 million in low-cost, federally insured Transformational Deposits into deserts of opportunity across the Greater South. The credit union has received over 460 transformational deposits totaling $118.5 million to date. These below-market-rate deposits come from corporations, foundations, and individuals — anyone interested in closing the racial wealth gap.
Because it cannot be the responsibility of corporations and foundations to research and invest in credit unions, HOPE had to make itself more visible to make this program a success. This included developing strong messaging and branding around the initiative, and choosing the right partners to help spread their message.
2. Partner with capital intermediaries who can connect the dots. It can seem daunting to think about how to connect with companies, foundations, and other potential depositors outside of their network, let alone outside of their geographic footprint. However, it can be equally daunting for those same investors to find CDCUs that align with their impact investing goals and organizational values. Fortunately, there are impact filing platforms, such as CNote, that have built the infrastructure required to foster these types of connections, establish an agreed-upon set of due diligence and review criteria, and manage reporting. ‘impact.
An added benefit exists for credit unions that have received Emergency Capital Investment Program (ECIP) awards, which have been specifically designed to increase lending in communities of color and underresourced communities. ECIP award winners receive additional capital to strengthen their balance sheets; but in order to realize the full potential of their ECIP rewards, these credit unions still need to raise additional deposits.
For example, using an impact deposit platform, investors can effectively invest geographically (i.e. the Deep South) or thematically (i.e. affordable housing). Intermediaries like CNote facilitate direct relationships and use a needs-based approach when providing impact dollars to CDCUs, which means capital flows to the credit unions that need it most. By connecting to an impact deposit platform, CDCUs can quickly and simply gain visibility and deposits to a wider network of investors than they otherwise could have made the organizational investment. to attract and engage deeply with companies like Netflix, PayPal and Mastercard.
Finally, partnering with an impact deposit platform gives CDCUs the flexibility to say “yes” or “no” to capital, depending on their needs. Ultimately, with these kinds of technology solutions, credit unions can decide when to accept capital and when to transfer deposits without having to explain themselves to individual investors. The ability to turn the tap on and off deposits can create a wealth of opportunities, as HOPE has discovered.
3. Develop strategies to leverage federal funding. More than double the number of credit unions applied for ECIP in 2021 that the Community Development Capital Initiative in 2010. Therefore, it is important to think strategically about how to leverage these federal dollars to inject capital into the communities hardest hit by COVID-19.
That means credit unions should use this time to look for additional opportunities to roll out more affordable loans for first-time homebuyers and increase access to capital for black-led small businesses. For low-income designated credit unions, these opportunities include working with Inclusiv to achieve CDFI certification, which would give them access to treasury funds that other financial institutions do not receive.
4. Look for deposits (and partnerships with) major credit unions. Smaller credit unions have the option of seeking lower rate deposits from larger credit unions, especially those wishing to support their smaller counterparts and deepen their impact, as this has not been a common practice.
These partnerships can build on the credit union principle of “co-ops helping co-ops” and attract deposits from larger credit unions. Today, there are nearly 400 credit unions with over $1 billion in assets. There is a real opportunity for small credit unions to strategically design programs that invite large credit unions to (re)invest in America’s most economically disadvantaged communities and build innovative credit union partnerships. .
The CDCUs, however, are not alone in their mission. They have the opportunity to forge ahead by partnering with impact-minded corporations and foundations, capital intermediaries and larger credit unions. Credit unions are eager to be courted by these big players, just as big corporations and foundations cannot expect smaller credit unions to be seen or heard. Instead, if everyone rallies around the idea of partnership, comes together in the middle, and plugs into one (or more) of these partnership platforms, we can take a big step towards reducing the racial wealth gap in the United States.
Pearl Wicks is EVP and COO of the $468 million Jackson, Mississippi-based Hope Credit Union.
Mary Bruce Alford is Senior Vice President of Investor Relations for Hope Credit Union.
Stacy Zielinski is Director of Community Development for Cnote, an Oakland, Calif.-based provider of an impact investing platform supporting women and minority-led small businesses, affordable housing and economic development in communities. financially underserved communities.