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Now more than ever, foundations, philanthropic organizations and banks are talking about economic, racial and social justice. Considering that inequity is baked into our institutional practices and norms, it’s a welcome shift in the conversation.

However, to borrow the words of Rodney Foxwell and Antony Bugg-Levine, we need to stop making excuses about why it’s hard to fund Black-led organizations. Instead, we need to invest in them more. In the finance world, that means institutional philanthropy needs to fund Black-led Community Development Financial Institutions (CDFIs)—and not just the few large ones that everyone knows.

Those familiar with CDFIs know they’re economic shock absorbers that are crucial to the health of many communities. CDFIs have consistently operated on the front lines of economic upheavals like the aftermath of September 11, the 2008 financial crisis and natural disasters, providing essential support to residents and small businesses that often have nowhere else to turn. CDFIs are America’s financial first responders.

Yet, as in our communities, disparities exist across the CDFI landscape, and unsurprisingly, the COVID-19 pandemic has laid them bare. According to a Hope Policy Institute analysis of CDFI Fund recipients published earlier this year, white-led CDFIs in this group held approximately $13 billion, or 72%, of the total assets reported in FY2014. Moreover, between FY2014 and FY2017, the average asset size for white-led CDFIs increased from $58.1 million to $169.7 million, while the average asset size of minority-led CDFIs was relatively stagnant, hovering around $71 million.

If the asset gap between white- and Black-led CDFIs seems antithetical to justice, that’s because it is. Foundations know that when they invest in a CDFI, their dollars are working to democratize opportunity by providing capital to borrowers who might not otherwise get a chance to succeed. But we aren’t seeing that same emphasis on distribution of opportunity at the CDFI level. Instead, there’s a concentration of assets, with white-led CDFIs getting an outsize share of capital. And that’s creating a dynamic that undermines philanthropic funders’ racial justice and equity goals.

Investments in small, Black-led CDFIs are investments in Black leaders

Small, Black-led CDFIs often serve the very low-income, low-wealth communities that foundations want to support. These CDFIs are part of the fabric of communities that have been “starved for economic opportunities for decades.” And that means they face the same challenges as their customer base: They struggle to access affordable capital, build relationships with large investors and deploy state-of-the-art technology.

Impact investors are waking up to the need to fund Black-led CDFIs, but so far, the approach has been to funnel capital almost exclusively to the largest Black-led CDFIs—on the assumption, we’ve been told, that resources will flow to smaller CDFIs. This is not working, both because the needs are so great and because the needs are different for CDFIs of different sizes. The infusion of funding is helping the large Black-led CDFIs serve their communities’ additional pandemic-driven needs, not providing excess capital to spread around. Like their larger peers, smaller Black-led CDFIs need low-cost, long-term debt capital; they also need grants for capacity building, administrative support, training and technical assistance for their leaders and staff.

Foundations are perfectly positioned to serve the needs of both large and small Black-led CDFIs, and if they do so, the impact could be profound. CNote has developed a map showing the intersection of the communities that are most exposed to the economic impact of COVID-19 and those that have large Black populations. In many cases, these highly vulnerable communities throughout the U.S. are counting on Black-led CDFIs to maintain a viable economic base, and with sufficient capitalization, these CDFIs can come through.

The power of pattern recognition

One reason Black-led CDFIs are so important to Black communities is their cultural competence and the level of comfort many Black entrepreneurs feel with them. Consider the story of Louis Snowden. When he passed away, he left behind dozens of shoeboxes filled with money order stubs. That’s how he paid for everything, including his mortgage. He never wrote a check. As a Black man, he was so distrustful of banks that he never opened an account.

Snowden’s distrust was rooted in a feeling that prevented him from walking through the front door of a bank. He didn’t think that he would be treated with respect or that the bank would have any interest in helping him, and he didn’t think that the people behind the counter could connect with him because they didn’t look like him.

We know this story because Louis Snowden was Donna’s father. She has seen that many Black people continue to feel the same distrust of financial institutions today. However, those feelings often dissipate when they engage with a Black banker or loan officer—someone who looks like them, lives in their community and perhaps attends their church. This greater level of trust and comfort between Black-led CDFIs and Black borrowers is sometimes referred to as “pattern recognition.”

Pattern recognition often inspires debate, but consider the example of women in venture capital. It’s been widely discussed that men often don’t understand the value of women’s business ideas because they don’t share or value women’s experiences. Women-led VC firms, on the other hand, have been essential to the growth of many highly successful women-led companies. Black-led CDFIs are similarly positioned to see and support promising Black-led businesses.

If we additionally take into account the institutional and systemic racism that has been perpetuated in the financial services industry for centuries, it’s clear that Black-led CDFIs—regardless of size—are the change agents best situated to equitably channel dollars toward the low-income, low-wealth, marginalized communities where they’re rooted.

Small, Black-led CDFIs represent a huge opportunity

When considering our current moment, it’s hard to think of a higher-impact step that foundations could take toward social, racial and economic justice than investing in, granting to and partnering with small, Black-led CDFIs.

If foundations want to stand in solidarity with the Black community, then they should invest in small and large Black-led finance institutions. Both types of organizations are worthy of investment—this is an and, not an either-or, situation. And branching out should feel exciting—foundations that haven’t yet considered the idea of investing in smaller CDFIs can seize the opportunity to be truly inclusive. The African American Alliance of CDFI CEOs is a good place to start learning, and CNote has collaborated with the group to develop a list of Black-led community finance organizations.

If our end goal is to empower and build wealth in historically marginalized Black communities, then the relevant criteria are factors like location, approachability, relationships, local insights and trust. That’s exactly what small, Black-led CDFIs offer. As an industry, finance is really just starting to talk about equity and justice—these Black-led CDFIs have been putting those words into action since their inception.

Now is the perfect time to check your excuses at the door and to explore how your foundation can support small, Black-led CDFIs that are already working in your target communities. These CDFIs are not hidden. They are doing the work. And they want to hear from you.

Donna Gambrell is CEO of Appalachian Community Capital, an intermediary CDFI, and chair of the African American Alliance of CDFI CEOs, a collaborative of 38 Black-led CDFI loan funds working to close the Black wealth gap in America.

Cat Berman is co-founder and CEO of CNote, an impact investment platform that uses technology to unlock diversified and proven community investments that generate economic mobility and financial inclusion.

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