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How a Deposit Account Can Transform an Underserved Community

Remarkable Credit Union episode 71

Small businesses matter. They are a catalyst for growth in our economy and a powerful force in creating thriving and equitable communities. They also offer individuals a unique opportunity to better their financial situation.

But access matters, too. Consider this startling statistic: The ratio of wealth for white to Black people in the U.S. is roughly 10 to 1 – but for business owners the ratio is only 3 to 1.

As champions of local communities and local economies, credit unions know that access matters. And yet they are often unable to get loans to the small businesses that need them the most for a whole host of reasons, be they regulatory restrictions, lack of expertise, or board opposition.

Hope Credit Union, through its innovative Transformational Deposit Program, has figured out how to create that access. I shared more about why PixelSpoke joined the program in a prior newsletter, and I was thrilled to get the chance to sit down with Kathy Saloy, Senior Vice President of Community & Economic Development at Hope Credit Union, and Rashida Ferdinand, Founder and Executive Director of the Sankofa Community Development Corporation (CDC), to learn more.

Our latest episode of The Remarkable Credit Union tackles this month’s BIG question:

What do small business owners and nonprofits need from credit unions, and how can credit unions better support them? 

 

Key takeaways:

  1. Fifty percent of Hope’s members were unbanked before they joined the credit union. Even if Hope got every single deposit dollar of their members, they still wouldn’t have the deposit base needed to support the loans that help their local communities.
  2. They created the Transformational Deposits program because their cost of funds was a 100 basis points higher than other credit unions. This means that every $50M in transformational deposits leads to another $1M that Hope can invest in their communities.
  3. Small business matters because it is a proven way to create wealth and narrow the wealth gap. The ratio of wealth for white to Black people in the U.S. is roughly 10 to 1 – for business owners it is 3 to 1.
  4. To really meet the needs of a local community, we need to listen to individuals who live there, connect with local partners to fill gaps, and pay attention to global trends.
  5. Locally-led credit unions matter because they facilitate empathetic understanding, which leads to the “not yet” response and the technical advising that someone needs to get a loan in the future even if they aren’t yet ready to qualify.

 

Read the full transcript:

Cameron:
Hello, and welcome to another episode of the Remarkable Credit Union podcast. We created our podcast to help credit union leaders think outside of the box about marketing, technology, and community impact. Each episode we bring on expert guests from inside and outside of the industry for conversations about innovation. Our goal is to challenge your preconceptions about business as usual, and provide you with actionable takeaways that you can use to grow your membership, improve the financial health of your cooperative and magnify the positive impact you have in your community. Today’s big question. What do small business owners and nonprofits need from credit unions and how can credit union and better support them? Today, I’m very excited to welcome two very distinguished and interesting guests. The first, Rashida Ferdinand is the founder and executive director of the Sankofa Community Development Corporation, a nonprofit organization that supports health centered community and economic development in new Orleans.

Cameron:
It was founded in 2008 in alliance with community stakeholders in the lower ninth ward following Hurricane Katrina. A fun, personal fact about Rashida. Rashida loves pottery and teaches pottery. She’s hasn’t had as much time for that recently, but some big personal passion. And Kathy Saloy is the senior vice president of community and economic development for hope credit union, which has branches in Alabama, Arkansas, Louisiana, Mississippi, and Tennessee. Cathy is also based in Louisiana and works to expand Hope’s small business initiatives with a focus on growth in business development on the personal front, Cathy says she gets rejuvenated by any kind of outdoor activity, whether spending time outdoors or music, or what have you. Rashida and Kathy, thanks so much for joining us today.

Kathy:
Thank you for having us.

Rashida:
Thank you.

Cameron:
So Kathy, I’d love to start with you. I know here at Pixel Spoke, we first learned about Hope Credit Union because we stumbled across your transformational deposit program. And we thought it was just a really great example of innovative product that was really serving the needs of your community. And I think as you know, we loved it so much we ended up opening up a money market account with hope, because we felt like it really reflected our values as a business earlier this year. So Kathy, I’d love to just start. Can you tell us a little bit more about what the transformational deposit program is, how it came about and how it’s going?

Kathy:
Sure. But first of all, I’d like to thank you all for being a member of Hope and for being a transformational depositor. So to understand why we created the transformational deposit program, it’s really important to know a little bit about our members and the communities that we serve. Hope is a Black and Women owned credit union. 77% of our members are African Americans. Nearly 60% are women. We serve inner cities in the deep south and rural communities in the Mississippi Delta. And almost half of our membership was unbanked prior to joining. So three out of four members earn less than $50,000 a year, two out of three members on any given day have less than a thousand dollars in their savings account. So in many of the communities that we serve, the wealth is simply not present to operate the financial institution based on traditional banking models of taking deposits and making loans.

Kathy:
So when you look at some of the communities in which our branches are located, like Itta Bena, Mississippi where the population is approximately 2000, the deposit potential for the entire community is less than 1.5 million. The deposit availability is not there to meet the demand for loans, even if we had every deposit dollar on hand from our Itta Bena branch. So when we look across hope’s entire footprint, the challenge is compounded. So we created hope’s transformational deposit as the tool to use, to import the resources that we need to meet our loan demand and the loan demand and the needs of the communities that we serve. It is a low cost deposit, 10 basis points that we market to high network individual and corporations to place ideal cash into our credit union that can go into either certificates or money market accounts. And it really makes a big difference.

Cameron:
And did you guys have a partnership with Netflix? Is that correct if I’m remembering?

Kathy:
We did. Netflix has been a transformational deposit for us starting the beginning of this year.

Cameron:
Cool, well, Rashida, I would love to ask you some questions. So as we’re preparing for the podcast, we came across an article in Wired about your experience trying to get funding through the PPP program, which I think we all know was a messy process to be polite. And ultimately that led you to hope credit union. I know the journey that we went through at pixel spoke and a lot of my colleagues who were small business owners. And I’d love to hear what was your journey trying to get to loan and obstacles you encountered along the way.

Rashida:
Yeah, this was experience we’ll say. It taught me lot about the importance of partnership with hope over the past few years, we made an investment in that partnership. And when it was time for us to get that resource of the PPP loan, the relationship with hope as well as the capacity that they already had prepared for, really enabled us to move forward that process. When the pandemic hit our community, as many other communities, it was a very, just unpredictable time for us. We didn’t know if we would be able to remain open and operate, but we would not be able to consistently work the way we are now with more growth as well if we had not had this partnership with hope and been able to work with their loan officers to actually complete the PPP loan process. So I did call the loan officers at hope and the executives, Kathy being one of them just to reach out and see if that was a resource that they were offering.

Rashida:
I also called other bankers in another banking institution that we work with. So we work with a couple of banking institutions hope being one of them and the banking institution that we have most of our funds in account did not do the PPP loan process and hope did and helped us with completing the paperwork, actually submitting it and linking us to their other capacity partners that ensured that it was done correctly. We were just very excited to know that we were able to not only keep our doors open during this period, keep our staff employed, but also just be able to keep operating. So we were serving our community members through our food pantry that became our primary program. We emphasized a lot of our work on shifting it from other projects to the food pantry, because that was an immediate need. And in addition to the PPP loan from hope, other community partners and donors and supporters, volunteering and providing safety equipment and materials, all of those things really contributed to us being able to continue to work.

Cameron:
There was quite a bit of chaos when PPP rolled out. I know my wife also runs a small business and she banked with Chase. I’d been telling her for quite a while she needed to go somewhere else. And I remember she had this process where they sort of snapped up her PPP loan and then they did nothing. So they sort of made it look like she had applied.

Cameron:
And then she just heard nothing because at that point it was a four person business. And I felt like it was fortunately she’s moved her bank thing to a value aligned institution, but I felt like it was an interesting example of how you could see how different incentives lead bankers to behave differently. And if your only job is to make a profit, then of course you prioritize your biggest clients, but if you’re focused on your community and you think about things like who are the people having the most impact in our communities and who are the people who might not get access to this otherwise, and Rashida, I’d love to follow up a little bit, because I was reading up about Sankofa and the range of things you guys do in the lower ninth ward.

Cameron:
And I guess beyond that as well is really incredible. Can you maybe describe in a relatively short fashion the range of activities you guys promote and support and why you think they’re important to the lower ninth ward?

Rashida:
Yeah. So we’re working in a neighborhood that is predominantly African American and over 60% of people are living below the median income level. We are really invested in bringing health centered infrastructure development to the area. It has not been restored and redeveloped since this devastation from the 2005 Hurricane Katrina disaster. And it is actually in a place where it needs some serious attention and it’s getting significantly worse when we have this normalization of the remedies of disaster and blight and under development. So our goals are to really be a catalyst for economic development and growth in the area. To do that we’re investing in land restoration from a lens of health and equity. We are building a wetland park, a 40 acre linear park that is adjacent to major watersheds in Louisiana to support the enhancement of wildlife habitats and support flood water management.

Rashida:
And we also are bringing educational projects through this restoration work, as well as food centered restoration work by building fresh markets and health education spaces. We also work with community leaders and stakeholders through a community health ambassador program, through which we provide resources and training with other community partners around health centered education, cardiovascular health education, and health and nutrition. We are addressing social determinants of health and those disparities that really causes limitations to people’s quality of life and longevity. So through the fresh stop market, our food pantry, our wetland park and community gardens programs, as well as partnerships with other groups that do housing, that do other types of infrastructure work. We are really trying to build a model that supports equitable access to health resources in our community.

Cameron:
Thanks for sharing that. And I was really struck by a line on your website, which was that we believe health to be the cornerstone of a thriving community and that when individuals are healthy, relationships functions better, families operate more easily and communities are more cohesive. And I think the intention is maybe something that I sort of see elsewhere, but the degree, the holistic approach that you guys have taken is really incredible. So I guess thank you and kudos to you all for the work that you’re doing.

Cameron:
And then Cathy, tell us a little more about hope credit union and your focus on small businesses. You know, why is that important to you? What benefits do you see small businesses bringing into a community and in particular, what needs do you see them having that are not being met by other financial institutions?

Kathy:
Sure. Since hope’s inception, we have focused on expanding access and capital among historically underserved entrepreneurs because it is a proven way to close the racial wealth gap for white and black households the gap is 10 to one, however for white and black small business owners, the gap shrinks to three to one. So black owned businesses are also more likely to hire black employees. So having institutions that provided needed capital are essential to moving the economy forward. So our small businesses greatly impact our communities. We also need to recognize that the pandemic disproportionately affected black-owned businesses and research shows that between February and mid-April of last year, 41% of black businesses had permanently closed compared to 17% of white owned businesses. Likewise, relief programs like the paycheck protection program were limited to their reach to black own and the smallest businesses.

Kathy:
So last year hope made 2,718 commercial loans, which was 66% of those were to owners of color. And we have lots and lots of stories that we could share of businesses that we served that those that survived just would not have been able to sustain without the paycheck protection. There’s one business that comes to mind. It was a mental health counseling service out of Baton Rouge, Louisiana, and due to COVID 19, in-person counseling sessions were just about impossible. And at that time, mental health services were needed more than ever. She had reached out to a bank that she had had a relationship with for a long time and was unable to access the PPP program. She did not have a relationship with Hope. One good thing that we did was that the PPP was not only open to our membership, but it was open to any small business. And we were able to help her, this was something that was desperately needed. She was able to save her five employees and to sustain her business during that time. So, and we have many stories of small businesses that we were able to assist

Cameron:
Well, thank you for doing that outreach. I guess like I was saying earlier, my experience was really value driven institutions, did a lot of outreach and they did it not just the largest possible loan for the people who are getting missed in that pretty insane rush is my memory of that period.

Cameron:
Rashida, another line that I really loved on your website was about at Sankofa, how you believe that the power of true transformation lies within the community. I think of that. I like that word within, that idea of doing things with people rather than to them or for them. And I’d love to hear what unmet needs are you seeing right now? And how is your community rallying around them?

Rashida:
Infrastructure is a major unmet need in our community. The lack of businesses and access to resources in the neighborhood is another significant need. Just being able to walk out your door and buy an apple and an orange, some greens and healthy food. So many unmet needs that we have. It’s a challenge to say that we have these spaces to really rally around them. Advocacy is one component of it, but also addressing the system as a whole that creates this void is another really significant hurdle that we’re trying to overcome. What we’re doing is, knowing that the team, while the team that does the little back office admin work and the engagement work, we’re one part of the whole process. You know, the team is an expansive community of people who live in a neighborhood, as well as our community partners, agency partners, partners like hope, funding partners, our political constituents and representatives.

Rashida:
But it’s really important that we let them know what we need, because sometimes it’s hard for them to understand what to do with this information or how to put it together and understanding that the engineering of the models are really important to look again, find a different way, rethink how we approach what we’re doing and what these systems are doing to us and for us. But it’s also important to listen to the voices of the people who are being directly impacted by these disparities, because the answer doesn’t lie in one person or two people. And it’s important to hear directly what people are experiencing, what they need. Look at trends, look at data.

Rashida:
When I say trends, I mean something more comprehensive what’s happening, communities like ours and other parts of the country. And you could say even globally, social determinants of health is a global term. It’s not just located in the lower ninth ward of Louisiana, of New Orleans, and really look at how we can connect as thought partners and build a better system. That’s a big, big ask, but it’s something that we try to do as much as we do these programmatic work on a micro scale. We want to also look at the impact on a larger medium, and then macro scale as well.

Cameron:
I love that. So it sounds like listening to individuals locally, connecting with partners and then connecting with the global trends and things that are happening. I’d love to know Rashida, kind of a follow up question. Obviously I run a small business, not a nonprofit, but I’ve done a lot of work in the small business space. And I remember I was struck when I first started working with credit unions, how I was on the board of a credit union. And there was kind of this, we’ve got all these deposits, we can’t find loans. And then I’d go to these communities of small business owners. And they’d all be frustrated about how, when they tried to work with banks or credit unions, they felt like they couldn’t get access. They weren’t taken seriously. I just thought that gap has always been one of the biggest issues with getting the people who truly need access to financing or other things. And so I’m curious when you think about your partnership with hope credit union, it seems like they’ve been a great and asset in the work that you do. What other kinds of opportunities do you see for hope credit union or other kind of similar institutions do to support, either your nonprofit or just other small businesses in the area?

Rashida:
One of the advantages of working with hope was that it’s locally led. And so the relationships are understood regarding the interpersonal relationship and the understanding of the community and the needs of the community. So because people are working in these offices who are from the city and who may have family members who either live in the area, are from the area, or have a familiarity with it. There’s also that empathetic understanding. So that’s one of the benefits. And I think I see is the opportunity of the work that credit unions do and the work that hope does, but also the technical advisement was also very helpful and the process of getting this loan. I’m not sure if it was much different from some other loan processes that bankers expect you to follow through with, as far as the paperwork, the business plan, the pro formas, being able to demonstrate how you would have the capacity to pay it back.

Rashida:
But I think what we experienced from hope was a lot of grace and understanding of our work, our role, and what we have the capacity to bring into the process and the guidance to review our application and give some feedback on what else we needed to do to strengthen it, or make it as competitive as could be.

Rashida:
I also think that there was an understanding of the purpose of the FFRI loan and its intention to work in communities like ours and bringing that unique understanding to, this is not just a loan on paper, but the faces and the people and the experience and the lives, the culture, all those things that are a part of this loan application. And so that was also helpful to not come into that space, expecting that we would be awarded because that wasn’t ever presented to us through the process, but it still was that supportive atmosphere to help us ensure that was something we could achieve and make sure we do. I did my homework. I did my work. My team did our work we were required to do, but were never turned away from a conversation or feedback or insight on what was required to complete this process.

Cameron:
I always think of entrepreneurs, small business owners, I think of nonprofit founders being very similar, like some of the most capable, resourceful people out there, but that the financial system is usually just foreign to most people at first. And that kind of mindset that a really aligned financial institution should never say no, they should just say not yet. And then they should help provide support into figuring out how to get there. Delighted to hear it sounds like that your experience.

Cameron:
All right. So Kathy, I have this kind of wacky idea. I like wacky ideas. We came across you guys. I think it was the Netflix example and it was a few months later. We were like, why don’t we do this? This would be awesome. Like we would love to be a part of this. And I’m just wondering if credit union marketers, leaders, if anyone is listening right now and feeling inspired, we get lots of interesting feedback from folks who engage with different episodes and topics.

Cameron:
We’re seeing this trend among most of our credit union clients. They have too many deposits. And so I’m just wondering, is there some kind of opportunity for high balance members? You know, I was thinking like unions have close connections to long term members who have high balances and saying, Hey, we actually can’t do anything with… You’re not going to make any meaningful interest right now. And there’s this amazing… We know that you care about your community and communities across America. And there’s this amazing opportunity called transformational deposits. Seems like sort of the heart and soul of that cooperation among cooperatives principle. So I’m just curious if anyone out there is feeling inspired, do you have any thoughts about how they could engage with you all and potentially bring this wacky idea to life?

Kathy:
Yes, there is. And I love this wacky idea, especially as a strategy to preserve and to recognize a unique and critical role that minority depository institution credit unions play in ensuring access to financial services for people and communities of color. So black banks and credit unions are in black communities. So an estimated six out of 10 people living in the service area of black owned banks are black in contrast to six of a hundred for banks that are not black-led, but are under FDIC as well. Black banks are more likely to lend to people of black households for their mortgages and for small business credit when it’s needed and black banks are more comfortable applying for credit. Black businesses, should I say, or are more comfortable applying for credit with credit unions and with CDFIs because of just, you know what Rashida mentioned, it’s the being available it’s understanding or taking the time to understand your need.

Kathy:
It’s connecting you with resources and it’s not saying no, but it’s saying not now and let’s connect with these resources with things that have to be done. A 2019 federal reserve survey found that black firms are twice as likely to apply for financing at credit unions and three times more likely to seek financing at CDFIs than their white counterparts. So, there’s just a lot of benefits in investing and doing business with minority depositories, but minority depositories in the deep south are disappearing over the last eight years. The deep south has lost 40 MDI credit unions. So transformational deposits not only make capital available. They also fortify our institutions prior to launching of this program, Hope needed to go to the market to attract capital. Needed to fund the lending needs of our members. Our cost of funds was a hundred basis points higher than the credit union average. So every 50 million that we raise in transformational deposit lowers our cost of funds by $1 million. And this is money that we can reinvest in the community.

Cameron:
And if someone is feeling inspired, can they reach out to you? What’s the best way to get in touch with hope credit union?

Kathy:
So they can definitely reach out to me if my information is available. And we also have a website that you could go to learn more about our transformational deposits and to connect with hope.

Cameron:
All right, that’s hopecu.org. And then last question before I get to some kind of more like humorous personal ones, Kathy, are there just anything else that people in businesses who support the,,, I think you just shared very eloquently and articulately why the work that you all do matters so much. Are there other ways besides transformational deposits that we can support hope credit in your work?

Kathy:
Sure. So we’re available to anyone, so we help small businesses. So feel free to open an account with Hope. Again, you can go to our website and speaking of the transformational deposit, just want to focus on that just for one more minute. We actually at this time have 345 transformational deposits that total 98 million. And that includes many like Netflix, as we mentioned earlier, and PayPal. But also many individual depositors. We have individual depositors as a transformational depositor as low as a thousand dollars. So anyone can participate on that level as well. Again, you can go to www.hopecu.org. So, we’re all working together as a collective interest, but again, we are a full service as financial institution and we also have a policy institute that helps us to impact policy for the work that we do in the communities that we work in. And all of this just helps us to invest in racial equity.

Cameron:
Awesome. Well, thank you for all the work. Yeah. It’s amazing how, I mean, you guys are relatively recently formed that you’ve just had like tremendous success in living your mission and expanding to more communities.

Kathy:
Thank you.

Cameron:
All right. I’d love to do some rapid fire questions. These are completely not serious. So they’re a little bit goofy. I’m just going to put you on a spot. So Rashida, Would you rather travel back to the past or to the future?

Rashida:
Oh, future.

Cameron:
Future? No question.

Rashida:
No Question.

Cameron:
All right, Kathy, would you rather be able to meet your great, great grandmother or your future great granddaughter?

Kathy:
Wow. That’s a tough question, but I think there’s a lot of history and information of understanding who I am from those that I came from. So I think I’d have to go back to my ancestor.

Cameron:
All right. Amen. Well put. Rashida, would you rather live without music or movies for the rest of your life?

Rashida:
So I love watching movies. Will I live without? Well there’s music in movies, so I get the best for both of them.

Cameron:
Found the loophole. All right. And Kathy, last one here, would you rather be a president or prime minister or royalty?

Kathy:
President or Prime Minister.

Cameron:
And why?

Kathy:
I think working with people. Leading, but working with people to make an impact, I feel like being a president or prime minister gives me the opportunity to work more with people and not be just authoritative.

Cameron:
Awesome. All right. Well, I’d love to do a final take. So I’ll give you two, just if there’s anything you didn’t get to that you wanted to share or anything you’d like to reiterate, we’ll go with Rashida first. Anything you’d like to share with our audience.

Rashida:
Yeah. I just want to say believe in yourself, believe in your possibility and put your dreams into a vision, into a plan, and find great people to work with. We’re not doing this alone, but working with people who are mission aligned, and spirit aligned is so important. And so I just want to leave that as a good note for people to think about and bring into the work that you do.

Cameron:
Awesome. Thank you, Rashida and Kathy, anything you’d like to leave our audience with you didn’t get to, or you want to reiterate?

Kathy:
No, I just want to leave the message, just having this conversation with you and Rashida that I’d hope we look at our members and our business owners and leaders, not as a client, but as a partner and taking on the project, that is your project that we partner in that, that speaks to the partnership of Rashida and I, it was not just a loan application, but we joined the partnership of her efforts, especially to expand the access of healthy food. And so we would just love to all the listeners out there to be a partner with you and your business and for your community as well.

Cameron:
Wonderful. Well, thank you guys joining us today. It’s been a real pleasure.

Kathy:
Thank you.

Rashida:
Thank you.

Cameron:
All right, folks. Thanks. Another really enjoyable episode. What a couple of really amazing women doing amazing work. I’d like to share a few of my key takeaways. I think the first one that really struck me was that for hope credit union, being a black and women owned credit union, and really focusing on going into communities that haven’t had access, that this has meant that fully 50% of their members were unbanked before they joined hope. And as a result of both the communities they serve and the specific members they serve, they simply don’t have the deposit base that they need, even if they got every single dollar of their members to support the loans that help those communities grow. And I think as a small business owner, I was fascinated to hear. And I agree with the point that small business matters because it’s a proven way to create wealth and narrow the wealth gap.

Cameron:
And I was fascinated to hear that the ratio of wealth for white to black people in the US is roughly 10 to one, which I’d heard that statistic, but that for business owners, it narrows the three to one. And I think that really shows the power of investing in and supporting the people who are building businesses in their communities. Obviously this transformational deposits program was how we at Pixel Spoke first heard about hope credit union, but I think understanding a little bit more about the why, and Kathy’s comment that their cost of funds was a hundred basis points higher than other credit unions, so that every 50 million dollars in transformational deposits that they’re able to raise leads to another 1 million that hope can invest in their community. I love Rashida’s framing of, when we think about meeting the needs of a local community, wherever it might be in the United States or in the world that we need to sort of leave equal space to listen to individuals who live there, connect with local partners to fill the gaps, and then pay attention to global trends.

Cameron:
I think that kind of integration from the individual all the way up to the global context is really smart and really, really outstanding framing to do work that has a lasting impact. I also loved when Rashida was talking about her experience with the PPP loan, I feel like I’ve heard a lot of people talk about this, but not in the specific way, that we talk a lot about local and credit unions and loss of small businesses, but we don’t talk about why that matters. And Rashida’s comment that locally led credit unions matter because it’s going to facilitate empathetic understanding. That’s the importance of having people who are from and live in these communities that they’re serving. And that leads to institutions not saying no, but saying not yet if somebody isn’t yet qualified for a loan and which in turn facilitates the technical advising, connecting them to partners and giving everyone the resources that they need to get that loan to grow their business.

Cameron:
All right. Well, thanks so much for joining us today for another great episode until the next time. I wish you the best of luck in making your credit union remarkable.

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