Why CDFIs Stand Out from the Pack

In 2013, 242 bank-related mergers and acquisitions took place in the U.S. As it becomes routine for one bank to replace another on Main Street, consumers may find it harder to make connections with their bankers and increasingly see their banks as separate from their greater lives. Consumers may even think that one bank is about the same as the next.

But the truth is that not all banks are alike. A new study by the National Community Investment Fund profiles 24 financial institutions representing the greater "mission-oriented" banking industry. The surveyed institutions include 21 certified community development financial institutions and 16 designated as minority depository institution banks.

From Carver FSB in New York to The Harbor Bank of Maryland in Baltimore to Community Bank of the Bay in Oakland, these banks stand apart from the broader universe of 6,500 banks in the United States.

Mission-oriented banks are on the ground in America's most disadvantaged communities with above-average poverty levels. When these banks make loans, create jobs and extend their banking services, they transform the lives of underserved citizens and neighborhoods that may have never seen the branch of a larger bank. Mission-oriented banks also steer consumers and businesses away from alternative financial service providers such as payday lenders, which may be irresponsible and usurious. Many, including Beneficial State Bank in Oakland, are also focused on promoting environmentally sustainable businesses.

Just how different are mission-oriented banks from the rest? Consider these facts:

• The median bank profiled in our survey directed 69% of mortgage loans reported under the Home Mortgage Disclosure Act to low-and moderate-income areas. By contrast, the median bank amongst all U.S. institutions directed 26% to low- and moderate-income communities. Focusing tightly on the needs of such individuals provides impact investors with a clearer way to direct their dollars where they can do the most good.
• The median bank profiled in our survey had 86% of its branches in low- and moderate-income areas, compared to 40% for all U.S. banks.
• The median poverty rate for the surveyed banks' branch locations is 1.8 times higher than for U.S. banks overall, and the unemployment rate is 1.6 times higher. Branches are located in areas with poverty rates as high as 71% and unemployment rates as high as 23%.

The differences between mission-oriented banks and other banks do not stop there. Bank staff work extended periods of time with customers, providing one-on-one counseling and technical assistance, so that their customers can gain access to the traditional mortgage market or a Small Business Administration loan.
Moreover, the customers in these banks and the people who assist them are as diverse as their surrounding communities:

• More than 44% of deposit accounts held less than $1,000, likely reflecting a preponderance of low-income clients whose lower-balance accounts are expensive for the banks to administer. Managing these needs comes naturally to the mission-oriented staff at these banks.
• Eight-one percent of clients are minorities and 43% are women.
• Eighty-six percent of bank employees are minorities and 68% are women, while 64% of bank board members are minorities and 20% are women. This enables them to bring cultural and local input into their business plans and product strategies.

While mission-oriented financial institutions are similar in size to the median bank in the U.S., they create additional social and environmental impact. For example, loans made by these banks and credit unions created as many as 70,000 jobs since 1998, according to the our newest report. Based on data contributed by banks participating in the report, approximately 10,600 jobs were created in 2013, of which an estimated 45% went to women and 65% to minorities.
Individuals and institutions engaged in impact investing need look no further than their closest mission-oriented bank to find a place where they can make a real and needed difference. The work these local institutions do creates long-term change for individuals and businesses.

Mission-oriented banks are vital to community well-being on their own, but they also play a critical role that complements the work of other national, state-chartered and specialized banks in the overall sector. They also frequently partner with larger banks to help them tailor their business models to the realities of communities with high poverty rates and low employment levels.

Public- and private-sector investors should actively support mission-oriented banks. These banks make underserved communities better places to live and work, contributing to the long-term benefit of society.

Saurabh Narain is president and chief executive of National Community Investment Fund,
a nonprofit investment fund that invests in mission-oriented banks and other financial institutions.