New credit unions could get help from an unlikely source – local governments.
Launching a new credit union can be difficult given the regulatory and competitive challenges the industry faces and the need to raise capital to support the institution. Village Financial Cooperative, which hopes to open later this year, will focus on serving African American members in the northern part of Minneapolis. Its organizers received a financial boost with a loan and grant from the Minneapolis City Council.
This kind of financing could potentially become a new model for organizers of future institutions.
“This part of our city has been systematically disenfranchised and uninvested in,” said Me’Lea Connelly, vision and strategy lead at Village Financial. “When you combine that with the economic downturn and the predatory loans from payday lenders, the tornado that ripped through this area years ago and intentional wealth extraction from gentrification and capitalist entities that do not invest in the community, it all leads to a community that faces considerable challenges in building generational opportunities and prosperity.”
There have been a dozen new credit unions organized since 2014, including just one last year, according to data from the National Credit Union Administration. Obtaining capital is one of the biggest challenges in starting a new credit union, said Ben C. Hardaway, a spokesperson for NCUA.
De novos may have to raise as much as $2 million to open their doors, said Pablo DeFilippi, senior vice president of membership and network engagement at Inclusiv.
The Association for Black Economic Power, the nonprofit organizing Village Financial, received an
The money won't count toward Village Financial's capital ratios, said Samantha Pree-Stinson, director of organizational alignment at the proposed institution. Instead, it should indirectly help boost those levels, she added. Generally, credit unions build capital through retained earnings and subordinated debt, if the institution is designated as low income.
Liquidity is a concern for new credit unions, and a municipal loan or grant could be treated as a non-member deposit to help with that, said Dennis Dollar, principal partner at Dollar Associates, a credit union consulting firm, and a former NCUA chairman. Pree-Stinson said that Village Financial has so far raised about $4.5 million from more than 1,700 pledged deposits.
“The investment of dollars into a startup credit union is a huge help in providing liquidity that can be loaned for the purpose of building loan income and, ultimately, retained earnings,” said Dennis Dollar, principal partner at Dollar Associates, a credit union consulting firm, and a former NCUA chairman. “Such an investment is incredibly helpful to a startup credit union because liquidity to make loans is a crucial first step in any business model for a successful credit union.”
DeFilippi said that receiving funding from the government is not common, but it is also not surprising. This type of funding can especially be a good option for organizers looking to reach the underserved.
“If the credit union was organized to address a specific issue, [such as] lack of access to financial services in a community, then there may be public and private funding available for that,” DeFilippi said.
Several members of the Minneapolis City Council did not return a request for comment.
The Association for Black Economic Power decided to start a credit union to address the lack of banking options and pervasive poverty in North Minneapolis.
Jessica Nickrand, a historian and policy scholar at the University of Minnesota, noted that while many people think of Minneapolis as being wealthy, the city actually has some of the highest economic, educational and health inequalities between white and African American residents in the nation.
The poverty rate in North Minneapolis was 36.6 percent but 42 percent for African Americans in 2012, the most recent year for that data, according to Northside Funders Group, a philanthropic group based in the area. That’s compared with 22.5 percent for Minneapolis as a whole.
“In Minneapolis, an area of concentrated poverty is in the north,” Nickrand said.
Nickrand added that the city's long disinvestment in this part of the city only further perpetuated this poverty.
“We wanted to see what we could do to improve our lives and those of our loved ones,” Connelly said. “There were many ideas but the one that had the most votes was creating our own financial institution, led and controlled by the very people that it serves.”
Aside from the Minneapolis government, Village Financial has also received funding from several philanthropic partners and other strategic partnerships, Connelly said. The first entity to support Village Financial was the Jay and Rose Phillips Family Foundation, which invests in the North Minneapolis community.
The organizers of Village Financial are hoping to open the institution on June 19 to coincide with Juneteenth, which celebrates the announcement of slavery being abolished in Texas on that date in 1865. The day also celebrates the freeing of slaves in former Confederate states.
Village Financial received regulatory approval from the state in December, making it the first approval for a new credit union in Minnesota in 15 years. Its application for insurance and authorization from the NCUA is currently pending.
Pree-Stinson said the credit union will offer checking and savings accounts, CDs and micro-loans in addition to free financial education classes.
The credit union’s mission is “Black Liberation through Cooperative Renaissance” with its bottom line being “people before profit,” Pree-Stinson said.
“By investing in the people in our community, not only will our cooperative grow but so will our community,” she added.
