New report calls for leveraging Minority Depository Institutions and Community Development Financial Institutions to better meet the needs of underserved communities.
WASHINGTON – The Milken Institute today released a set of strategies outlining how corporations, large financial institutions, philanthropic organizations, and governments can leverage mission-focused lenders to better meet the needs of underserved communities.
Over the last year, many of these stakeholders made billions of dollars in commitments towards bridging the racial wealth gap across the country, a gap which is projected to have cost the US economy $2.7 trillion over the course of 20 years. “14 Strategies for Partnering with Mission-Focused Banks” details how these groups can leverage and help scale Minority Depository Institutions (MDIs) and Community Development Financial Institutions (CDFIs) in order to increase their positive impact in communities.
Inclusive access to capital is essential to successful economic development, particularly when considering that minority-owned small businesses often look to credit cards as a way to access funds, an inefficient source of capital. Milken Institute research has previously found that mission-focused banks like MDIs and CDFIs have a strong track record of resourcing underserved communities and have an outsized presence in low-income and minority communities, areas that have been hard-hit by COVID-19.
“MDIs and CDFIs are trusted by local communities, and if their capacity is strengthened, then these lenders can be powerful tools to jumpstart equitable access to capital,” said Aron Betru, Managing Director of the Milken Institute’s Center for Financial Markets. “Support, partner, and leverage MDIs and CDFIs when reaching out to these communities. This will yield more focused actions and greater impact.”
The strategies, which focus on increasing diversity in banking, center on three levels of stakeholder engagement:
Repairing immediate balance sheet capacity needs through Tier 1 capital injections,
Restoring access to capital at parity across the nation by considering exemplary business models in the industry, and
Reimagining the roles of MDIs and CDFIs in a future banking ecosystem that can ensure minority and low-income communities actively participate in post-COVID recovery.
Under “Reimagining,” the authors emphasize the importance of digitization as critical to banking’s path forward. “To make sure that CDFIs and MDIs reach their full potential, stakeholders must, at a minimum, have an eye towards embedding technology throughout their operations. This focus can ensure the effectiveness of other strategies, from capital injections to increasing credit availability,” added Betru.
The report was supported by a grant from JPMorgan Chase as part of its $30 billion commitment to advance racial equity and break down barriers to economic opportunity. “MDIs and CDFIs play a very important role in creating economic opportunity and driving positive change in our communities,” said Cate Costa, Vice President, Global Philanthropy. “We are proud to partner with Milken Institute and support these critical institutions to create lasting change for the Black and Latinx families and businesses they serve.”
“14 Strategies for Partnering with Mission Focused Banks” is co-authored by Aron Betru, Ragini Chawla, and Xavier Escoto. The full report can be downloaded here.
About the Milken Institute Center for Financial Markets
The Milken Institute Center for Financial Markets conducts research and constructs programs designed to facilitate the smooth and efficient operation of financial markets—to help ensure that they are fair and available to those who need them when they need them. For more information, visit https://milkeninstitute.org/centers/center-for-financial-markets.
About the Milken Institute
The Milken Institute is a nonprofit, nonpartisan think tank that helps people build meaningful lives in which they can experience health and well-being, pursue effective education and gainful employment, and access the resources required to create ever-expanding opportunities for themselves and their broader communities. For more information, visit https://milkeninstitute.org/.