OROne type of bank plays a huge role in creating more economic opportunities for people of color.
From the perspective of black leadership, a bank is more than “a place where someone can deposit a deposit or get a loan,” says Kevin Cohee, CEO and president of OneUnited Bank, one of the largest black-owned banks in America. “That’s just the beginning.”
OneUnited Bank’s first loan in the Paycheck Protection Program, part of the federal response to the COVID-19 pandemic, “was for a single mother of seven who was driving for Uber,” says Cohee.
Minority-owned banks, or what government agencies call minority depository institutions, must have a majority of the shareholders or members of their board of directors of people of color. This differs from the predominantly white boards of directors of America’s largest banks.
Minority-owned banks open the doors to economic opportunity. Here are three ways they make a difference and what you can do to help.
1. Closing the gap for the unbanked
Checking and savings accounts are two common entry points to starting a relationship with a bank, but about 7 million Americans lack them, and there is a trend that transcends racial and ethnic lines.
About 16% of Native American households, 14% of black households, and 12% of non-white Hispanic households do not have bank accounts, compared with 2.5% of white households, according to a survey by the Federal Deposit Insurance Corporation of 2019 on the unbanked. .
Minority banks help close this gap by serving lower and moderate-income areas compared to other banks, according to a 2019 FDIC report on Minority Depository Institutions, or MDIs. For example, the majority of the population served by the typical black-owned bank, 62%, is African American, compared to 6% of metropolitan area banks that are not MDIs, according to the report.
Additionally, banking deserts, or areas of the country where one must travel miles to find a bank, have historically been a problem for some racial and ethnic groups, including Native Americans who live on reservations.
“We work with people who are often away [of the banking system]and they become loyal customers, ”says TW Shannon, CEO of Chickasaw Community Bank, one of 17 Native American-owned banks.
2. Boost Wealth With Home Loans
Homeownership is one of the biggest contributors to wealth for many, but it mostly benefits white Americans. Asian and black borrowers made about 6% and 7% of U.S. home purchases, respectively, compared to 60% of non-Hispanic white borrowers, according to a 2019 mortgage market report from the US. Consumer Financial Protection Office. Native Americans accounted for less than 0.8% of home purchases.
Minority-owned banks make more home mortgages and small business loans to borrowers of color than other banks, according to the FDIC report.
For Chickasaw Community Bank, that means tailoring home loans for Native Americans. The bank offers lease-to-own programs, for example, in which a tribe acts as a lender, using money from the bank, while a tribe member follows an affordable payment plan and improves his credit. Eventually, the member owns his home.
“For our own tribe, the Chickasaw Nation, these are homes for people who have had some credit problems in the past but now have a good stable income. [yet still] it may not qualify for other loan programs, ”says Shannon. “That’s a niche market where those who are too big to fail [national] banks don’t spend a lot of time. “
3. Respond to the needs of the business community in a crisis
Small business loans are another focus for minority banks, and financing has become more severe during the COVID-19 pandemic. Minority banks have made more than 123,000 Paycheck Protection Program loans totaling $ 10.3 billion through August 2020, according to data from the Small Business Administration.
“We Made Small Loans Difficult, Not Easy Loans [to major corporations]and we did it not for the money but to help people, “says Cohee.
Most minority banks are also community banks, which the FDIC defines as banks that focus on traditional loans and central bank accounts and have a limited geographic reach based on location. The community banks made more of their weight this year. Despite accounting for just 15% of all bank loans, community banks outperformed other banks in providing 30% of PPP loans, according to a 2020 FDIC quarterly report ending in June. And these loans help protect jobs.
“We saved over a thousand jobs in Oklahoma through that program,” says Shannon of Chickasaw Community Bank. “A thousand jobs doesn’t sound like a lot, but in Oklahoma, that’s a big problem.”
He adds: “We often called the borrower to make sure they knew that these programs and deferral assistance options were available. We were there for them, even though they didn’t know we could be there. “
What you can do to help minority banks
Minority-owned banks impact the lives of many underserved communities, but they represent less than 150, or about 3%, of the 5,100 banks in the US Furthermore, they alone cannot address systemic problems in the US. The wealth gap, in which the typical white family has eight times the wealth of the typical black family, according to a 2019 Federal Reserve survey.
To support minority banks, you can put some of your savings in one. (Here’s a list of black-owned banks.) Part of the business model for banks is to use money in checking and savings accounts to make loans to small businesses and home buyers. Some companies, like Netflix, for example, have started supporting black banks.
Beyond banking, consider investing in companies focused on making social impact, along with others ways to support racial justice.
Paraphrasing Eleanor Roosevelt, Cohee says, “We are all better when we are all better.”
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Spencer Tierney writes for NerdWallet. Email: [email protected] Twitter: @SpencerNerd.
The article 3 Ways Minority-Owned Banks Make a Difference in America originally appeared on NerdWallet.
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