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COVID RESPONSE: During pandemic, community development credit unions provide lifeline to capital

COVID-19, Human Services, Social Investment Practice

Editor’s note: Since March, Kresge partners have responded to COVID in inspiring ways. Over the next few weeks, we are profiling eight such partners, who are also featured in our upcoming annual report on racial equity, Inside Out & Outside In.

The COVID-19 pandemic forced not one but multiple emergency pivots in the work of community-driven credit unions.

Financial services fell into the category of essential work. That was especially true for community development credit unions (CDCUs), whose customers are often front-line workers and those impacted dearly by the economic recession.

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Inclusiv, a membership organization of CDCUs and a featured partner in Kresge’s Inside Out & Outside In report, quickly rallied around its members. First, they helped them think through how to serve customers safely, said Cathie Mahon, Inclusiv’s president & CEO.

“When it was all shutting down at the beginning of March, there was a lot of operational planning,” Mahon said. “We were asking, “How do we manage crowds?”

Credit unions implemented socially distanced and sanitized ways to keep offering services in person. Simultaneously, many more also benefitted from years of Inclusiv’s work to help more credit unions move services online. Supporting branches as they launched or doubled down on mobile banking apps became a priority, Mahon said.

Helping unbanked customers open accounts for the first time was an especially big challenge, as verifying their identification can be a burdensome – and typically in-person – process.

“We helped our members bootstrap a lot of tools by which they could do teleconference ‘Know Your Customer’ interviews,” Mahon said.

When the government issued stimulus payments to taxpayers, helping previously or currently unbanked people access the funds was another issue. So was communicating and handling loan forbearance. Institutions needed guidance on how to both support customers, letting them know flexibility existed, while not putting a blanket stop to all loan collections, as that would have quickly sunk institutions, Mahon said.

Many institutions also rallied to institute small-dollar loan programs and more significant lending programs, connected to the federal Paycheck Protection Program. That program though, proved to be rife with pitfalls.

“The PPP was one of many things in recent months that revealed the complete inequity and unsustainability of this country’s banking system,” Mahon said. “We’ve known forever that big banks cannot get money out into poor communities. But here, we saw they couldn’t get loans out to middle-income communities, to basic “mom and pop” businesses and particularly those operating in communities of color.”

Mahon spent hours advocating for her members with White House and other elected officials. She shared member stories of trying for hours to access the PPP web platform only to fail because big banks were robo-lending (automating loan requests in rapid succession) and clogging the pipeline.

The traditional banking sector’s failure to serve the communities most at need revealed that we need a robust network of community-based organizations on the ground who know local businesses, how to lend to those businesses, and move capital into community, Mahon said.

At the start of the pandemic, Mahon said only about 20% of Inclusiv’ members were Small Business Administration certified, meaning they could issue PPP loans. Now that number is close to half, she said.

“To date, we’ve documented that our members have originated more than $620 million PPP loans,” Mahon said, “and we believe there’s more than that coming out… More than anything, it showed what can happen when we have the access to capital.”

The Kresge-backed work of the Inclusiv Southern Equity Fund has also moved forward. One positive move has been bringing on a director of business development. His job is to work with credit unions to ready them for secondary capital investments through the fund. Inclusiv has introduced a new product that uses the same application as the Southern Equity Fund but helps those clients with lower regulatory ratings get capital quickly while readying for a secondary capital investment down the line.

“We want to be able to say, ‘We see where you’re going. We see you’ve got a good plan and a good vision.’” Mahon said. “’You’re not yet able to qualify under the regulatory guidelines for this particular product. We’ll give you a balloon loan product. It’s in our portfolio. It’s a smaller amount, but it gets you going.’ So, that’s been our major pivot.”

Krista Jahnke is a senior communications officer at The Kresge Foundation.

Kresge staff is working remotely, and our offices are closed until further notice.  See our promise to partners during COVID-19.
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