Nonprofit Finance Fund, a CDFI headquartered in New York City, provided Why Not Prosper with a $250,000 loan to fund the salary of a full-time development director and seed a capital campaign to establish a retreat center for formerly incarcerated women. NFF’s work is featured in OFN’s Operationalizing Racial Equity, Inclusion, and Accessibility into Lending Practices toolkit.
From Purpose to Practice: Advancing Racial Equity in Lending
Sindhu Lakshmanan, SVP, Development Services, Opportunity Finance Network
In a new blog series, OFN members share their journeys to invest in ways that break historical barriers and ensure lending practices work for the communities they serve.
Read time: 5 minutes
Rooted in the Civil Rights Movement, mission lenders like CDFIs exist to finance justice.
In its rich history, the community development finance field has worked within rural, urban, and Native communities to deploy billions of dollars that create economic opportunity where mainstream finance doesn’t traditionally reach. The work of CDFIs has meant more businesses started, homes built and bought, and communities rejuvenated.
However, the fight for economic and racial justice is far from over. Systemic racism and discrimination are pervasive, entrenched, and insidious, which is why the racial wealth gap persists: White families have nearly eight times the median wealth of Black families and five times more than Hispanic families. The Black and white homeownership gap at 45% versus 75%, respectively, is higher than it was in the 1960s when race-based housing discrimination was legal. These disparities are even more profound for people of color with disabilities.
The data demonstrates there’s still work to do. To support enduring change within our communities, mission lenders must recognize and understand how we unintentionally contribute to upholding systemic racism.
Getting Real About Mission Versus Practice
CDFIs have good intentions. By definition, mission-driven lenders have a primary purpose of promoting community development. The sector values equity and inclusion.
Nonetheless, good intentions don’t always translate to effective impact. While a CDFI’s mission may focus on serving communities of color, its structures, policies, and governance can perpetuate the very inequities the CDFI seeks to dismantle. For example, many CDFIs have processes and products rooted in traditional finance practices, which were designed to support a white monopoly on capital at the expense of accessibility for people of color.
To address this dissonance, more CDFIs are taking steps to intentionally translate their missions into practice. This starts with understanding how power and privilege influence individual and institutional behavior and includes examining loan policies and practices in an honest, critical, and ongoing manner. Practitioners must be willing to interrogate how their CDFI thinks about risk, how its products evolve, who benefits most, how decisions are made, and who’s at the table. And they must create accountability at all levels of the organization, starting with leadership.
Tools to Operationalize Racial Equity, Inclusion, and Accessibility
OFN is committed to helping CDFIs and other mission lenders identify ways to transform their operations to advance racial equity, inclusion, and accessibility.
Dismantling decades of structural inequality and systemic racism takes time, is deeply personal, and requires a persistent commitment from individuals and institutions. OFN recognizes that there is no one-size solution for all CDFIs. Instead, we seek to provide resources and options for ongoing learning that can be adapted to the unique context of an organization and its community.
With support from the Citi Foundation, we’ve developed a toolkit on Operationalizing Racial Equity, Inclusion, and Accessibility (REIA) into Lending Practices and a webinar on Designing Loan Products that Advance Racial Justice. These resources provide peer-reviewed insights, tools, and suggestions to examine how power creates and perpetuates systemic racism, explore what power is and why it matters, and help practitioners understand how to analyze and shift it.
We are also piloting a Racial Equity, Inclusion & Accessibility Community on CDFI Connect to provide an ongoing space for members to share, deepen, and accelerate practices that center REIA. Lastly, starting in June, we’ll offer an in-person workshop to guide practitioners through assessing loan policies to identify areas that could be modified, replaced, or removed to increase equity.
Equity in Action
Our resources highlight case studies of CDFIs of diverse sizes and finance areas that have reworked their definitions of creditworthiness to advance REIA. Among them are Pacific Community Ventures (PVC) and Low Income Investment Fund (LIIF).
Over the last few years, the two lenders have intentionally revamped their lending programs to be more inclusive and equitable. They offer insights into their journey as part of this blog series:
- Bulbul Gupta, president and CEO of PCV, reflects on lessons learned during the CDFI’s journey from intention to action as PCV reimagined what it means to recommit to a mission of the Civil Rights Movement that CDFIs were born to address — Black and brown wealth building.
- Kimberly Latimer-Nelligan, president of LIIF, discusses the CDFI’s work to eliminate the five Cs of credit — character, capacity, capital, collateral, and conditions — and launch its Black Developer Capital Initiative.
Later in the series, we’ll feature a CDFI working to incorporate disability lending in its diversity, equity, and inclusion framework.
CDFIs cannot remove the barriers to economic security for communities of color alone. Achieving equitable outcomes requires systemic change across sectors. But doing the work to integrate our principles, practices, and policies with a racially equitable lens enables CDFIs to be first movers in leading the way for the financial market to make the needed changes and investments at scale.
Learn More
Watch OFN’s CONNECT+ Webinar on Designing Loan Products that Advance Racial Justice.
Download the Operationalizing Racial Equity, Inclusion, and Accessibility into Lending Practices toolkit.
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Read More From The Series
From Purpose to Practice: Advancing Racial Equity in Lending
In a new blog series, OFN members share their journeys to invest in ways that break historical barriers and ensure… Read More
Getting Real About Racial Equity in Lending
OFN member PCV shares lessons learned on the journey to align mission with practice. This is the second piece in… Read More
LIIF Changes Its Lending Game so Racial Equity Wins
OFN member Low Income Investment Fund (LIIF) launches a Black Developer Capital Initiative to move the needle on racial equity… Read More