By JULIA MILLER
Some might say money makes the world go round, but access to money is linked to something more important — creditworthiness. When access to traditional bank loans is limited, those in economically distressed areas turn to the unsavory side of predatory loans. By taking advantage of federal funding, Community Development Financial Institutions are working to make sure underserved communities have access to fair loans.
Last month $6.8 million was awarded to seven Mississippi banks through the CDFI Program Awards. These awards come at a crucial time when more communities are falling further behind economically. With a poverty rate of 20.8 percent, Mississippi received the highest proportion of these funds.
Hayley Roth, spokesperson for the Community Development Bankers Association, said the funding affects areas of high poverty and high unemployment. To be a CDFI bank, at least 60 percent of its lending activity must be in low to moderate income areas. For every $1 of CDFI funding, $12 have been contributed by external investors.
“There’s a potential for bad press because banks are getting money for these awards,” she said. The public doesn’t “see the money as going to the community.”
Roth said these public perceptions are absolutely not true. One bank was able to use these funds to provide a loan for a hotel. Not only did the hotel provide employment for those in the community, but it also prompted a new tourism industry. Now that community has seen a burst of new restaurants and retail stores.
Jerome Brown, senior vice president of The First — A National Banking Association, explained the funds provide a way for banks to improve their community.
“The awards provide banks with funding to create a program or product that would benefit the underserved,” he said.
The First has created ways for everyone from small businesses to low-income families to benefit from the federal funding. The bank has established a technical assistance program for small-business owners, which in essence holds the owner’s hand through the financial aspects of owning a business and applying for business loans.
Brown explained this helps by allowing businesses to grow. With growth, comes additional employment which creates a positive cycle in the local economy.
The First also works with individuals by helping them become bankable. Consumer loans allow individuals to consolidate “payday loans” and to pay the loans off at a lower interest rate.
“The payday industry is a billion dollar industry where people are taken advantage of,” he said.
CDFI institutions also work to provide programs for financial education and financial literacy. Whether it’s equipping underserved communities with knowledge or investment funds, the effects are much larger than the initial federal grant.
“When you can give individuals more money, they’re going to use that money to go grocery shopping or repair their cars,” he said. “Those retail businesses are going to benefit.”
Citizens National Bank, headquartered in Meridian, is another CDFI working to support small business lending and promoting affordable housing.
“As we all know, many areas of our state are faced with high poverty and unemployment rates that exceed the national average,” McDonnell said. “These factors contribute to customers’ difficulty in accessing traditional financial products and services.”
McDonnell explained that low incomes often lead to low credit scores and an inability to meet traditional underwriting criteria. The bank will use the funds to expand small business financing products, particularly for minorities and women.
“We want to do everything we can to help potential borrowers to overcome obstacles that might prohibit them from qualifying for traditional business financing,” he said.
In the past four years, Citizens has originated more than 6,600 loans valued at over $1 billion and have resulted in more than 5,400 new or retained jobs. The bank has also made it possible for 360 families to become first time homeowners and over 200 entrepreneurs to become first-time business owners.
“Community banking has always been one of the economic engines that creates growth and development for local citizens,” McDonnell said.
The CDFI program began in 1994, but Brown said most Mississippi banks just began learning how to fully utilize these funds in the past few years. Currently, federal funding is being threatened for future years, which would stop all progress CDFI banks have begun. In 2017, $248 million was distributed. This year, the Trump administration lobbied to halt the program. “It would be catastrophic for rural areas and for economic distressed programs,” Roth said.
Roth said the House voted to retain the program with $190 million in funding.
Currently, they are awaiting the Senate vote for a final decision.
With Mississippi having the most CDFI-eligible areas, the state would be affected the greatest.
“We need to make sure they [Congress members] are informed on how this is important to lives and how it supports the country overall,” Brown said.
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