Welcome to Progressive Pockets! I go by GG, that’s short for Genet Gimja. Progressive Pockets is a podcast where you and I can talk about taking back some of our power. We vote, some of us protest, some of us are writing letters to our congresspeople, some of us have chosen careers that are trying to build a better world. And yet, I think our money gets left out of the convo a lot of the time. But there’s power in our money! There’s power in where we are shopping, there’s power in where we invest our money, there’s money in where we bank.
Let’s talk about banking today. For me, I never really questioned where I bank. When I was a teenager, my mom took me to the Walmart up the street and there was a little bank up front in one of those little shops, it was next to the McDonald’s inside the Walmart. And I remember her walking me in there and we filled out the paperwork and I left with a bank account. It was one of the big national banks. That’s where my parents banked, and they picked it based on having the most branches in town. Convenience, pure and simple.
I have friends that came from smaller towns and their parents banked at the credit union and so that’s where they bank too. But you know, it’s like politics. A lot of us started by inheriting our parents’ politics and then as we experience the world and have our own experiences, we define our own politics.
So when it comes to banking, we have choices, and guess what, there’s power within each of those choices. I get questions about socially responsible investment options but for a lot of listeners, I’m willing to bet you have a bunch of cash just sitting in an account. Or is it just sitting there?
What’s our bank doing with our cash?
If you are a long time listener, you might remember way back on episode 44 about gun violence, there was a website that was discussed is your bank loaded dot org and on it, you can look up your bank to see their score on how they are doing on issues like do they finance gun or ammunition manufacturers that sell unregulated products, do they donate to NRA backed politicians, etc. There are other websites where you can see if your bank is a top funder of fossil fuels. The point is, our cash isn’t just sitting in our checking and savings accounts at the bank. Our cash is being dispersed. Our banks are making decisions about which companies they back financially, our banks are making decisions about which politicians they back.
But, there’s some good news. There’s a whole universe of financial institutions that are built with a very different focus. There’s a whole universe of financial institutions that are community focused, they are mission driven. In fact, there are 1,500 of them in the United States, with a concentration in California and the Mississippi Delta, although they really are spread out across the country.
These mission driven, community focused institutions are called CDFIs, community development financial institutions. There are 1,500 certified CDFIs across the country. And guess what, our government backs your deposits at CDFIs just like it does at any other bank in this country. The FDIC provides deposit insurance to protect your money in the event of a bank failure. Your deposits are automatically insured to at least $250,000. And some CDFIs can insure in the millions of dollars. So your money is just as safe at a certified CDFI than it is at a big bank. So don’t let a fear of losing your money be the reason you don’t switch to a CDFI.
In some ways, your money might be safer, the reason I think that is because CDFIs get state and federal funding and babeee one thing about accepting government funding is that it means you are going to be REGULATED. I think about the issues with the big banks like Wells Fargo where they were fraudulently creating accounts without telling their customers to rack up commissions. I just can’t imagine that happening with a CDFI. Because it’s not just the CDFI overseeing their books, what I know from my years of working across the private and public sectors is, if they are receiving state and federal funding, there are many more eyeballs on what they’re doing.
In fact, I was reading the FDIC’s website and they explain that in order to even be called a CDFI not only do you have to have a community focused mission but the majority of your activities have to target one or more low and moderate income populations or underserved communities.
The power of keeping your cash in a CDFI is that your money will be used in your neighborhood, in your community, it will be used to create economic opportunity, affordable housing and other essential community services.
CDFIs can inject money into poor and distressed communities and they can do it differently, they combine capital with hands-on assistance like financial education, business coaching, they can respond more quickly to super local issues like during the pandemic when some CDFIs helped local residents with grants to help with local residents who didn’t have rent money during the quarantine, some CDFIs have funds for entrepreneurs of color who have been locked out of traditional capital for their small businesses.
And there are different types of CDFIs. There are community development banks, credit unions, loan funds, and venture capital funds. Let’s go through them one by one.
And I will link the JP Morgan piece where they outline all of this, you can find that in the show notes.
- Community development banks have a mission to rebuild economically distressed communities by providing capital through targeted lending and investing. That is their mission. They are often nonprofits, their goal is to get money into distressed communities.
- Community development credit unions promote ownership of assets and savings and provide affordable credit and retail financial services to low- and moderate-income individuals, often with special outreach to minority communities.
- Community development loan funds include microenterprise, small business, housing and community service organizations. These loan funds offer financing and support services to businesses, organizations and individuals in low-income communities.
- Community development venture capital funds provide equity and debt to small and medium-sized businesses in distressed communities.
So if you are a person that keeps cash, this might be an option for you to tap into some of your power. And if you work at a place that keeps cash, this might be an option too. Do you work at a university? Do you work at a public serving type of place? Do you work at a foundation or a nonprofit or in a health clinic or any other place that has a community mission? This sounds like a great opportunity to bank according to your values or your organization’s values.
So to recap, here’s what we covered today:
- We talked about the untapped power in our cash that’s sitting in the big banks.
- We talked about community based, mission driven alternatives, they are called CDFIs, Community Development Financial Institutions. If you put your money into one, it will be insured by the FDIC just like it would be at any other bank. So your money is safe.
- The way these CDFIs build up communities is by providing financial services for the underbanked and the unbanked, by actually giving loans and grants to entrepreneurs who have been locked out of traditional capital, by investing in affordable housing and other community services. Rather than letting a big bank just profit off your cash by any means necessary, according to their values, you can put your cash into a CDFI that matches your values.
If you have a few more minutes, I want to suggest another episode that you might enjoy. If you heard this overview today and you’re thinking OK now that I know what on earth a CDFI is, I might want to dip my toe, take a listen to episode 31: Banking Until Death Do Us Part. That episode provides some gentle suggestions on dipping your toe into this type of banking. I’m not going to tell you to immediately shut down your accounts at your big bank and immediately switch your money to a CDFI if that doesn’t feel right for you. So check out episode 31 for some ideas on testing the waters, and then slowly easing into it if it feels right for you.
Let’s end with a quote from Fred Rogers:
“We live in a world in which we need to share responsibility. It's easy to say 'It's not my child, not my community, not my world, not my problem.' Then there are those who see the need and respond. I consider those people my heroes.”
Alright, so here’s the listener challenge for today. I want you to click on that button that let’s you share this episode. Go ahead, press it. Now, don’t overthink it, go ahead and send this episode to someone you know who listens to podcasts. Maybe they have some laundry to fold or they’re going to get some exercise. Send them this episode. Your private feedback on this show has been so positive and thank you for that, it has been an honor to create these episodes for you. But this show is sort of at an inflection point now and in talking to potential supporters of the show, the very first question they ask is how big is the audience? How many downloads does this podcast get? And that is where you can help. Share this episode and any other episodes with folks who you think will enjoy them. Thank you for your support on that.
I’m going to include some juicy links for you in the show notes as always, so you can do your own deep dive, and I’ll include that link to episode 31 that you might like too.
That’s all for today, let’s talk again soon!
https://www.jpmorgan.com/insights/real-estate/community-development-banking/what-is-a-community-development-financial-institution-cdfi