Impact Investors and Business Leaders Can Be at the Vanguard of this Necessary Systems Change
Market forces have the power to transform communities of color that have traditionally been exploited by the economy for centuries. Dismantling systemic racism will require those with access to capital to intentionally invest it in these communities for the long term.
Members of the impact economy must be committed to this long-term work in order to make real change. The current racial justice movement has brought great attention to the way businesses can either perpetuate systemic inequities or help rectify them, but this moment must not become a blip in time. Systemic changes need to be made to ensure any efforts to advance economic justice are resilient.
“My concern is that folks who are now coming to this conversation on racial justice will impact wash their business, do a certain number of photo ops, feel really good, feel that momentum, but they won’t have actually done that much,” said Lucas Turner-Owens, Founding Partner of The Sankofa Group. “And I think that just is sort of down to how people are wired. So I hope that folks will commit to a long-term fight and long-term work because we didn’t get here quickly. This is long-term, intentional racist policy that we’re up against. We don’t reverse it in a year.”
This SOCAP 365 session focuses on the ways investors, entrepreneurs, and other economic actors can use their resources to positively impact and empower communities of color in lasting, meaningful ways. Panelists include:
- Erika Seth Davies, Founder of The Racial Equity Asset Lab
- Lucas Turner-Owens, Founding Partner of The Sankofa Group
- Vinny Green, Event Director of Taharka Brothers
- Amir Kirkwood, Chief Lending and Investment Officer at Opportunity Finance Network
Watch Policy and Practice: Critical Strategies for Dismantling Systemic Racism
Cari Hanson: Hello, everyone. My name is Cari Hanson, and I am the vice president of Social Capital Markets. Welcome to our conversation today. This is the first of our SOCAP 365 Virtual Series. We are focused on policy and practice today, really looking at critical strategies for dismantling structural racism. This was originally planned to be an in-person event based out of Baltimore, Maryland, and we were supposed to have this event in April. So we are delighted to have had our partners and our sponsors continue to stay with us and become this new event that we are focused on today, and we will have a number of additional conversations as a part of this series.
This one will be facilitated today by Erika Seth Davies. She is the founder of the Racial Equity Asset Lab and she is also a fellow at the Beeck Center for Social Innovation.
Erika Seth Davies: Thank you. So first of all, I appreciate being here and having the opportunity to actually chat with this amazing group of people and to focus in on the ways in which we can more intentionally start to dismantle some of these systems that are creating such disparity in our communities and our society today.
In terms of a little bit of framing, Dr. Camara Jones defines racism as a system of structuring opportunity and assigning value based on the social interpretation of how one looks, which is what we call race, that unfairly disadvantages some individuals and communities, unfairly advantages other individuals and communities and saps the strength of the whole society through the waste of human resources.
So we know that racism became structural through policy, and that policy created the frameworks and the parameters for practices and even the cultural norms that then inform more policy and practice. And then we have this self-perpetuating cycle that reinforces and perpetuates this system of advantage and disadvantage. This system is rooted in the creation of race as a social construct to justify the dehumanization of Black people to maximize power and profit. So while it is not a biological reality, it has very real social and political consequences for people’s lives.
Essentially, it is a profit over people model that is undergirding our society. So to dismantle this system, we do have to leverage and address both public policy and institutional policy through a race lens. And because of that history and that root, there’s no such thing as race neutral policy in the United States of America. It influences the dissemination of resources, accountability, leadership and again practice.
So how we go about decision-making and the actual allocation of resources and how we develop processes are influenced and bounded by those policies. So today in structuring this particular conversation, we wanted to discuss the relationship between these things, the relationship between policy and practice and what people have been able to create — even within a racist system and framework — that has sought to create opportunity and access for Black people and Black communities. What are some of the new models that we should be thinking about and looking at as this inflection point? We have the opportunity to create a more inclusive economy moving forward. What are some of the policies that historically have been actually used to create access to capital for Black communities and other communities of color? What are some of the policies that we need to be thinking about in the future?
So today, we’ll have a conversation that represents policy, practice, and cultural representations at the intersections of race and capital access. So I’m really pleased to invite and turn it over to Vinny Green of Taharka Brothers and then we’ll also hear, through a fireside chat, from Amir Kirkwood of Opportunity Finance Network, the chief lending investment officer, and Lucas Turner-Owens who is the founder of The Sankofa Group. And I am very much looking forward to the conversation. So with that I will turn it over to Vinny.
Vinny Green: Hey, I’m Vinny. First, I just want to start off by saying thank you so much for inviting me to this panel and everybody that helped make this all come together. I just want to soak it up and appreciate it. It means a lot to me and my staff, and the fellow people that created Taharka Brothers. I’ll give a little info about myself. I’m 24 years old. I’ve been working with the company, Taharka Brothers, for the last 10 years. I started with the company at the age of 14, as a 9th grade student, in West Baltimore.
From there, I’m now the event director. I handle all events, collaborations, and I’m trying to handle the branding of Taharka Brothers. It’s an amazing business that I’ve been working with. We started off as a non-profit in the early 1990s where it was pretty much a non-profit for at-risk youth. They were living on the third floor, making ice cream on the second floor and serving coffee and ice cream on the first floor. And from there, they transformed from a non-profit to a for-profit, and during that transformation, Sean Smeeton who was the owner of the company, had three employees, three young guys named Mike, Ramil and Reese who were all around the company during the time.
He let them run the ice cream company to teach them skills and relationships, and to try to give them the mindset of an entrepreneur at a young age. Fast forward now, 2020 we’re a full thriving business. We have over 150 accounts. We have three retail shops. We have one retail shop in our house, that’s on 28th Street. We have a shop in Broadway Market, that’s the Fells Point area. And we also have our third shop at Cross Street Market. We’re a growing business. And what makes us unique compared to any other business is we’re transferring to be an employee-owned business.
What that means is that each employee with the company gets to be part of ownership or at least with strategies and building future discussions. All the employees are involved, and at this moment, we’re not 100% employee-owned. We’re still doing all the legal work. But at this moment, we’re still practicing things such as profit sharing. So every last employee that works with Taharka Brothers, as long as they’ve been employed for six months, they receive a profit sharing quarterly twice a year.
It gives all our employees a sense of ownership to feel like their hard work is appreciated and that their hard work doesn’t go unnoticed. And it makes them want to push to the next level. It’s not just the business, we focus on personal development. So if it’s an employee that works for the company and has a skill that they want to take on and expand on, we support them. Even if it’s just us putting up with the tuition or whatever the case may be, we’re willing to make anything work to make personal development grow as they grow with the company.
Erika Seth Davies: And if people don’t know it, you all make absolutely the best ice cream ever. I won’t even say in Baltimore, I’ll just say ever. And I will travel for that ice cream. Thankfully, I don’t have to. I don’t have to go too far for it. So it’s definitely a quality product. So one question that I would have is what would have been helpful for Taharka Brothers either at this point as you’re transitioning to employee ownership or in the early stages of growing this business?
Vinny Green: I think the thing that would help that we’re still going through right now is just transparency. Making sure every department is transparent with each other, even if that’s making sure that the back of the house and the guys who make all the ice cream knows what the front of the house is going through, even if that’s just the finances or high points. It’s just transparency. I think transparency in any business makes you more aware of what’s going on in your business. It helps you push through or drive farther to achieve your goals in the business.
Erika Seth Davies: Which is all true, so I think that’s a great model that you all are developing. What has it meant to you personally to see this transition for Taharka Brothers?
Vinny Green: Literally everything. I had friends and family, like when I first started working with Taharka Brothers, who used to dislike it when I told them, “I’m sticking with Taharka Brothers for the long-term.” And some people just like, “Bro, you’re 24. You got to get your life together. You’re working for an ice cream company.” But it’s the long-term goal for me. So once I get my employee ownership of the company, it gives me long-term support where I can hand it down to my kids. I have a son now. I have an eight-month-old son, and he’s supported through this company, and I’m able to support my family. I’m able to achieve goals that I had set for myself through this company. Even if it’s not by myself, the company pushed me to reach my goal. They put me in a position similar to become the event director. They pushed me to develop my skills, and they pushed me to become great.
Erika Seth Davies: So you mentioned something that’s really important here that you actually now have something to pass on to your eight-month-old son. Congratulations by the way.
Through an employee ownership model, actually more people can be entrepreneurs and own a piece of this business, so that spreads out the opportunity for people to have something to pass on. So when we talk about the intergenerational transfer of opportunity and wealth, you’re spreading that out such that more people can access that in a relatively short amount of time. So in terms of employee ownership would you be forming a co-op or is there another model that you’re aiming for in the structure?
Vinny Green: So we’re aiming to be a co-op company. Right at this moment, we have a core management team of maybe six core managers. And then once we get all our legal work, we will become the board members of Taharka Brothers, and we will make all the decisions as employees/owners of the company. And that’ll be a collective of people. And also as we progress, it gives opportunity for other people that started off where I started to be able to become board members of the company.
Erika Seth Davies: So does the company also provide benefits to all employees?
Vinny Green: We’re working on that situation now. You have to have a certain amount of employees who are on your benefits for insurance and everything. Once all our employees commit to getting on the insurance, we will be transferring over.
Erika Seth Davies: Is there a challenge in accessing capital or have banks been receptive to this model?
Vinny Green: That I’m not too sure of. I know that at this moment with the coronavirus and everything going on, we’ve been in a position that we are able to thrive with just the people around Taharka Brothers that support the brand and that keep the company afloat. We are not looking into loans or anything at this moment. We’ve received loans from companies such as the Bread Program where they support other businesses, such as us, that are trying to become co-op businesses. And they pretty much support us through our whole mission and as long as we can achieve to be an employee-owned business, then we support their business also and their vision, and hopefully to support other businesses to see our vision and maybe change the way that they handle theirs.
Erika Seth Davies: Okay. So the last question that we have is your ultimate goal to grow the company so that you may establish an employee stock ownership program?
Vinny Green: Correct.
Erika Seth Davies: Okay. So I think in the chat, if you are at least in Baltimore a couple of places where folks can go to find Taharka Brothers Ice Cream, and I don’t know, if people are able to order it, have it somehow delivered.
Vinny Green: There is. So right now, we had to make a business pivot because of the coronavirus. We lost maybe, I want to say, 60% of our accounts when the coronavirus first hit us. So we switched to home deliveries. So you can receive eight pints inside of a case, and we pretty much just bring them right to your door. You place your delivery, and it’s normally there in a 48-hour time span. And we deliver all throughout Baltimore City, and we also have it available so you can still order out of Baltimore. So that’s like the Columbia, the Riser Town Road. The Riser Town region. So it’s possible to order up all the ice cream. We’re also in grocery stores such as Grauls, Eddie’s Market, the list goes on. If you go on our website, we have a store locator. You can put your zip code in, and it shows you the nearest area that you can receive our ice cream from.
Erika Seth Davies: Okay, perfect. And I think that was in the chat as well, if anybody wants to go and find their way to Taharka Brothers and get some of that amazing ice cream. Again, I will attest to how delicious it is. So it’s a personal review. One last question actually before we transition, do you have any plans to expand beyond Baltimore or to use the model for other places?
Vinny Green: That’s one of the things that always goes around in the office. We love to talk about things that could be coming up in the future. We all talk about it, but I think the main thing we like is how it’s made in Baltimore. So if we ever do Taharka Brothers in another state, I think we will always be made in the city. So it’s always the people from the city who are helping build the company.
So say if we went to New York, it would be a Taharka Brothers made in New York. Taharka Brothers made in Cincinnati or Taharka Brothers made in Chicago. Just so it’s the people of the city who are building the company because every last employee that works for Taharka Brothers is born and raised in Baltimore, and I would love it to be the same vision throughout.
Erika Seth Davies: Okay. Thank you so much, Vinny. I don’t know if you’re seeing it in the chat, there’s all kinds of cities that are popping up. So your expansion plans are already in the work. Error, group does not exist! Check your syntax! (ID: 13)
Vinny Green: I appreciate it so much. Thanks for inviting me. Again, thank you.
Erika Seth Davies: We’re going to transition now to our fireside chat. We’ve got with us next for our discussion Amir Kirkwood from Opportunity Finance Network and Lucas Turner-Owens from The Sankofa Group to talk a little bit about how policy and practice have the ability to influence, affect, create change and opportunity for enterprises like Taharka Brothers that more intentional policy, more intentional decision-making, more intentional allocation of resources can actually create more opportunities like the one that we heard about from Vinny.
So I’m not actually even going to start with a bunch of questions. What I am going to do is ask for Amir, just to talk a little bit about the work at OFN and some of the federal level policy that you all are looking at and working on things that people actually really should be paying attention to, particularly when it comes to CDFIs and how those are amazing tools for access to capital for black and brown communities. So, Amir, I’m just going to turn it over to you.
Amir Kirkwood: Great. Thank you so much, Erika. It’s good to see you, and I’m happy to be here and thank you to the folks at SOCAP and the Beeck Center for sponsoring today’s webinar. This has been a really great experience. It was really great to listen to Vinny talk about the work at Taharka Brothers and get a real sense on the ground of what it’s like to be a small business with a real sort of employee-focused approach to doing business. So this has been great so far just to hear and listen in.
Again, I work for Opportunity Finance Network, which is the network organization, you can call it sort of a trade organization for community development financial institutions. CDFIs range from non-profit loan funds to banks to credit unions, and there are even some venture capital funds that all have that CDFI designation. But collectively what we all do is focus on delivering capital to the businesses, to the developers, to the consumers in communities across the country where it’s the most challenging to get access to capital.
So that is often communities where it is designated — whether it’s urban or rural — it’s designated as a persistent poverty area or persistent poverty census tract where over the course of now three to four decades, they’ve been stuck in deep poverty and often are under-banked in those communities as well. We work in Native communities across the country where the banking system in many ways just doesn’t exist. We work also very specifically with communities of color. And what CDFIs are really focused on doing is figuring out ways to be the underwriters of credit to those communities and really seeing the communities for who they are and seeing the businesses for who they are what they’re doing on the ground and evaluating them and underwriting them in a way that reflects what they truly can deliver upon in those communities, and not just built off of credit models that are developed with a lot of sort of scientific data or historical data around it, but really looking at that organization for its ability to perform relative to the community where it is actually serving.
So my job specifically is really to go out and raise that money. I work with traditional banks. I work with philanthropies. I work obviously with our federal government and state governments, but I also increasingly work with other funding partners that are very relevant to this audience related to SOCAP: high net worth investors, investment funds, private wealth management. I work with a lot of corporations even to help them identify ways in which they can think a lot differently about things like their corporate social responsibility that often is a very broad set of things that they’re trying to achieve and really get them to think and focus about what actually happens on the community level and how a little bit of capital in their hands can have a deep impact in local communities.
And just one example I was going to share today of that is we recently launched a fund with Google called the Grow with Google Fund where over a period of roughly four to five months, what started out as a $5 million grant that would go to CDFIs to do work with minority businesses, ended up being a $180 million debt and grant fund where we are now able to deploy $170 million of loans at very deep discounted rates over 10 years to CDFIs who are focused on communities of color and $10 million dollars in grant support as well.
And even within that allocation, we had $50 million that is specifically dedicated towards CDFIs where the greater percentage of their business is lending to Black-owned businesses. So that was a process that took a bit to get to, but it shows that you can actually have a very specific objective of serving communities of color. And CDFIs can be an avenue for helping corporate entities and other large capital holders to understand just the importance of dedicating their capital in a very specific and intentional way around communities of color.
So we’re very happy with that. On a federal policy point, Erika, you asked what are the things that are really the focus for us. I think the biggest thing we’re focused on right now is ensuring that in this time of public health and economic and a civil rights movement that we’re all facing, that the funding that is coming from our government is in as many ways as possible dedicated towards the interests of people of color, communities of color. It is actually intentionally dedicated to those communities, and the best way we can do it is by having our members become the intermediaries of that capital.
So we worked to help fight very hard to get the $10 billion set aside of the PPP funding for CDFIs to utilize. We continue to fight for something called the CDFI fund, the long-standing fund that dedicates capital specifically to CDFIs out of the U.S. Treasury to get what has been a decreasing allocation down to roughly $262 million in 2019 back up to where we believe it would be really valuable at a billion dollars.
We continue to fight for reform around the Community Reinvestment Act. For people who need to understand what that is, it’s a law that essentially mandates banks to have to provide services in low-income communities across the country. But really what’s important is getting back to the fact that that law was created 40 odd years ago as a civil rights effort, not simply as a reallocation of banking dollars, but really about intentional change in communities where there were basically racist policies that denied capital to homeowners, to small businesses.
So we’re really trying to double down on the fact that that law needs to not only just be able to deploy the bank’s capital and be really supportive of banks doing good work in good communities, but then also ensuring that it gets back to its core objectives, which was to have a civil rights impact as well. Again, we’re focused on those policy issues. Again, we’re focused on trying to get as many new funders both on the government side and on the private side really deeply invested in working to bring capital and change to communities.
Erika Seth Davies: Okay. Thank you. We did have one question that I’ll throw out to you right now and that’s what do you think about public banking models like banks and post offices? This is something that’s starting to surface here in the United States. It’s popular in other countries, but starting to surface here as well.
Amir Kirkwood: Yeah. It’s an increasingly important aspect of how we have to look at financing. At the end of the day, what public banking models do is ensure that you can be very intentional about that capital getting to the ground to local stakeholders and not being driven by large national, global, aggregate models that drive a lot of the banking sector today.
Another avenue is a current proposal being pushed by Robert Smith of Vista Equity Partners and some other leaders in the field that large corporate entities ought to provide up to 2 to 3% of their net income to fund community-based banking. We’ve seen a recent example where Netflix made a hundred million dollar allocation of its profits and two of the recipients of that allocation were CDFIs. One is a CDFI bank called Hope Enterprise and the other was a non-profit CDFI loan firm called Low Income Support Corporation or LISC.
But I think the public banking model is another really important consideration for ensuring that the capital makes it to the ground and it does so in a way that really connects with where people are, what is the real risk model that needs to be analyzed so they can do the business that they’re doing versus these larger aggregate models built on historic data.
Erika Seth Davies: Awesome. Thank you so much for sharing and picking out themes of being intentional. This work has to be race informed if we’re actually going to get the resources where they need to go in the way that they need to get there, which then is a great bridge to our next panelists. Thank you so much, Amir, but we’ll shift now to Lucas who is the founding partner of The Sankofa Group. I came to know Lucas from his time at the Boston Ujima Project and a lot of his work around community wealth building and community ownership of capital and decision making, which is not how things typically go. It’s not a model with which people have a lot of familiarity.
So Lucas, if you can just talk a little about some of the work that you’ve done and the ways in which local policy can advance or can actually create barriers to creative models for financing that actually gets money and resources in the hands of Black communities and other communities of color that have been marginalized for too long.
Lucas Turner-Owens: I’m happy to. Thank you for having me on the panel. Pleased to be here. I’m representing, as you mentioned, The Sankofa Group which is a team of consultants that are focused on supporting BIPOC social entrepreneurs and impact investors, but most recently I was at the Boston Ujima Project where we started the Ujima Fund. So I joined the Ujima Fund in 2017 under the leadership of Nia Evans and Aaron Tanaka, an amazing steering committee that had been gestating the idea for years before I joined.
What we collectively built there was a democratically managed investment fund that would treat community members, to your point, Erika, as agents and not subjects in community development. What I mean by that is that community members have four avenues for democratic engagement in the Ujima model. They nominate which businesses that they love in their community. They decide on the social and environmental impact metrics that we use to assess those businesses. They can invest in the fund with as little as $50, and then they vote on the allocation decisions of the fund, deal by deal. And if 51% of our 300 plus voting members are in favor of an investment, then we move forward with funding that company.
So Ujima is a Swahili word. It means collective work and responsibility. That’s because our work was fundamentally multicultural, multi-stakeholder with the mission of returning wealth to working-class Black and Indigenous communities, and other communities of color in Boston. So we had a community made up of folks in Boston’s working-class communities of color, impact investors, community organizers, business owners and their supporters.
We first brought that community together to decide on the social and environmental impact metrics that we would use to assess companies. And I think this is particularly important to share with the SOCAP community where those of us who work in impact investment often determine what impact looks like. But I think, shouldn’t the beneficiaries of this work who interact with these projects that are being funded tell us what kind of social and environmental impact they want to see?
So at Ujima, we presented a list of 50 things that we could measure in a business, and our community voted on 36 of those that we used in our Ujima community standards. We then had neighborhood assemblies in Roxbury-Dorchester and a few that were city-wide where we partnered with grassroots organizations. And again, this is another sort of critical piece of Ujima is we were trying to connect the grassroots sector, which was strong and had a long history in Boston, with the impact investing community, where there often isn’t a bridge.
So we would reach out to those grassroots partners fighting for environmental justice, housing justice, racial justice, and we would throw events with anywhere from 100 to 200 people with food, music, child care and sometimes interpretation services to ask those that came what are the businesses you love in your community? What are the businesses you need that aren’t here? And what are the ones you’d like to see replaced?
We then took that list of love to businesses and encouraged them to apply for capital. And as I was leaving Ujima, we made our first loan to a worker-owned co-op that was transporting organic food waste to local farms where it could be re-earthed. And the business was owned primarily by women of color with some of its drivers being returning citizens. So that’s the kind of business that our community voted to fund. And just quickly on the capital raising side, Ujima’s co-founder Aaron Tanaka designed a capital stack structure that would allow us to raise from a number of different audiences situating them appropriately based on the amount of risk exposure they could take on.
So what we did that was novel, we called capital stack equity, where small dollar investments from community members who were buying a three-year note in our fund were given the highest returns that we offered at 3% annually and then larger dollar investments from foundations like a PRI investment we received would buy a seven-year note in our fund and receive 1.5% interest. PRI’s are structured to receive lower returns, and if they fail, foundations can write them off more easily than a single individual making an investment in our fund.
So rather than rewarding those with capital who can afford to lock it up for longer with the highest returns, we said, “Let’s reward those with less capital, because if we only give those with capital the highest returns, we’re only perpetuating the systems of wealth inequality that we’re working against.”
And then finally to support the businesses that were in the fund, we built a business alliance. So that was for companies that could pass our standards, so we could support their growth where we were doing positive credit reporting. So a safe space. We’re reporting if you’re paying your loan on time, but not negatively dinging your credit. We give them access to technical assistance providers. We built a peer network where entrepreneurs could mentor each other. And then we would help those businesses access contracts with anchor institutions, which I see is really fundamentally the other side of the coin of this kind of lending.
So the best example of that last piece was when we brought our business alliance, which at the time had 15 members, to meet with the heads of supply chain and supplier diversity at a children’s hospital. And one of those businesses, a farm-to-table Caribbean catering business called Fresh Food Generation, began working with the hospital as a result of that introduction. So Ujima was trying to design a sort of full set of systems that were mutually reinforcing as a sort of strategy of equitable economic development. I think to your question, Erika, there are a number of pieces of policy that I find exciting, and they range from policies that are national legislation like the Main Street Employee Ownership Act to sort of roles that cities can play at a more local level to encourage anchor procurement. And maybe I can talk more about that in a minute, but I think there’s a lot of policies that we saw at Ujima that we think are really exciting.
Erika Seth Davies: Well, let’s go ahead and dig into some of that. Can you talk a little bit more about the anchor procurement policy and some of the worker ownership policy actually as well?
Lucas Turner-Owens: Sure. Well, I think cities can accelerate anchor procurement by collating opportunities and facilitating connections and then financially rewarding companies with a certain percentage of local minority-owned business contracts or women-owned business contracts, or punishing those with below a certain rate of procurement. So I know, Erika, you mentioned to me the Baltimore Integration Partnership. I’m aware of the Healthcare Anchor Network led by the Democracy Collaborative which has 45 healthcare systems in its network. ICIC does this work. So there are a number of folks who are doing that bridging, but from a policy perspective, cities should really have carrots and sticks for anchors that aren’t plugged into local economies.
And from a practitioner’s standpoint, my favorite example of effectively bridging those two worlds comes from a commonwealth kitchen in Dorchester. This is a shared commercial kitchen for at least 20 food trucks and catering businesses that helps graduate those companies to become brick and mortars and to sell consumer packaged goods at large grocery stores. But on the anchor procurement side in particular, they bridge relationships with anchors. So they sell Harvard tomato sauce. And they sell applesauce to children’s hospitals. And you may think, “Well, what’s that going to do?” But if you’re thinking that, you’re not grasping the scale of the ordering that these anchors in Boston do.
I’ve heard it said anecdotally that the Longwood Hospital area in Boston has the GDP of a small nation. So redirecting a fraction of that money to Black-owned businesses can have an outsized impact because for every $100K or $150K that a business gets in new contracts, they can hire a new team member, small businesses located in communities of color then are likely to hire team members of color. So I think there’s opportunity there for the city to play a stronger role.
The Chamber of Commerce in Boston is doing some of that bridging. With the Pacesetters Initiative, I think the city could do more. And then on employee ownership, there’s the Main Street Employee Ownership Act, which is the first piece of national legislation to focus on worker cooperatives. It was brought forth by Senator Gilibrand from New York and Congresswoman Velasquez in the House. And it was guided by the U.S. Federation of Worker Co-ops and the working world. And that legislation directs the SBA to finance the sale of businesses to their employees who work with small business development centers across the country to provide training and education on employee ownership and then to actually report on the SBA’s lending and outreach to employee-owned businesses because, without those metrics, we can’t tell if the space is moving. I think that’s an exciting piece of policy.
Erika Seth Davies: So one question, actually, this is for both of you, and we were talking about public policy, but then also institutional asset owners are a huge part of this, right? Both of you mentioned foundations, but there’s also public pensions and how they move, and that’s a lot of capital that is actually determining how things go in the system. So are you seeing anything from public pensions that are being more intentional about the impact locally? Because very often the pensioners are going to benefit from some of these local opportunities to build even a local economy or to have more resources available to CDFIs for example. So are you seeing any relationship or pipeline or any movement from pensions in either way where they’re operating and thinking much more locally and/or thinking about the impact of their resources. So that can go to both of you.
Amir Kirkwood: Yeah. I would speak to it. I mean, I think it’s a really great source of capital. There have been efforts and advocacy by the AARP, for example, to support the idea of investing in local efforts by the various pensions. There’s a history of pension funds investing in things like affordable housing, but I have not seen anything really specific when it comes to truly community-based strategies, investing in local businesses and particularly anything with a very focused lens around racial justice. That’s unfortunately been my experience.
Lucas Turner-Owens: Yeah. And I can say for Boston, I’ve seen a win here in terms of how pensions are being managed. Ujima’s fiscal sponsor, the Center for Economic Democracy, had a win here when they joined a coalition of grassroots organizations and saw the city of Boston move $150 million of its $7.2 billion pension into ESG screened securities and then another $100 million into community banks, to underscore the point Amir made about what Netflix just did.
That allows small community banks to have capitalized balance sheets. It means a great deal for borrowers on the ground and communities. And then a practitioner in the space is a company that actually we’re providing pro bono consulting to at The Sankofa Group, that I’m really excited about called Free Cap Financial. So Free Cap gives asset managers at endowments, and registered investment advisors as well, data on which companies promote the prison industrial complex and which companies help formerly incarcerated people transition back into the workforce.
So currently in the ESG conversation, there’s no data on private prisons at all. So Free Cap brings that data transparency to asset managers, so they can move money out of private prison stocks that show up in large managed portfolios, some of which might be part of someone’s 401k, and into companies like Slack, which offer pathways to coding careers for formerly incarcerated folks. So I’d encourage folks to check out that business, Free Cap Financial. They’re doing really exciting stuff.
Erika Seth Davies: Great. Thank you. Okay. So with that, I’m going to shift and throw some of the questions that have been coming from participants to you all and I think we’re going to actually bring Vinny back as well. So let me just start with some of the ones that are showing up in the chat. So there’s a question about alternative credit rating systems. So are there any that you’re excited about or is there any movement toward any specific metrics for underwriting and risk assessment that don’t necessarily include traditional credit scores?
Lucas Turner-Owens: Yeah, I’m really fired up about this piece. I think with alternative underwriting there’s a lot of movement that could be made. I’m on the board of the Cooperative Fund of New England, and they have what’s called a collateral pool, which they can pull from to get a business over that hurdle of a certain loan to value ratio that they’re targeting. So if a business is applying for a loan and has contracts as collateral — this is a real example of a landscaping company in Massachusetts — they pledge their contracts, they pledge their assets and they’re still only coming to maybe 50% of the value of the loan they’re applying for.
That’s when the Cooperative Fund in New England can pull from that collateral pool to get that business over the hurdle. But to the point about underwriting specifically, the FICO score doesn’t bring in whether you pay your rent on time or your utilities. But FICO does take into account if you pay your mortgage on time. So if you think about the effect of that, folks that can afford to buy a home who have 10 or 20 years of paying their rent on time but don’t own a home, they don’t see that representative financial data reflected in their credit score.
I think that’s wrong and I think the industry is eventually going to catch up. But in the meantime, mission lenders can address this by bringing in that data and maybe rethinking how the five C’s of credit are thought about. So I think there’s a lot that can be done there and I’ll pass it to you, Amir.
Amir Kirkwood: I think it’s a really great and important thing that we all need to focus on. At OFN, we actually manage roughly $800 million in capital. It’s all 100% lent or invested in our member CDFIs. But the way that we finance them is through, as Lucas described, a modified approach to looking at CAMELS scores. But one of the most important things is that, for us, we lend on a completely unsecured basis to all of our members. So we’re not asking them to post precious collateral and cash against the lending that we do to them because we understand that that has a cost for them when they lend to businesses and lend to projects. And what effectively happens is that the more you have to collateralize the lending activity, essentially they get pushed back into more traditional boxes of how they have to underwrite the underlying small businesses and other consumer borrowers.
So what we’re just trying to do at our level given that we have this access to large pools of capital is lend it on or invest it on to our members so that they’re at least restricted and most flexible when they then make loans and turn to their borrowers on the ground.
Erika Seth Davies: Okay. Thank you. With the recent unrest now that we’ve been seeing across the country, we’re at this inflection point in the country where race is front and center, although it’s always been the original fault line. But now we’re really having very candid conversations about race and racism, and it’s driven by the abuse of Black people and communities at the hands of historic policing practices and policies. But can you make it plain for folks like how that connects to this conversation that we’re having right now?
How does this access to capital dialogue, how does this show up in terms of what we’re seeing in communities across the country and how can this conversation move to a fuller conversation so that we are involving more people in this dialogue as well?
Amir Kirkwood: Our network of CDFIs operate in all 50 states. As I said, we focus on communities that are deeply impacted by long-term poverty. That long-term poverty often translates into long-term issues around racial justice as well. We see the transfer of communities that were once poor to communities that are no longer poor, but are also no longer diverse. And then the reallocation of that poverty to new communities. Where I grew up in Chicago, the communities that were middle class communities in the 1970s and 80 are now wealthier communities. And the lower income communities have transferred out to collar suburban towns, and it basically carried a lot of the same traits and conditions around not only economic disparity, but racial segregation and other issues related to that with them.
So for us, as part of the financing engine, it’s clear that the market of capital moves away from where poverty is. You just see it. It’s present. And if there are a series of preconditions that would say this community is lower income because of segregation around it because of disinvestment and then there is no system of finance support and change, then the cycle just continues. And it’s clear that the two factors of race and economics go hand in hand in many of these communities. It’s deeply impactful in African-American communities obviously, but you see it in Latino communities, you see it in some Asian communities. This is the whole point, and Native communities, it’s extremely deeply so.
It then translates into a thing where it’s not just about can someone finance a business. It becomes healthcare, it becomes basic physical infrastructure, and all of these areas are economic disinvestments that all of a sudden translate into a perpetuation of racial segregation in communities, perpetuation of poor health outcomes, perpetuation of low education achievement. And it recycles itself generation after generation.
So for CDFIs, part of what we’re trying to do is break through that through bringing capital to communities in a long-term way. And that’s a critical piece. It’s not just that there is capital there. How passive, how long-term is that capital. How much does it, even if it’s debt, feel more like equity for that business or that consumer on the ground, so that they have the time to actually recover, the time to actually build up assets? And that’s a critical piece to all this. If there’s no time associated with it, if there’s no terms associated with it that allows for growth to actually occur for you to go through a cycle of some bumps in the road in order to get to a cycle of return, then it’s not just the actual access to capital is not going to always be even the answer. So this is what’s often been disinvested in these communities as well.
Lucas Turner-Owens: Yeah. I’ll be brief in saying that when COVID-19 had a disproportionate impact on Black communities in a number of cities, it was due to what many health experts called these comorbidities, these things that led to Black communities being more vulnerable. Not that Black people are inherently more vulnerable, but that the healthcare system in those communities is weaker. So in that sort of way of thinking, I think of this as sort of the way the healthcare field is not thinking of social determinants of health.
The intersectionality with which housing and job opportunity and access to capital impact someone’s life outcomes. The intersectionality of air pollution in Boston’s Back and working-class communities; that’s a direct link to health outcomes. What about housing? What about jobs? So that’s how I think about that question. I think these things are related. I also think it’s true that poor communities are criminalized and are put under a different magnifying lens and communities of color and people of color are criminalized and put under a different magnifying lens.
When you combine all that, I think you are sort of looking for failure and that’s I think what happens in a lot of communities of color. They have a lens on them that’s unjust. You can’t address one piece of that puzzle without zooming out to see again that intersectionality is a different piece.
Erika Seth Davies: That’s right. So we talk about the intersections of systems and policies that can combine to create what it is that we’re starting to try to unpack at this point. And resistance has long been part of the story, so I’m really, really happy to hear about the work that’s happening in different pockets of the community. So before we head into wrap up, how are you all feeling about this moment in time? Do you feel hopeful? I know there’s a lot of activity. A lot of activity does not necessarily mean progress, but there is a lot of activity.
There’s a lot of resources flying left and right, but how are you feeling overall about this moment in history and how do you recommend or what are you seeing as opportunities to actually start to institutionalize a different way of operating to seeing this economy, our economy, and the way that we think about risk like the risk of status quo and inaction is a different way of thinking about risk? How are you feeling about this moment? And again, what do you see as opportunities to actually shift and make this a more permanent conversation and permanent action towards progress?
Lucas Turner-Owens: Sure. I mean, I’ll just say that I think one thing that concerns me specifically in the impact investment space, but in the social sector more broadly, is that I know I’m motivated when I hear stories like Vinny’s. That motivates me to do this work. It makes me feel good. It gets me excited and makes me want to keep working really hard. What’s unfortunate is that I think you can activate those same sort of reward pathways to make people feel good with a photo op versus actually doing the work for 10, 15 or 20 years, right?
My concern is that folks who are now coming to this conversation on racial justice will impact wash their business, do a certain number of photo ops, feel really good, feel that momentum, but they won’t have actually done that much. And I think that just is sort of down to how people are wired. So I hope that folks will commit to a long-term fight and long-term work because we didn’t get here quickly. This is long-term, intentional racist policy that we’re up against. We don’t reverse it in a year.
And just in terms of what I think is exciting or to give I guess a call to action, I think it’s an exciting moment for Black entrepreneurs in particular to think about entering new sectors. 60% of Black-owned businesses are in the bottom 20 industries by revenue and then once you’re in that profitable sector charge what the average is. Don’t charge less than your competitor, and if possible, higher. So you can get to parity in terms of revenue. For investors, I think there’s a lot of things that can happen in terms of underwriting and lending strategy to address structural issues in the industry.
For consumers, buy from Black businesses. Buy from Taharka Brothers. And then for foundations who are in the space, not to resist the urge to Wilks’ call like cherry-pick in the impact investing space. When you have the flexibility to be a bridge, to get 95% of your capital back or to get a 1% return that’s where you’re needed, because more vanilla money is going to be flowing into the space in the next couple years. Not everyone can get 15% returns on clean tech. We need people that are providing capital that acts as a bridge to support financing models that serve small businesses.
Amir Kirkwood: Yeah. I just would love to follow Lucas’s point, I think for OFN as a network organization that has an influence on policy, it has an influence on sources of capital and then has an infrastructure built around it, how do we influence capital sources to think differently about how they invest their money on the ground? And it’s to Lucas’s point about for example the philanthropy world. Moving past the grant and PRI model to thinking about how do you reallocate your endowment, what risk are you taking? So a critical way that CDFIs and OFN help with that is by chipping away on a regular basis at the perception of risk of investing in communities of color, Native communities, rural communities, by getting them to understand that the risk associated with doing it is not as high as they might perceive the risk to be, and that the losses that they may experience are probably not any worse than the losses they would experience putting their money behind more traditional venture capital models that flow through Silicon Valley.
So that’s the long hard work that we’re supposed to do on our side so that the Lucas’s of the world and ultimately the Vinny’s of the world can benefit from it. Again, this is the point of being a part of a more institutional approach to network building, trade organizations, things like that is that there’s only so much that a Vinny can do with Taharka Brothers besides actually run his business all day. So they need to have advocates that are engaging in the long fight of winning the battle on a day-to-day basis hopefully. So that’s what we’re trying to do.
Erika Seth Davies: So one more question came up and then we’ll transition, and it came around concessionary return. So all investing has impact, right? Now, we got this fun space: impact investing. But how are you, and I think, Amir you started to allude to it a little bit about risk and how we define risk, but how are you seeing the conversation and ideas or a reset of ideas around concessionary return when you start to lean into some of these discussions as well? I was on a panel and one of the panelists said, “My returns aren’t concessionary. Your returns are extractive.” So in a complete reset of these ideas, so how are you seeing, thinking about, again, just reframing all of this?
Amir Kirkwood: My basic view of concessionary capital or concessionary rates is an essential dishonesty about markets. The market of what you invest in is the market of what you invest in. The market of corporate bonds is not the same as the market of municipal bonds. And the market of municipal bonds is not the same as the market of doing private equity investments and venture capital. So why should investing in communities on the ground doing small business finance be considered on parity as a risk proposition as those other asset classes?
I find it to be a little lazy to be honest with you. I find it to be a little bit of a dodge of really wanting to do the real work on the ground that surprisingly enough investors do every day as they dig into their portfolio of public equities. They do tons of research to make sure they’re making great investments. The question is why are they not making that effort in the work that affects community-based strategies and community-based economic development? And essentially, that’s what CDFIs do. That’s what Lucas does in his business. That’s what Candide does in the Olamina Fund. That’s what Common Future does in their model.
They’re all basically saying we get that there’s this delta between your perception of risk and the reality of risk. We’re investing the time and narrowing that band, but the real critical issue is can you meet us at a price range that allows for that to work? And that’s to me the biggest strategic bottleneck here is that the asset owners need to really see that the intermediaries that are working with the businesses on the ground are giving them signals just like they see in the market every day when they look at their Bloomberg screen about whether there is real risk here or is there a perception of risk. So that’s my overall thinking about it.
Lucas Turner-Owens: I firmly echo everything Amir just said. I think expectations around returns should be interrogated. Benchmarks for performance in certain industries that are based on companies that are either extractive or that have unsafe labor practices should not be the benchmarks for performance writ large for investments. I really feel that. I think Deborah Frieze from Boston Impact Initiative said it well with the new proposal for thinking about this that ties to sort of a concept of biomimicry that says maybe this perception of a certain number is off. Maybe we need to collectively re-educate folks around a different number that’s based on a sustainable growth pattern versus an unsustainable growth pattern.
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