The motivation to serve underserved communities

Low loan rates.  Personal service. Cooperative.  Democratic and member controlled. Flexibility. Dividends. These are a few of the words we use to describe credit unions in our marketing and in our shared institutional language. Here is another important word: access. Because all these previous words are true about us as credit unions, the industry is in a uniquely strong position to provide access to underserved communities. The definition and face of underserved communities is changing. In Chicago, 49% of households don’t have three months of savings to live above poverty level if necessary. 25% have a bank account somewhere but still access payday loans, and 16% don’t have any bank account. The numbers are similar in urban areas such as Los Angeles, Sacramento, Boston, and Washington DC. (Data from familyassetscount.org; a project of CFED and CitiCommunity Development).  So far this sounds like an urban problem, but it’s not. Between 2000 and 2011, the poverty rate in the Chicago suburbs grew by 99%, in suburban Atlanta by 159%, and in the metro region surrounding Philadelphia by 40% (www.confrontingsuburbanpoverty.org; Brookings Institute).  The reasons for these statistics are complex, but they are reality.  The underbanked are already your members.  Half of the members you meet in the course of transacting probably do not have the money to survive a job loss. A quarter of your members might bank with you but take out a small dollar, high interest loan with a balloon payment elsewhere. And there are more individuals in your community who aren’t using any traditional financial institution.

Credit unions have a reputation for being trustworthy financial institutions, and failing to serve the underserved is missed opportunity. Your members won’t come through the door of your credit union and tell you they are the underbanked, and they won’t necessarily fit a visible stereotype for asset poverty (if such a stereotype should even be accepted as true). The most important reason for your credit union to think about financial inclusion is that by definition, you exist for their membership, and not for profit.

Here are several strong reasons to think about adding financial inclusion to your strategic plan:

Mission:  Credit unions have the mission statement of ‘people helping people.’ What better example of this than people with excess personal liquidity depositing their funds at a credit union to be lent out to individuals who don’t have access to capital? Credit unions that solely focus on community development work can cite case after case of members who use loans for personal emergencies, to start small businesses, to cover the costs of medical bills, to help a child afford school supplies, to purchase a vehicle to get them to work, and a number of other worthwhile reasons. Some credit unions have developed socially responsible investment products to remind members to think about mission when they invest their money. Each member of your credit union has one vote, and although most of your members may not show up to your annual meeting or contact your board on a regular basis, each vote is equal. At one point you were chartered to serve a common bond, not just the best of the best borrowers within that charter.

Money: You don’t have to become a low-income designated credit union to think about expanding your product line. You just have to think about a double bottom line – both the financial impact and the social impact when tweaking your products. An 18% auto loan to a credit challenged borrower will yield you a much stronger return than a 1.9% loan to an A+ borrower, and with appropriate supports in place your credit union can reduce its lending risk. Borrowers you truly help are often loyal and do repay their loans. Don’t overlook the important of simply being accessible either – a community partner once shared a story of an immigrant client that had their entire savings account in a mattress that was burned up in a house fire. Offering depository accounts with low fees and low barriers to entry is an often-overlooked means of serving the underserved. However, if you do decide to significantly expand access to underserved or low income markets, money is available to help you. Federally insured low income designated credit unions can raise capital and liquidity in ways  not available to traditional credit unions, and the US Treasury’s CDFI Fund provides grant dollars to support lending in low income communities. Other grant opportunities can open up as well. The credit union industry has many talented consultants who can help with these processes.

Members: If mission and money aren’t strong enough reasons to consider lending to underserved communities, member growth is another reason your credit union should think more closely about the underserved market local to you. Members who receive credit from you when others won’t lend are returning members. They will come back to you for other products because they understand you provide opportunity. Any financial institution can offer money to those who can afford it; strong financial institutions fairly lend money to those who need it while managing risk. Word of mouth referrals are the best organic growth strategy, and the members you serve when you are the only fair option will refer others to you.

There are products you already offer to serve these markets; it is matter of digging into your policies and procedures to reach a wider net of potential members. Because we are cooperatives of people helping people, we can go back and make a difference in the lives of those who are most in need.