Impact Banking: Another Way Your Money Can Support Social Justice

Do you ever wonder what happens to your money once you deposit it into a bank? It doesn’t just “sleep” in your account. All banks put your money to work earning more money for them. Unfortunately, the major commercial banks direct your money in ways that are harmful to people and planet. Often that means your money is supporting fossil fuels, destroying habitats, or hurting communities, which is probably not what you want. Impact banking on the other hand, is a way to put your money to work for good where it’s needed most.

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What Is Impact Banking You Ask?

Maybe you’ve heard of ethical banking, sustainable banking, or socially responsible banking. These terms have gained popularity as people seek out more ethical savings accounts often through Green America’s Break Up With Your Mega Bank campaign. When they are used the terms typically imply that financial institutions ensure that the money deposited into their accounts gets repurposed and invested in socially and environmentally conscious ways.

Impact banking, while similar, differs in that the money deposited into the accounts of these banks is used to drive local development in the communities of greatest need. These are the financial institutions delivering affordable and responsible lending to the low-income, low-wealth individuals and businesses in areas, which have historically been at a disadvantage when seeking access to cash – think redlining for example.

Why Impact Banking Is Important You Wonder?

As I alluded to in this post about the challenges I see with philanthropy, one of the biggest hindrances to development in low-income communities is lack of access to capital. This 2018 U.S. News article entitled Preventing Unequal Investment in U.S. Cities highlights the disparity in investment between high and low-poverty communities.

In her piece Why Have Banks Stopped Lending to Low-Income Americans? on Talk Poverty Amanda Abrams cites some very troubling statistics indicating how much more difficult it is for low-income people of color to access capital. I was well aware of the increasing gap between black and white homeownership, but I didn’t realize that such a significant portion of black and Hispanic home buyers were turning to less-regulated online entities like Loan Depot or Quicken Loans, which are known for charging higher rates and fees, for not just “payday” loans, but their mortgages as well.

Through the opening of bank accounts or certificates of deposit at banks serving marginalized communities, impact banking offers individuals a way to help inject capital into these communities. Each business financed, job created, and home built in these communities is far more transformational with a far greater ripple effect within the communities served.

With over one trillion dollars $$ in personal savings accounts in the US it seems to me that impact banking is a way to inject a significant amount of capital into these communities if enough of us even move just some of our money into these banks.

How to Get Started With Impact Banking

Retail (i.e. not wealthy) banking customers like me can look into opening a savings or checking account in one of these financial institutions. If you’d like your money to earn a little money consider a money market fund or certificate of deposit. It could be a good place to hold your emergency fund.

There are many communities in need. Each of us has to decide which community(ies) we would most like to help with our cash deposits. For some of us impact banking opportunities exist right in our own cities and there are always local credit unions, which I’ll say a bit more about shortly. For now let me share the categories of mission-based financial institutions (all off them are federally insured and regulated), in which your cash can truly make a difference when you open a bank account or certificate of deposit.

1. Minority depository institutions (MDIs) – The Federal Deposit Insurance Corporation (FDIC) defines MDIs as federal insured depository institutions “for which (1) 51 percent or more of the voting stock is owned by minority individuals; or (2) a majority of the board of directors is minority and the community that the institution serves is predominantly minority.”

2. As Jared Lonsky notes in a recent Green Money article, community development financial institutions, more commonly known as CDFIs, are federally certified nonprofit and for-profit banks “that must dedicate the majority of their lending dollars to their stated missions, typically tied to community benefits (e.g., lending to low-income families, investing in small businesses, etc.).”

3. Maybe you want to help steer more money to those in need in your own community. If so, consider making a cash deposit with a local credit union.

For those of you who have established a donor advised fund (DAFs) for your charitable giving consider transferring the funds in your DAF account to any one of these financial institutions that offer that service. The very act of your money sitting in that bank is a charitable contribution of sorts.

Where to Bank Black, Hispanic, or Native American

One United Bank, which says it is the largest black-owned bank in the nation, is both a black-owned bank and a CDFI. Julien and Kirsten from Rich and Regular proudly started banking black at One United Bank last year. Julien relays their rationale and encourages others to do the same in this post noting the increasing racial wealth gap and predatory and unseemly practices implemented by so many of the larger banks.

If you are interested in perusing a list of black-owned banks in the US and learning more about the important role they play check out this article from Nerd Wallet. And don’t forget to shout it loud and proud if you do move some of your money into one of these banks using the #bankblack hashtag.

For those seeking credit unions committed to serving Hispanic communities check out Juntos Avanzamos. You can also use the search feature on this page of their website to find their member institutions. Additional information on the topic can be found in this similarly helpful and comprehensive article about Latino Credit Unions also published by Nerd Wallet.

While I was already familiar with credit unions and the concept of values-aligned banking, it was a recent webinar hosted by the Transform Finance Investor Network (TFIN) that really opened my eyes to the concept of impact banking. During this particularly illuminating webinar, the leadership team of Native American Bank discussed how helpful cash deposits are to enabling them to further their reach in assisting Native American populations since so many Native Americans live in rural areas far away from urban centers and large amounts of capital. The Native American Bank is also a CDFI and its online account application can be accessed here.

Tools & Resources to Help you Find an Impact Bank

In addition to learning about the potential of assisting Native American communities during the TFIN webinar I also was introduced to the Mighty Deposits website. It’s a repository of useful lists and information people can use to identify banks that will direct their money to things they believe in. Search categories on their site include Hispanic, Native American, and African American equity, as well as sustainability, small farms, women’s equity and more.

If you want to put your stimulus money check to work benefiting your own community a helpful resource to explore can be the Bank Local website. The best feature is the rankings based on each bank’s impact in your local community as well as a number of other factors.

I recognize that this is a very US-centric post, but that is what I am familiar with. I have read good things about Vancity Community Credit Union in Canada and have to imagine there are banks serving under-resourced communities in countries around the world, which would benefit from more people banking with them. For those residing and banking overseas check out he Global Alliance for Banking on Values (GABV) member map. At the very least GABV members are more socially responsible banks (though, they might not directly serve communities in need.) If you know of such banks outside the U.S. please share them in the Comments section below.

More CDFI Recommendations

Many CDFIs are loan funds, which do not operate as banks open to individuals. One especially well-known and highly regarded CDFI that operates as a bank is Southern Bancorp. I first learned about Southern Bancorp while I was still working on early childhood education policy issues and travelling frequently to Mississippi. The local advocates I worked with in small towns throughout the state praised the bank’s efforts to lift up their communities through innovative funding opportunities.

Another very effective CDFI in which to consider depositing your cash is Self-Help Credit Union, which is frequently recommended in articles listing socially responsible banking options. Founded in North Carolina in 1980 it has an impressive history of helping low-income people buy homes and establish small businesses.

Lastly, I will mention CNote. While not a CDFI itself, CNote is an innovative online platform that enables people to to invest in loans issued by CDFIs. Working through a nationwide network of CDFIs CNote currently offers investors 2.75% interest and the knowledge that their money is supporting Main-Street America, funding small business loans, affordable housing, and community development in low-income areas.

I opened a CNote account just about a year ago and have received regular monthly interest payments ever since. CNote accounts are NOT FDIC insured so there is risk involved unlike with savings, checking, or money market accounts or CDs at any of the other above mentioned institutions.

More to Come on This Topic

I have long had a document saved in which I’ve been collecting information on the broader topic of socially responsible banking. There is so much more to share on the subject. That post is still to come sometime in the future. For now I’m limiting myself to this concept of impact banking, which enables everyday people like you and me to put our stimulus check or other money to work for those most in need even if we can’t afford to donate it. If enough of us do this it can make a big difference.

PS – I am not affiliated with any of these financial institutions, but I have included referral links for CNote and One United Bank, both of with which I am an account holder.

And if you go ahead and open an account or CD with any of these organizations please let me know in the comments below and/or tag me and those institutions on social media.

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