People on both sides of the political aisle continue the contentious discussion surrounding the Community Reinvestment Act (CRA). Whether you believe in its right to exist or not, the fact remains that it is our obligation as productive community members to best utilize the CRA’s resources to develop and sustain growth within our communities. Developed as a response to the increasingly worrisome state of decline in low-income neighborhoods back in 1977 and iterated on several times since, the CRA sets out to provide equal opportunity to those seeking loans, intended to eradicate race-and class-based discrimination.
On the surface, this dedication to investing in low-and moderate-income neighborhoods makes sense. If banks provide capital that supports access to housing, fosters community, and assists projects that solve social problems, then everyone wins. However, even with the CRA in place, many of our neighborhoods remain mostly devoid of impact-sustaining economic development projects.
One could argue that because of the federal mandate to distribute a minimum amount of support per year, banks loan, invest and/or grant capital often in an ill-advised manner, without an informed community-building plan in place. Banks today are, in the end, not incentivized to act as community developers and instead operate mostly with inbound opportunities that are limited by the relatively few entrepreneurial types who are both aware of the CRA and remain doing business in these areas.
This hints at the crux of the issue at hand: Is lack of access to money the reason these communities remain woefully underdeveloped, or are there more systemic issues at work? More importantly, perhaps, is what can be done about it?
Historically, we have seen that systemic issues are largely the source of inequality. Failing schools, lack of support for community projects, and discriminatory policies all contribute to social and economic inequality in ways that go far beyond an inaccessibility to loans. What this means, then, is that we need to make use of government initiatives like the mandated CRA to answer these larger issues and invest in community growth in a way that provides sustainable, impactful solutions.
For banks and for our communities, there needs to be more behind the community bank tagline than a physical proximity to a neighborhood. Banks, however, are not presently incentivized to support local projects beyond making the occasional small grant because there is less money to recoup in smaller-scale development and they risk not getting credit for CRA compliance, as there are not standardized metrics to account for these types of investments.
What is needed is a plan for utilizing the CRA in a way that positions banks as community developers, driving organic growth and stimulating local urban economies. Only a forward-thinking regional or national banking institution can lead the way on this fundamental shift in how banks do business in the communities they serve. There remains a mutually beneficial relationship to be had between banks and inner city communities.
First and foremost, increased awareness can help individuals take advantage of loan opportunities. Without knowledge of the various measures in place to support neighborhood development, it’s impossible for people to access them. Additionally, banks need greater incentive to make smart investments in their communities, rather than simply awarding housing loans as a way to meet their mandated, minimum CRA loans.
This is the key issue — how to create mutually beneficial development projects where community needs are addressed, and wherein banks also benefit. The solution and a significant market opportunity lies in a holistic approach to healing the wounds of inequality. Creating investment opportunities where both parties win is paramount to sustaining successful development.
When banks support projects that everyone in the community is behind, they benefit by generating goodwill and increased visibility. Consumers want to support efforts that do good, and banks need to recognize that it’s in their best interests to be a visible part of rebuilding broken communities. There is room for all to benefit by supporting strong community initiatives. There’s even an economic argument for banks to refrain from neglecting low-income communities. In the most straightforward sense, improving the living conditions of low-income families provides banks with a large customer base with which to do business, simultaneously creating future opportunities for investment and growth within a loyal community.
In a sense, it’s great that the federal government has recognized that inequality still plagues urban areas in significant ways and has provided the CRA as a way to counteract it. There is, however, limited room for a sweeping legislative measure to come in and clean up the mess. What is required is the collective work of community leaders, businesses, and financial institutions to build a network of support that fosters innovation, rewards good ideas, and creates collaborative working opportunities for businesses and people alike.
The biggest market opportunity in the history of modern banking is to grab hold of the common claim banks make around being a “community bank” and differentiate themselves as a community developer by communicating their intentions and acting as an accessible platform for measurable change.