ImpactAlpha, July 3 – When Netflix committed this week to deposit $100 million with Black-owned lenders, businesses and institutions, executives Aaron Mitchell and Shannon Alwyn noted that a shift of just 1% of the cash held by companies in the S&P 500 could add $20 billion in deposits to Black-owned financial institutions, massively increasing their lending power.
Indeed, there’s more than $700 billion in the cash reserves of just 10 companies, including tech giants Apple, Microsoft, Alphabet and Amazon (see, “Beyond Buybacks: 10 ways to put corporate cash to work”). Google, part of Alphabet, has carved out $120 million from its balance sheet to make low-interest loans to community development financial institutions, or CDFIs, and another $45 million in loans (along with $5 million in grants) for Black-owned businesses.
“Working through CDFIs is really vital to bridging the gap” for access to capital, especially in communities of color, says Ruth Porat, chief financial officer of both Google and Alphabet. For beginning to mobilize corporate cash for community impact, Mitchell, Alwyn and Porat – and their CDFI partners – are this week’s Agents of Impact.
It’s not surprising that both Google and Netflix found their way to CDFIs, which can be credit unions, depository banks or loan funds. Corporations operate in geographies that face racial wealth and educational achievement gaps, crumbling infrastructure and health inequities and a shortage of small-business financing. Place-based investing through CDFIs can start to address local challenges.
What is surprising is that more corporations have not found ways to put their cash to work for community impact. Netflix’s deposits “substitute for the low-cost checking and savings deposits that traditional banks access in abundance from more affluent customers and communities,” says Bill Bynum of Hope Credit Union, a Black-owned CDFI based in Jackson, Miss., that received $10 million in 0.1%-interest “transformational deposits.” Many CDFIs need more than deposits, though.
Equity investments in CDFIs themselves would boost their capital reserves and multiply lending capacity. Vista Capital Partners’ Robert Smith has called for the 10 largest U.S. banks to direct just 2% of their net income in the last 10 years to drive $20 billion in “Tier 1” capital for CDFIs and minority depository institutions.
“CDFIs are equity-starved,” says Patrick Davis of Community Reinvestment Fund, a CDFI that services other CDFIs (see, “10x’ing community capital”). “If we could wake corporates and others up to this, it would have a huge impact on the industry and those we serve and create an enormous amount of leverage.”