Impact Banking: Transforming Communities
In banking, proximity matters, but accessibility is about more than location. — Orv Kimbrough
Where there is a will, there is a way. I believe there is a will, a strong will, to revitalize the St. Louis region. So, the question is, “What is the way?” Democracy sits atop a three-legged stool. Government, business, and charity all have a role to play. The burden of “fixing things” tends to fall on charity when there is a crisis, devastating disaster, or perceived market defect. We have a tremendously generous community when it comes to charitable giving. I witnessed that with a full heart in my 13-year tenure at United Way of Greater St. Louis. But charity alone will not achieve our desired goal of equitable outcomes for more people. It will require investment in dreams and opportunities. It will require a middle class where people have personal agency and the opportunity to live a self-determined life.
This is a community project. It requires capitalism and the scalability of capital to transform our region. I believe this is possible through IMPACT BANKING. The concept of Impact Banking builds on a virtuous cycle. It begins when anchor institutions, investors, and individuals deposit capital in locally owned, locally focused banks that are committed to Shared Prosperity. The banks in turn invest more in underserved areas to create opportunities for families to buy homes, start or scale businesses, and invest in education.
Currently, there are over $120 billion in deposits held in St. Louis area banks and under a third of them are held at locally-owned banks.1 Imagine the tremendous regional impact of redirecting even a portion of those deposits from large, multi-national banks to community banks that have a laserlike focus on our regional wellbeing. Think of the ripple effect those deposits could have when deployed in the form of loans, helping put more people on the path to financial prosperity and opening more doors to generational wealth. This is how we transform communities— all communities— Black, Brown and White.
The Cost of Concentrated Poverty
There is a high cost to poverty, and concentrated poverty creates a vicious downward spiral. Research shows that the poor housing and health conditions, higher crime rates, and fewer educational and employment opportunities of concentrated poverty contribute to limited opportunities for poor residents that become self-perpetuating.2 And, while the public generally perceives concentrated poverty as an urban, central-city problem, concentrated poverty continues to grow in rural America, reinforcing a lack of good-paying jobs and systemic disinvestment.
This isn’t a Black, Brown, or White problem, or a problem limited to one geography. It’s America.
As many as 12 million Americans use payday loans each year, with almost seven in 10 borrowers using payday loans for basic expenses, such as rent and utilities.3 The combination of lack of access and reliance on highcost, non-traditional lenders leave many in historically marginalized communities unable to save for longterm goals, much less weather short-term crises. The result is a cycle of enforced poverty and exclusion from the regional economy as the struggle to pay for essentials like food, electricity and rent drives up the already high price of being poor.
Accessibility is About More than Location
To help combat this type of financial quicksand, the City of Pagedale, the 24th poorest city in the United States, and the nonprofit agency Beyond Housing, opened the first-ever full-service bank in the community in 2012.4 Five years later, Friendly Temple Missionary Baptist Church, a 12,000-member church based in North St. Louis’ Wells-Goodfellow neighborhood, partnered to open a full-service bank branch on the church’s campus. Not only were the bank branches accepting deposits, but they were deploying those funds in these same communities in the form of reasonably priced loans. These efforts also created jobs for people in their local communities.
In 2020, Washington University in St. Louis conducted a study to measure the impact of locally invested dollars and quantify that ripple effect. The study found that when unbanked communities were provided access to conventional banking services and reasonably priced capital, the impact was powerful.
The study found that these two branches created approximately $11.3 million in additional regional revenue and over $9.7 million in consumer wealth. Money deposited in these two branches was deployed to extend credit to low-to-moderate income households to enable them to start or scale businesses, buy homes and fund educations. This was a small-scale experiment in community building that points the way to tremendous opportunity.
In banking, proximity matters, but accessibility is about more than location. Banks need to be hyper-focused on making meaningful, long-term investments in communities that will lift more people up.
Impact Banking: What is it?
Impact Banking is a way to realize significant impact in our region. Impact Banking is intentional. The expressed goal is to generate positive, measurable social and financial returns. To achieve this goal, Impact Banking creates a functioning, non-predatory marketplace for low-to-moderate income communities and individuals. Impact Banking sustainably redirects a portion of our region’s capital to address persistent challenges, thereby:
Advancing client prosperity by improving the financial health of individual and business clients and extending full-service banking services to the financially excluded,
• Fueling the growth of St. Louis’ economy by moving beyond individual transactions to proactively finance and strengthen entire communities, and
• Financing solutions to societal challenges by placing capital in high-impact investments.
Impact Banking: The Next Evolution of ESG Investing
For more than a decade, an increasing number of investors and consumers are calling for their money to make a positive impact on society and the world at large. Widespread awareness of ESG (Environmental, Social and Governance) issues has resulted in a major shift toward socially responsible investing. The adoption of ESG investment strategies has been driven by investor demographics, social justice issues, and broader climate change discussions. Stakeholders such as governments, investors, and consumers are driving ESG mandates. Impact Banking is the natural next step in the ESG Investing approach with the distinct advantage of being hyper-local.
Impact Banking: The Bottom Line
While your financial return and preservation of capital are comparable to similar types of investments in large multi-national banks, the return on investment (ROI) is more than purely financial. You and your stakeholders obtain a transformational return over time by partnering with local banks that intentionally invest loans in communities that have suffered from underinvestment. By doing so, you invest in the vibrancy and safety of neighborhoods where local businesses and larger employers provide good-paying jobs and generate tax revenue to support schools and community services. You invest in affordable housing where families can raise healthy children. You invest in restaurants and entertainment venues and creative pastimes that will make our region a fun place to live, a safer place to live, and a place where young families want to come work and raise their children.
My hope is that you as business leaders, investors, and anchor institutions see the outsized role you can play.
My hope is that you see the long-term value of creating depository relationships with community banks that are committed to investing in the entire St. Louis region, including historically resource-starved areas.
More capital invested in these banks means more loans and more opportunities for underserved communities.
This is how we transform our region. This is Impact Banking.