Social Impact Deposits

The Robert Wood Johnson Foundation (RWJF) has long understood that many factors including income, education, physical environment, social isolation, and concentration of poverty determine the health of individuals and communities. Given this reality, there is a growing realization of the need to invest in the economic revitalization of low-income communities to promote and improve health. 

What We're Doing

RWJF created the Social Impact Deposits program to place $35 million in cash deposits in banks and credit unions designated as Minority Depository Institutions. The Foundation’s deposits aim to strengthen the capital base of MDIs and their ability to meet financial needs in their communities. Additionally, these deposits will help advance racial equity and support the community development finance system. 

The Challenge We’re Addressing

Minority Depository Institutions provide vital services to communities often overlooked by large financial institutions. If not for MDIs, low-income people of color, particularly Black, Indigenous, Latino, and immigrant populations, might not have access to banking services. MDIs finance housing, businesses, and individuals, as well as help build the vitality of neighborhoods by fueling job growth and building wealth. To receive the MDI designation, a bank or credit union must serve predominately communities of color in addition to being majority-owned and/or governed by people of color.

The disparities of wealth in low-income communities of color, driven by structural racism, means local depositories (e.g., banks and credit unions) often lack a financial deposit base to fully meet local needs. Therefore, MDIs often turn to institutional investors to provide deposits that can, in turn, be used as loans into low-income communities.

Lessons Learned

Over the course of the implementation process, RWJF’s experiences have provided numerous lessons that will inform the Foundation’s next round of investments into MDIs, including:

• Compared to larger depositories, small depositories may not have the infrastructure to support institutional investors or to absorb large deposits. To be equitable, small depositories need more infrastructure support in the form of grants for capacity building.
• In some instances, deposits can hinder rather than help financially. Deposits are treated as a liability on an MDI’s balance sheet rather than an asset. This issue is particularly important for smaller institutions where a large deposit can dilute a limited capital base and cause financial constraints.
• Although fully insured, IntraFi Network Deposits, formerly known as Certificate of Deposit Account Registry Service (CDARS), may be harder for MDIs to administer and can be financially burdensome. When possible, placing long-term deposits directly without InfraFi can have a more meaningful and sustainable impact.
• Laying the groundwork for depositories to work with institutional investors more efficiently is critical for future success. We must continue to think about innovative solutions that will allow for the easier flow of capital into and sustain the growth of MDIs.

Next Steps

As part of the Foundation’s continued focus on advancing racial equity, we will continue to explore new approaches to supporting MDIs to help achieve our vision of building a Culture of Health.