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.
Bank of Cherokee County was founded in 1907, the year Indian Territory and Oklahoma Territory united as the state of Oklahoma, by a group of prominent members of the Cherokee Nation. Unlike "ordinary" banks, Bank of Cherokee County invests 95 percent of deposits back into Cherokee County. Community reinvestment is nothing new to Bank of Cherokee County. Since the bank’s founding at the turn of the century, its mission has been to serve its community.
City First Bank was formed in 1998 by community development leaders who were concerned about the toll of disinvestment and discrimination of Black neighborhoods in Washington, D.C. Without access to credit and other financial services, people and neighborhoods were missing key opportunities and were left behind from financial prosperity. In 2021, City First Bank merged with Broadway Federal Bank, a Los Angeles-based Black-led/run bank, becoming the largest Black-led bank in the U.S. with a combined $1 billion in assets under management and approximately $850 million in deposits.
First Independence Bank opened its doors in 1970 and has served the banking needs of the Detroit metropolitan area for over 50 years. The bank is the only African American‐owned bank headquartered in the state of Michigan. First Independence Bank’s mission is to be a beacon for capital accumulation for individuals and business entities by delivering financial services with an affinity for under-served and minority communities. In February 2022, First Independence opened a branch office in Minneapolis.
Hope Credit Union (HOPE) was organized in 1995 and provides financial services; aggregates resources; and engages in advocacy to mitigate the extent to which factors such as race, gender, birthplace and wealth limit one’s ability to prosper. HOPE has generated or leveraged more than $3.6 billion in financing that has benefitted over 2 million people in Alabama, Arkansas, Louisiana, Mississippi, and Tennessee.
Latino Community Credit Union (LCCU) is a full-service financial institution providing ethical financial products and education to over 105,000 members across the U.S. Southeast. LCCU is one of the fastestgrowing credit unions in the country with $720 million in assets and 15 branches throughout North Carolina. Founded in 2000 in Durham, NC, LCCU has established an effective model for Latino immigrants to enter and thrive in the financial mainstream. Since launching, LCCU has made $1.4 billion in life-changing loans to a community considered unbankable by many; 97% of LCCU loans are to Latinos and other immigrants, 65% of members were previously unbanked, and 35% established credit for the first time at LCCU.
Native American Bank provides financial services and capital to Native communities and tribal nations for the realization of self-sufficiency and financial freedom across Indian Country. The bank supports indigenous populations across the United States, having financed projects in 26 states. 95% of deployed capital is placed in Indian Country creating and sustaining jobs and bringing about more diverse economies.
Self-Help Federal Credit Union (Self-Help Federal) was chartered in 2008 to build a network of branches that serve working families and underserved communities. With 36 branches across California, Illinois, Washington, and Wisconsin and serving more than 94,000 members, Self-Help Federal is one of the fastest-growing low-income-designated credit unions in the country.
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.
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