Community Capital Real Estate Fund

Kurt Cargle realized that a lack of access to financing inhibits black communities’ economic growth, thereby he created the Community Capital Real Estate Fund.

Traditional banks typically lack the information needed to lend to black communities. More than that, banks need a tolerance for risk and long-term investments to make a profit in black communities, where incomes are lower, and investment opportunities are fewer and less obvious.

Large commercial banks take deposits and provide loans in most black communities. They know nothing about these areas and issue only safe loans. By accumulating deposits, they squeeze out smaller banks that know their customers.

My local bank president, a longstanding acquaintance, tells me the same thing occurs there: They compete with commercial banks for deposits but not for loans. His bank’s restriction is cash, not viable investment opportunities.

In many black areas, a dearth of black-owned banks exacerbates the capital shortage. There are 40% fewer banks than there were 15 years ago, and there are just 23 black-owned banks with $5 billion in deposits—a fraction of the biggest commercial banks.

Well-intended efforts to encourage major banks to lend more in minority communities may fail to stimulate new businesses and economic development in these areas. These banks can’t tell which enterprises will thrive.

Robert F. Smith, a black billionaire banker, proposes “The 2% Solution,” which puts more money in black-owned institutions. Instead of depending exclusively on the Community Reinvestment Act to compel commercial bank lending in minority neighborhoods, he advises that we urge commercial banks to contribute 2% of their yearly net revenue, or $2 billion a year, directly into black-owned banks so they may make loans.

Black-owned community banks tend to be better at spotting lucrative lending possibilities. Longer money would enable them to lend to business endeavors that require more time, boosting their lending options.

Since there aren’t enough black-owned banks to reach all-black neighborhoods, we may need to send some of this money to non-minority institutions that serve black communities where they’re headquartered.

Boosting black communities’ economies by helping black-owned banks lend more money is not a new idea. In the early 2000s, FDIC economist Chris Richardson suggested a voucher system to replace the Community Reinvestment Act that would have allowed commercial banks to pay black-owned banks and other community banks to make loans in minority communities instead of meeting lending quotas.

His concept matches Robert F. Smith’s. Each is founded on the idea that local banks will make better funding choices for local economies.

A Lost City by Alan Erenhalt investigates Bronzeville’s economic downfall. In the 1950s, the area had a booming economy, partly because virtually all the companies were black-owned and functioned in a self-contained economy. Its people shopped at a black-owned supermarket, morgue, and five-and-dime, and they saved at a black-owned bank.

When urban regeneration demolished many homes and slums, the government brought in bigger, newer chain businesses, supermarkets, and banks to support the local economy. While it gave customers reduced costs, it drove out black-owned firms, which was problematic since not all the businesses that succeeded wanted to hire black employees for management or other crucial roles.

The men who operated the local butcher and other businesses left, and the neighborhood lost its middle-class backbone. Local banks saw few borrowers in the community and were eventually acquired by white-owned institutions.

Black-owned banks worked in America. While it’s harder for smaller banks to survive today, our financial system allows them to flourish under certain circumstances.

Black-owned banks may provide the cash to develop these economies.