Financial institutions that leverage underserved communities should bring value to those communities – The Hill

In today’s financial space, the importance of community is an afterthought. Although financial institutions leverage revenues from underserved communities, these revenues generally do not flow back to the communities from which they originate. It shouldn’t be.

American families have relied on big banks as the foundation of wealth creation. But these families have no say in where the income generated from their investments goes, which often means their communities don’t reap the benefits. Even with the Community Reinvestment Act in place, most banks are responding to their corporate statutes and financial goals, not the needs of the communities they serve. This has a particularly detrimental effect on low-income communities.

Larger institutions tend to have requirements and pricing based on national averages, not neighborhood realities. Access to money is a huge problem for many Americans. According to Bankrate’s January 2021 Financial Security Index survey, less than 4 in 10 Americans could pay for a $1,000 emergency using savings. Given this harsh reality, it is ridiculous to institute a minimum of $500 per month for a checking account. Additionally, any money made from banking in these communities tends to be reinvested in places the bank might deem “less risky.”

Meet the cycle behind the cycle of poverty.

If traditional financial institutions want to maintain their dominant position, they must remedy this imbalance. Yet large-scale financial institutions are concentrated elsewhere. Just watch where they build their footprint; between 2014 and 2018, major banks closed 1,915 more branches in low-income areas than they opened according to S&P Global data. This is not purely a charitable call to action, it is a practical call. While it is important for banks to allocate capital efficiently to generate returns for depositors, current savings returns call into question their true effectiveness.

It is possible to put power back in the hands of the people. As the co-founder of SoLo Funds, I’m proud that 82% of all members transacting in the SoLo loan marketplace come from underserved areas, allowing loans and profits to flow back to those communities. In fact, the bank started out as a community institution, turning local deposits into local loans.

Everyday Americans are hungry for financial services solutions that meet them where they are. It is incumbent upon financial institutions to do this while enhancing the dignity and worth of all their members, not just the wealthiest. This means giving clients the ability to choose what their funds support and ensuring there are clear pathways/opportunities for funds to return to the communities where they live.

This should be a wake-up call for financial institutions – and especially large banks – to return to community banking, to view all customers as people and value as potential.

Rodney Williams is the co-founder of SoLo Funds, an innovative capital marketplace where members request and fund capital based on voluntary terms, where he supports SoLo’s leadership in growth, funding and innovation. Prior to founding SoLo, Rodney founded LISNR (Visa Backed Fintech) and led the company to over $40 million in funding, numerous awards and partnerships in retail and financial services. He is currently president of the company. Rodney was recognized by Ad Age’s 40 Under 40 in 2012; Golden Lion at Cannes in 2015; and CNBC Disruptor 50 List in 2015, 2016, 2018 and 2019. Rodney is a graduate of West Virginia University and Howard University. He is a member of the 2019 class of Henry Crown Scholars in the Aspen Global Leadership Network at the Aspen Institute.

Posted on October 27, 2021