From the St. Louis Business Journal.
Filling in the gaps
Rebecca Mawuenyega, a 50-year-old pharmacist from Ghana, came to the United States in the early 2000s, when there was a shortage of pharmacists and licenses transferred easily.
After several years of working for pharmacies and at St. Louis Children’s Hospital, she dreamed of buying the Dellwood Pharmacy, located in a largely Black neighborhood in north St. Louis.
“Everybody I talked to thought I would get a loan easily because I am a minority and a woman,” she said. “I applied to three banks, but none of them would give me a loan.”
The problem, she said, was that her recent income was too low to qualify for a conventional bank loan. She had spent the previous year doing lower-paid consulting work involving diabetes management education with a grant from the Missouri Pharmacy Association.
An accountant with whom she had worked told her about Justine Petersen Housing and Reinvestment Corp., a St. Louis nonprofit and certified Community Development Financial Institution (CDFI) that raises capital to increase minority entrepreneurial development and services.
Fifteen months ago, Mawuenyega received a $150,000 loan, enough to buy the pharmacy, through Justine Peteresen and the U.S. Small Business Administration’s Community Advantage lending program.
Little-known but increasingly important sources of capital, CDFIs are growing in number and in dollar impact in St. Louis, supporting minority businesses and residents in low-income neighborhoods. Driving that trend is more attention to racial and wealth disparities, the recognition that minority businesses are neglected and the Covid-19 pandemic, which brought new attention to CDFIs through popular disaster loan programs.
And momentum is building. The available data show CDFIs invested more than $166 million in St. Louis last year — a 23% increase from 2019. And already this year, two new CDFIs have entered the market.
While the target audiences of these CDFIs may be different, they operate under a shared mission.
“We believe that the only way that we can move the St. Louis region forward, as well as the broader country, is that there have to be easier ways for organizations, for communities, for individuals to access capital,'” said Paul Woodruff, vice president of community development at St. Louis Community Credit Union, which operates a CDFI that belongs to the nine-member St. Louis CDFI Coalition. “That’s why our individual organizations exist. That’s why the coalition exists.”
The CDFI story
CDFIs, which are certified by the U.S. Department of the Treasury, are financial institutions that provide services to underserved areas where commercial banks and lenders leave gaps.That certification allows them to issue loans supplemented by the Treasury’s CDFI fund, which requires a 1-to-1 match with private dollars. Those funds could come from their own assets, or other sources, such as grants, individual investors or other lenders.
Banks, credit unions, loan funds, micro-loan funds or venture capital providers can become certified as CDFIs. Some specialize in midsize to large loans to organizations serving their communities; others primarily provide small loans and other credit and financial services to individuals.
Staffing at CDFIs emulates traditional financial institutions, with loan officers, business development staff and executive leadership. However, community outreach, such as meetings with and presentations to neighborhood groups, tends to be more robust.
In St. Louis, nine certified CDFIs are members of the St. Louis CDFI Coalition, which was funded initially by U.S. Bank, PNC and the Missouri Foundation for Health. In addition to Justine Petersen, they are Alliance Credit Union, Alltru Credit Union, Gateway Community Development Fund, IFF (founded in 1988 as the Illinois Facilities Fund), the International Institute, Rise Community Development, St. Louis Community Credit Union and Urban Strategies Inc.
Each of the coalition members targets different geographies and constituencies, all but eliminating competition among them. Alltru, for example, primarily serves St. Charles County. Alliance Credit Union’s CDFI is in St. Louis County and city, while St. Louis Community Credit Union primarily operates in the city, north county and north city. The International Institute, a nonprofit that provides support to the immigrant community, offers small loans to people who are new to the country and looking to start a business.
The CDFIs also play an important role in the financial services landscape by taking a chance on loans that banks might otherwise consider too risky. Even so, commercial banks are vital to the CDFI system. Spurred in part by federal regulatory requirements to invest in low- and moderate-income neighborhoods under the Community Reinvestment Act (CRA), banks provide capital to CDFIs, refer borrowers who don’t meet their loan requirements and serve advisory roles on their boards.
For example, Justine Petersen has partnered with almost 50 banks in St. Louis and elsewhere, resulting in more than $100 million in debt capital loans, grants and investments over the past 15 years.
“CDFIs talk the same language as banks, but their risk tolerance is broader,” said Allan Ivie IV, president of community affairs in Missouri for Simmons Bank and board member at two CDFI organizations, Justine Petersen and Rise. “The other thing that appeals to banks is that they have a partner,” someone who shares the risk and has expertise in deploying capital in the target markets.
Interest rates on CDFI loans vary, depending on several factors, such as risk. Galen Gondolfi, chief communications officer at Justine Peterson, said there are times when interest is at market rate, and others when it’s higher — it depends on the price of the capital that finances the loan. If a CDFI receives the capital at little or no cost — a grant, for example — the interest rate charged to the borrower could be very low.
“We can charge what we want, allowing for sustainability, margins and potential loss coverage,” said Esther Shin, president of Urban Strategies, a St. Louis-based neighborhood revitalization nonprofit with operations in 24 cities that received a CDFI certification earlier this year.
Although far from complete, the data available indicates CDFI lending is increasing in St. Louis.
Data from the St. Louis CDFI Coalition shows that the number of loans made by the six members that submitted complete data actually declined slightly last year — from 11,989 in 2019 to 11,219.
But in terms of dollar volume, their loan product increased noticeably to $166.3 million in 2020 — a 23% increase from $135.5 million in 2019. The biggest lender in the category was AllTru Credit Union, with more than $59 million in CDFI loans last year. IFF, a Chicago-based developer and lender that services nonprofits, generated the biggest growth last year, issuing $33.3 million in loans locally, a nearly 72% increase from 2019.
The recent surge in lending totals is likely more the result of an increase in awareness of CDFIs.
Although they have been around since 1996, CDFIs are not widely known to many potential borrowers, including low-income individuals and businesses in minority neighborhoods such as Dellwood Pharmacy.
“Most people have never heard of a CDFI,” said Tamra Thetford, chief program officer at Justine Petersen.
But that has begun to change in recent years, particularly following the racial unrest following the death of Michael Brown in Ferguson in 2014 and the Ferguson Commission’s report in 2015, which detailed ways to improve education, jobs, housing and the criminal justice system for minorities.
“We are in a generational shift of leadership and perspective, with a huge focus on breaking down racial wealth inequity,” said Colleen Hafner, CDFI director at Rise Community Development.
In making their capital investments, philanthropic foundations, including the Deaconess Foundation and YouthBridge in St. Louis, are looking to experts such as CDFIs that already serve the minority and low-income populations, said Heather Cameron, a Washington University professor of practice in social entrepreneurship who has researched the topic.
The pandemic also brought new attention to CDFIs, spurred on by businesses’ sudden need for a capital infusion. According to St. Louis CDFI Coalition data, local CDFIs last year issued 464 loans totaling nearly $17 million through the federal Paycheck Protection Program, the federal government’s primary pandemic-related relief program for business.
“PPP is a watershed moment for CDFIs nationally,” Justine Petersen’s Gondolfi said. “It transformed awareness of CDFIs.”
Another sign that they are gaining traction: two more organizations in St. Louis received CDFI certification this year.
Urban Strategies, which works with neighborhoods to plot equitable revitalization plans, pursued a CDFI as part of its goals of creating more middle-income wealth and wealth-generating jobs in the neighborhoods in which it works.
“We hope to achieve this goal through launching a loan fund that provides equitable and accessible capital to Minority Owned Business Enterprises and local firms for contracting and development opportunities,” Urban Strategies President Shin told the Business Journal earlier this year.
The other new CDFI comes from Justine Peterson, whose for-profit arm, Great Rivers Community Capital, already held certification.
“Having tandem CDFIs broadens our capitalization efforts, as grant opportunities may exist for our nonprofit CDFI, yielding an increase in available dollars to deploy throughout our service footprint of Missouri, central and southern Illinois and eastern Kansas,” Gondolfi said. “There are also inherent benefits in achieving economies of scale with the certification of an additional CDFI.”
The range of other organizations supporting CDFI lending is robust, as well. In total, about 40 neighborhood organizations and 40 support organizations, including CDFIs, banks, local governments and others, are members of the Community Builders Network of Metropolitan St. Louis, which for 10 years has helped community development organizations coordinate, build awareness and support one another. Many are small groups in a wide range of neighborhoods including Dutchtown, Hyde Park, Lansdowne and Maplewood, working on affordable housing, beautification, infrastructure and small-business development, said Gary Newcomer, the network’s director of operations.
“The CDFI ecosystem in St. Louis is diverse and growing,” Newcomer said. “Not just loans to individuals and small businesses, but also loan extensions and deferrals and rental assistance — things that traditional banks could never do.”
Want groceries with that prescription?
Immediately after Mawuenyega bought the Dellwood Pharmacy, she faced another hurdle. She closed on the purchase on March 6, 2020, just as Covid-19 was about to hit the region.
“Everything shut down days after that,” she said.
As an essential business, the pharmacy remained open but lost most of its sales. “Most of the pharmacy business is from people who have gone to the doctor or the emergency room and need a prescription,” she said, and no one was going to the doctor or emergency room during the shutdown.
The pharmacy is a small operation — it’s just Mawuenyega and two part-timers. “I didn’t know how I was going to survive,” she said.
Again with the help of Justine Petersen, Mawuenyega was able to get a PPP loan of $16,000, enough to get by and retain her employees.
Her story illustrates that the results from CDFI loans to businesses, neighborhoods and their residents extends far beyond the financial. To respond to the changed conditions during the pandemic, Dellwood Pharmacy added part-time drivers and offered free delivery anywhere in the metro area.
For some of its clients, deliveries went way beyond prescriptions.
“Some of our elderly clients asked us to pick up groceries to bring with their pharmacy orders,” Mawuenyega said. “I took orders and stood in lines at grocery stores for clients, which we were happy to do.”