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June 16, 2004
Community Investment Institutions Managed By and Benefiting African Americans
    by William Baue

Generations Community Credit Union, Carver Bancorp, and UrbanAmerica are three African American managed community investment institutions.

A lack of capital can hamstring a community that is trying to promote economic stability and growth through small business creation, homeownership, and the provision of needed services such as child care. Low- and middle-income African American communities in the US are often underserved by traditional financial institutions and can find themselves without the financial means to improve their lot. In some of these communities, however, African American-managed community development financial institutions (CDFIs) are finding ways to expand their services and meet the needs of people with whom they share the same cultural identity.

For example, the North Carolina Minority Support Center (NCMSC), a Durham-based technical assistance organization that supports community development credit unions (CDCUs) in the state, is dedicated to serving low-income, low-wealth minorities. Its member CDCUs range in size from $150,000 in assets to $125 million.

"We've noticed over the last four years there has been a continual struggle for our smaller CDCUs to survive, what with the economic downturn and the stricter regulatory requirements," said Tanya Branch, NCMSC vice president. Recently-enacted federal "prompt corrective action" (PCA) regulations require credit unions to meet a net worth ratio that is sometimes difficult for smaller CDCUs to maintain. "Regulators have been quicker to move in to force mergers or liquidations of our smaller CDCUs."

"To a lot of people, merger is a bad word, especially with the smaller CDCUs, because identity means everything to them--they don't want to lose their identity," Ms. Branch told

NCMSC conceived an ingenious solution: create an umbrella CDCU managed predominantly by African Americans who share the cultural identity of the smaller CDCUs' management and client base. So NSMSC bought out Gateway CDCU, which was being liquidated because its $1 million in assets fell below PCA regulations, and renamed it Generations Community Credit Union.

"We changed the field of membership so that anyone who became a member of the Support Center could join the CDCU," said Ms. Branch.

This positioned Generations to absorb smaller CDCUs throughout the entire state, consolidating their operations and creating economies of scale while preserving their character.

"We didn't expect to grow this fast, but in the last year, we've added five additional branches," explained Ms. Branch. "What we do to keep the local support is to have the board of directors stay on as an advisory board."

Consolidation benefits CDCU members because it expands the product line Generations can offer to include share draft (or checking) accounts, debit card accounts, and ATM access, and Generations is working on adding mortgage services.

"I believe it's a model that can be replicated in other states, but it needs to be handled with care," said Ms. Branch, meaning the umbrella organization would need to be representative of and responsive to the community that's being served.

The Support Center raised $3 million for a revolving loan fund that infuses capital into the credit unions specifically to finance small business loans. The loans replenish this capital through repayments. The Support Center is always seeking to raise more capital.

"We solicit banks and foundations, looking for low interest rate loans from them so that we can in turn put it in our credit unions in the form of low interest rate deposits," said Ms. Branch. "The financial return is under market rate, but the social return makes it attractive."

Other examples of African American managed community investment institutions include Carver Bancorp, a Harlem-based community bank that was originally chartered in 1948. In 1994, Carver went public, and trades under the ticker symbol CNY, a status that allows social investors to support the bank's community investment activities through an equity stake. Earlier this year, Carver acquired Independence Federal Savings Bank, a Washington, DC-based African American managed bank. Now with combined assets of $750 million, Carver is the largest African American managed bank in the US.

Another example is UrbanAmerica, African American managed private equity funds targeting inner city real estate development. Investors include such mainstream financial institutions as Citibank (ticker: C), JPMorgan Chase (JPM), and Wachovia (WB), as well as corporate pension funds such as those of Constellation Energy Group (CEG) and General Mills (GIS). The portfolio contains nearly $400 million of property, and has created over 1,500 jobs for inner city residents, many of whom are African American. Last year, Crain's New York Business magazine named UrbanAmerica CEO Richmond McCoy to its list of New York's 100 Most Powerful Minority Business Leaders.


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