Research on Low- and Moderate-Income Communities

Throughout 2015, staff from the FRBs published articles and surveys that both evaluated conditions in low- and moderate-income (LMI) communities and described efforts to support them, including by community banks. Much of this research came out of the Community Development function at the Board and Reserve Banks. Because the success of MDIs is often dependent on the health of the communities they serve, these articles are particularly relevant to the MDI business model. In addition, several of these articles noted the difficulty minority and LMI populations have accessing credit from mainstream financial institutions. Given the mission and customers served by many MDIs, this research could help bolster the argument that MDIs are necessary and fill a credit gap left by larger, mainstream financial institutions. These articles intend to provide service providers, policymakers, and others with a gauge to assess the needs of these communities and to evaluate changes in the economic conditions of these populations. A full list of Federal Reserve System Community Development publications and resources is available at www.fedcommunities.org  .

The following list highlights some of the articles and surveys published during 2015:

• Low- and Moderate- Income Surveys: ¹¹ Several FRBs, including Kansas City, which retains a large number of state-member MDIs, publish quarterly results from surveys designed to measure the economic conditions of LMI populations and the condition of organizations that serve them.
• Small Business Credit: In 2015, the Federal Reserve Bank of Dallas published its second annual survey of Texas small business owners.¹² More than a third (35 percent) of the sample came from minority- or women-owned businesses (MWBEs), providing an opportunity to analyze how challenges and needs differ for this historically underserved segment of the small business universe. One key finding was that MWBEs are much more likely to rely on personal savings and credit cards than non-MWBEs. Half of minority and/or female firm owners reported personal savings as a top funding source, compared with just 33 percent of non-MWBEs. However, non-MWBEs report relying more heavily on bank lines of credit. SBA-backed loans round out the top five funding mechanisms for MWBEs, but for non-MWBEs it falls at the bottom (eighth out of nine places). These disparities may indicate the continuing differences in perception regarding qualifications for bank financing. Studies have shown that women or minority business owners more heavily rely on personal savings for fear they may be turned down for a loan.
• Strengthening the Role of Native CDFIs: In January 2015, a publication from the Federal Reserve Bank of Minneapolis featured a piece entitled "Strengthening the role of Native CDFIs: A Conversation with Gerald Sherman of the Native CDFI Network."¹³ NCDFIs are working to change the landscape by filling credit and capital gaps and providing Native consumers, entrepreneurs, and potential homebuyers with needed information and training to access traditional lenders. For insights into strengthening the role of NCDFIs, Community Dividend spoke with Gerald Sherman, interim CEO of a national NCDFI membership organization called the Native CDFI Network (NCN).
• Racial Wealth Disparities: In 2015, the Federal Reserve Bank of Boston teamed up with Duke University and The New School to study detailed data on assets and debts among subpopulations, according to race, ethnicity, and country of origin--granular detail ordinarily unavailable in public datasets. This analysis focused on estimates for U.S.-born blacks, Caribbean blacks, Cape Verdeans, Puerto Ricans, and Dominicans in the Boston Metropolitan Statistical Area (MSA). The analysis shows that, with respect to types and size of assets and debt held, the data collected on white households and nonwhite households exhibit large differences. The result is that the net worth of whites as compared with nonwhites is staggeringly divergent.¹⁴

Collaboration with Trade Groups

Throughout the year, district coordinators worked with numerous trade groups to foster mutually beneficial partnerships between MDIs and organizations seeking to promote growth and development of minority communities. Throughout 2015, PFP staff invited MDI officials to participate in conferences, conference calls, and workshops hosted by several interested groups, including the National Urban League, the Minority Business Development Agency, the Independent Community Bankers of America Minority Bank Council, the Small Business Administration, the Community Development Bankers Association, and the National Bankers Association. Further, the Federal Reserve sponsored a table to promote the PFP at the National Bankers Association's annual meeting in Savannah, Georgia, in October 2015.

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District Coordinator Continuing Education

District coordinators participate in quarterly conference calls and attend annual meetings to discuss current MDI conditions and concerns. To keep the district coordinators well informed during these meetings System staff and representatives from trade associations lead presentations on topics related to MDI preservation. PFP representatives also participate in the meetings by

• discussing with district coordinators their progress toward meeting annual program objectives;
• providing clarification on annual program objectives;
• soliciting input on MDI challenges observed in specific regions;
• considering suggestions from district coordinators on ways to improve program offerings; and
• discussing upcoming System or trade association events, workshops, or seminars that may benefit MDIs.

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References

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