Darrell Hubbard grew up in the Avalon Park neighborhood on the South Side of Chicago, a mostly middle-class neighborhood at the time, only to see it decay due to gang violence. It’s now ranked 11th out of Chicago’s 77 communities in terms of violent crime.
In the demolition of Chicago’s large public housing communities, the ongoing Chicago Public Schools budget crisis, and the aftermath of the Great Recession, Hubbard sees the seeds of Chicago’s epidemic of violence.
In Hubbard’s view, the demolition of Chicago’s former large public housing complexes, combined with more recent public school closures in black and Hispanic neighborhoods, created a context ripe for violence, but also less alluring for gang members. Where there were once large, lucrative operations that controlled illicit drug production and distribution coming in and out of large public housing complexes, Hubbard says there is now a patchwork of smaller gangs, fighting for control over smaller geographic areas. Meanwhile, school closures hit these same neighborhoods, forcing youth to go further to school, often through different neighborhoods than before.
“It might not seem like a big thing, but if a kid has to go six blocks in another direction to a new school, they might be crossing into two potential rival gangs’ territory,” says Hubbard, who moved back to the South Side with his three kids in 1998. “It’s something as simple as geography that gets kids shot and killed.”
At the same time, according to Hubbard, the profits and career ladders in smaller gangs are not as high as they were when gangs were larger and controlled larger territories.
“Believe it or not, gang-banging is not as lucrative as it used to be in the old days,” he explains. “A lot of the young gang members have said, ‘If I had the ability to have a job that paid me $20,000-$30,000, I would have an option, I would consider getting out of the game.’”
But those other options, already limited after the de-industrialization of Chicago, dried up even more during the Great Recession. Combine that with years of foreclosures leading to many abandoned homes and buildings, becoming magnets for crime and a drain on property values. Combine all of the above with the fact that low-income neighborhoods and predominantly minority neighborhoods in Chicago still aren’t getting their fair share of lending, according to Patterns of Disparity, a new report from the Chicago-based Woodstock Institute.
All that convinced Hubbard and his colleagues at Urban Partnership Bank to focus efforts on commercial lending, financing small businesses to grow, build out and acquire locations or developers to rehab or build affordable housing in its target low-to-moderate income neighborhoods on the South and West Sides of Chicago.
“In low-to-moderate income areas, it doesn’t do any good to create a job for someone and then have them go all the way to downtown Chicago to spend their money,” says Hubbard, now chief banking officer at Urban Partnership. “We wanted to create business activity in low-to-moderate income areas, creating a velocity of money in the neighborhood. For us, the biggest way to impact that was to do commercial lending.”
It starts with hiring small business loan officers who are from the neighborhoods the bank wants to serve. Some of them, like Hubbard, had retired from banking, but were drawn to the possibility of putting a lifetime of experience into a new job serving communities they’ve known and loved. Give them time and space, and they can become trusted advisors to local entrepreneurs that might need a little more time to plan and prepare for growth.
“I’m not naming names, but when you’re trying to generate $500 million in loans … you really don’t have time to do a $500,000 deal,” Hubbard says. “Our loan officers are not necessarily burdened where they’ve got to do $50 million worth of loans per year, so they can spend a little more time with a a prospective borrower in terms of helping get them bankable.”
Urban Partnership was created in 2010 to take over the assets of the iconic ShoreBank. Considered by many to be the first community development bank, ShoreBank inspired many business leaders and policymakers as a model for investing in underserved urban areas. It had so inspired Bill and Hillary Clinton that they went back to Arkansas and helped create Southern Bancorp in ShoreBank’s image. Later, as president, Bill Clinton championed and signed the bill that created the CDFI Fund, an arm of the U.S. Treasury that certifies community development financial institutions (CDFIs) and supports their growth with a range of programs. Out of 1,069 certified CDFIs, 222 are banks or bank holding companies, including Urban Partnership.
Urban Partnership is also one of 24 remaining black depository institutions, as classified by the FDIC, meaning a majority of its board members are black.
Like all certified CDFIs, Urban Partnership is required to target at least 60 percent of its services and lending in low-to-moderate income neighborhoods. Since inception, Hubbard says they’ve done more than $300 million of originated loans, more than 80 percent of which were in low-to-moderate income neighborhoods. Those loans have helped create more than 5,000 jobs and more than 3,700 affordable housing units, according to Hubbard.
But, as laid out in the Woodstock Institute report, the mountain of small business lending to low-income or predominantly minority neighborhoods is much higher still. To make its findings, author Spencer Cowan combined public data from the Census Bureau with data available from Federal Financial Institutions Examination Council, which banks are required to report under the Community Reinvestment Act (CRA).
The report finds that low-income census tracts constitute nearly 7 percent of businesses in the Chicago region, but only received 3.5 percent of CRA-reported business loans under $100,000 in the region. If businesses in low-income census tracts had received those loans in proportion to their share of all businesses in the Chicago region, they would have received nearly 10,400 more loans totaling nearly $141.6 million more than they received between 2012 and 2014, the report estimates.
Predominantly minority census tracts, meanwhile, constitute about 15 percent of businesses in the Chicago region, but only 8 percent of CRA-reported business loans under $100,000 in the region. If those businesses had received those loans in proportion to their share of businesses overall, the report estimates they would have received more than 23,000 additional loans totaling over $335 million between 2012 and 2014.
In framing the findings clearly as a market gap based on income or race, the report’s intention is to show that banks are not meeting their “continuing and affirmative obligations” under the CRA “to help meet the credit needs of the local communities in which they are charted.”
The report also looked at the Los Angeles and San Diego regions, finding mostly the same. It’s the part of a series of reports focusing on CRA-reported small business lending in a variety of cities (Cowan could not disclose which cities are upcoming).
“What we see is something that is probably going to show up as a national pattern,” says Cowan. “Businesses in lower-income census tracts, businesses in higher minority or higher Hispanic percentage census tracts are likely to have less access to big bank, CRA-reported bank loans than businesses in more affluent or more white neighborhoods.”
In Chicago, after six straight years of loses incurred as a result of working through modifications of pre-crisis loans, Urban Partnership recently announced the fourth quarter of 2016 was its first profitable quarter ever. The bank has now transitioned from spending most of its time modifying old loans to making new loans, and they’re forecasting their first profitable year in 2017.
One bank may not be able to serve the needs of every low-income or predominantly minority neighborhood, but Urban Partnership’s predecessor sparked a movement of banks and lenders. It might have to do so again.
“Very few of us are able to start a business with a million dollar loan from our fathers,” Hubbard adds.
The Equity Factor is made possible with the support of the Surdna Foundation.
Oscar is a Next City 2015-2016 equitable cities fellow. A New York City-based journalist with a background in global development and social enterprise, he has written about impact investing, microfinance, fair trade, entrepreneurship and more for publications such as Fast Company and NextBillion.net. He has a B.A. in Economics from Villanova University.