Solidarity, Character, and Capital: Breaking Down Barriers in Traditional Lending Through a Community-Centered Fund

Last year, the Common Future Capital Strategies team and leaders in the Common Future network began a project to address the inequities perpetuated by the traditional lending system. These inequities often look like prohibitive qualifications for access to capital, specifically around creditworthiness. In addition to relying on racially-skewed data like homeownership, creditworthiness excludes folks who are unbanked, shutting out many Black and Brown folks who need investment.

The result is our Character-based Lending (CBL) fund, which will deploy $800,000 to BIPOC-led businesses. While CBL itself isn’t new, what’s often missing is community voices at the table. To that end, our partners at MORTAR, Native Women Lead, and ConnectUP! Institute not only informed loan terms but also they will refer the applicants. Further, our partners at Community Credit Lab will support the back-office infrastructure and share our trust in our community partners.

We sat down with some of these leaders to discuss the importance of tackling the traditional lending system now, the challenges of the project, defining “success,” and what they look forward to. Below is an edited conversation with Elaine Rasmussen, CEO of Social Impact Strategies Group/ConnectUP! Institute, Vanessa Roanhorse, CEO of Roanhorse Consulting, Sandhya Nakhasi, Co-Founder and CIO of Community Credit Lab, and Ryan Glasgo, Co-Founder and COO of Community Credit Lab.

Based on what you’ve experienced or witnessed with the traditional lending process, and the impacts to local economies in the past year, why does providing alternatives to the traditional lending system matter right now, in 2021?

Elaine: It’s always mattered; we’re just now doing something about it. People come from different situations that are not always their own doing. In this country we have this false myth of rugged individualism, even for those who believe that they don’t experience that, they’ve decieved themselves into thinking that’s their experience…[In the past], everything was based on character, you had a relationship with the bank and if you needed an extra three months because your cattle crops didn’t come in or there was a drought, you got an extension, but when it came to non-white folks flexibility and concessions weren’t an option, which started the perpetuation of falling behind and the a foundational stereotype that Black folks don’t pay their bills…We’re just getting back to traditional lifeways, people want to honor their word and if they commit to something they want to do it.

Vanessa: It’s not that it matters right now. [It’s that] we are in a situation where we as a community, as a country, as a people can shift to do something better. We have been laying the foundation for when we as a country take a different approach to what freedom looks like, and for when we’re willing to reconcile the harm that’s happened. These types of initiatives [CBL] will be one of the things that leads up to something different. You can’t use the master’s tools to dismantle the house that they built, but we can use the tools in our Indigenous cultural ways to create new ones. We’re in a moment in time to do this, and it’s because for the first time in my lifetime and probably my parents and grandparents lifetime, there’s a possibility for something different.

Sandhya: I would just add to what Elaine shared, on top of that base understanding to your question what does this matter right now, or why does this matter at all, how can we show what’s possible by moving away from traditional constructs and providing those who know their communities best with the opportunities to access capital on their own terms, we need this right now to show what’s possible and to show how we can work in a different way.

What does success look like for this project in two years? What metrics are you using to measure the success of this project? How are these metrics different from traditional metrics of success?

Elaine: I think the traditional metric is how many entrepreneurs did we serve, how many jobs did they create, but for me that’s not the metric, it’s how much money can me and Vanessa can raise. How hard do we have to work to have those conversations to get that money in the door?

Vanessa: All of the other intangibles that matter but we don’t put into the valuation of the relationship to the borrower. Things like the five c’s of credit will continue to do what it was designed for, which was to ensure that Black and Brown people don’t get access to wealth creation. If we’re talking about those 5 c’s of credit, how you underwrite and create due diligence that’s aligned with the 5 cs of credit, it means we will never actually change anything if we stick with that process as the only path way forward. The questions we’re excited to be asking our borrowers isn’t how many jobs did you create or how much has your revenue increased, it’s did you feel cared for in this process?

The underlying data is still written that you can only track this one way, which is usually the 5 c’s of credit. That’s in lending capital. When you get into equity investment, that’s just who you know. [There’s a discrepancy] between the rigor in which regular people have to go through to get essential capital versus the lack of rigor people need to get to venture capital. We know the current data available is actually utilized to keep us out.

Ryan: Success to CCL is defined by our Lending Partners and their programs serving as examples of what’s possible — we spend a lot of time trying to envision how things could be different in various places and what success means with our Lending Partners for their communities. We’re noticing conversations shift and people understanding that lending based on credit scores or algorithms isn’t working for people. The Character Based Lending programs and partners are doing things differently — these examples can serve as proof points elsewhere.

What did you learn about yourself as a community leader through the development of the fund? What did you learn about your community in the process?

Vanessa: This process was the most solidarity [I’ve experienced] in a process because usually we’re on our own. We’re out there and we don’t have allies and advocates that are willing to get into the rooms and take the hits for us and do all the back end work. When Jaime [Co-Founder and Co-Director of Native Women Lead] and I sat down with the Common Future and the CCL team, and looked at how the platform was going to work, and how we would track the metrics that were relevant to our needs, this is the first time we saw how solidarity could really work in capital spaces.

For me personally, this project is uniquely different. I’m further committed to the fact that I know Native women and Indigenous people are investable and I know that $10,000 to $50,000 isn’t going to solve the greater issues, but I know this is a great opportunity to pilot so we can amplify and lift and we use this to model for the next step and the next step.

Sandhya: This work requires a totally different business model and a totally different shift in thinking in what to prioritize [in lending and finance].

What do you foresee to be really rewarding in the ideal future, if this becomes a new way to measure success? What are your dreams and images around that?

Vanessa: If we’re able to break through into a space that allows for new thinking, for building these concepts together and asking ourselves what a better future state would be — It would be more funds being led by people doing the work on the ground. The crux with the current capital access system is that it is designed to work only one way. What we need is to have more ways to move funds and create relevant capital access pathways that understand our communities and the nuance. We need a plurality of worldviews to be recognized and designed for. And maybe for the first time in this country, we can define what success means to us and what wealth is, beyond just money, and so many communities already know how to do that, except it is undervalued, ignored, and invisibilized. CBL is a very relevant example to get the so-called receipts today, so we can build better together tomorrow.

Sandhya: Having each organization design their own program, to Vanessa’s point, we need that decentralized model for communities designing for themselves. What would be extremely rewarding is more capital flowing to these types of programs.

Disclaimer: This post is intended solely for informational purposes on the intent behind the fund and is not intended as an offer to solicit or sell securities or an interest in the fund. The fund is closed to new investors.