Friday, June 20, 2014

Financial Infrastructure Is Vital For Black Wealth & Prosperity

Currently, a dollar circulates in Asian communities for a month, in Jewish communities approximately 20 days and white communities 17 days and in the black community? 6 hours!!! Another way to examine the life of the dollar in African American communities is to consider the fact African American buying power is at 1.1 Trillion; and yet only 2 cents of every dollar an African American spends in this country goes to black owned businesses. That's a big problem.

Although fact, revelations like those above can be misleading when applied to the in appropriate context. They send the message, that Blacks do not support their own businesses period.  While a large percentage of Blacks do shop at the mainstream establishments it is because large small businesses owned by whites out number Black owned businesses.

Although African Americans make up 13-percent of the U.S. population, they own only seven-percent (7%) of small business in the U.S. Access to capital, clientele, and other resources hinder many Black folks from starting business, despite their long history of entrepreneurship.

Therefore, the notion that Blacks do not support their own businesses is somewhat of a fallacy to a certain extent. They cannot support what doesn't exist.

There is a back-story behind the lack of Black businesses that weighs heavily into the Black Community's historic plight anemic economic health. That back-story begins with Black financial institutions.

There has always been a lack of financial institutions available to invest long term into Black businesses and the Black community as a whole. Investments are critical to jump starting and sustaining any business and most personal ventures in this country.

A good case study into how important Black financial institutions are to the viability of Black start-ups and Businesses is the Capitol Savings Bank of 1988.

Early on, African Americans realized the necessity of accumulating wealth and the subsequent benefits of collective financial security. The Free African Society, the Free Labor Bank, and the Freedman's Savings and Trust Company laid the groundwork for black capitalism in America. Capital Savings Bank est. 1888 gave African Americans a venue in which to learn about and participate in the business of banking. It was set up to reach all classes of the community so that everyone could learn the valuable economic lessons of being industrious, seeking employment, saving their money, and getting homes. (SOURCE) Between 1888 and 1934, 134 black banks were established, while from 1867 through 1917, the number of black businesses increased from 4,000 to 50,000.

Then the reins were yanked and the African American economic coach ground to a halt. Our own government led the way in yelling "whoa" to economic advancements for Blacks. Our own government created a racially biased critique of Black communities that became the model for black financial exclusion by lending institutions for decades that followed.

In the late 1930s, the Government engaged in a practice known as Redlining. The Federal Housing Administration asked Home Owners' Loan Corporation (HOLC) to look at 239 cities and create residential security maps. These "maps" defined levels of security for real-estate investments in each surveyed city. Such maps suggested many minority neighborhoods in cities as being ineligible to receive financing based on assumptions about the community, not accurate assessments of a business' or individual's  ability to satisfy standard lending criteria.

The word "Redlining" evolved from the map's red legend assigned to mainly African American neighborhoods indicating they were high-risk areas.  Since African Americans were unwelcome in white neighborhoods, which frequently instituted racial restrictive covenants to keep them out, the policy effectively meant that blacks could not secure mortgage loans at all. It should not go without saying that Redlining affected Black business growth and viability. Absence of physical evidence that "Redlining" is not practiced today does not sustain the lending trends and explanations of today's financial institutions.

"While Jim Crow era lynch mobs and 'white only' signs are gone, "the pernicious effects of racialized public and private institutional structures continue to operate in ways that prevent asset building or promotes asset stripping when African Americans do manage to accumulate resources." - Maya Rockeymoore Economic Researcher

In June 2014 website Black Politics On The Web reported on new academic research confirming  minority entrepreneurs continue being treated significantly differently  than their white counterparts when seeking financing for a small business, even when they met or exceeded all qualifying criteria for obtaining a loan. - (SOURCE)  The exercise revealed that minority borrowers were provided minimum information on loan terms, offered little application assistance, and asked more questions about their personal lives.

Over the last century Black financial institutions have dwindled in numbers, community support and involvement. In 1994, the number stood at 54; by the end of 2013, there were less than 30 Black banks in the U.S. In addition, the large financial institutions have doubled down on lending to the Black community.

While they suggest they are providing services to those that cannot bank via larger established financial institutions, they have been caught imposing predatory fees and practices on mostly Blacks and Hispanics. The result is Black businesses and consumers often times find themselves penalized heavily when obtaining funding for start-ups and businesses, or denied altogether.

Some Blacks have the next big idea, the answer to many equations, but not the funding to bring those ideas and answers to fruition. There are Blacks more than willing to bring wholesale and retail options to Black Communities throughout America but very few lending institutions are willing to invest in them. The result is an ever-growing bloodletting of Black Dollars from the Black communities. To examine this financial dilemma plaguing Blacks is not a play of the race card. The race card is in play by everyone except Blacks when it comes to financing Black businesses, start-ups and mortgages.

The lack of Black financial institutions is also the reason why a large percentage of Blacks are absent from the Nation's investment population. Institutions receptive to multiplying Black dollars for the good of the Black investor themselves are largely perceived by many Blacks to be out reach of their dollars and trust. Centuries of racial segregation has also segregated Blacks from many wealthy practices of their white counterparts. Limited or no access to financial institutions have also played heavily into many black's lack adequate financial educational. The result is a deficient understanding of how their money works, and how important economic independence is for the black community in a capitalist society.


African Americans generate 390 billion dollars of income annually. Ninety-eight percent of that income is spent in other communities. Spent, not invested.

Out of a sample of married-couple households surveyed by the Panel Study on Income Dynamics at the University of Michigan, only 14 percent of blacks owned some stocks or mutual fund shares in 1994. The white rate was 45. Another striking finding: More than half of African Americans households had no balances in either a checking or a savings account, compared with just one sixth of whites. With blacks having so few discretionary resources to invest, it is no wonder that they are scarce among equity holders. Their absence from the market has profound implications. Deficient wealth created by growing stock values will not be sending children to elite colleges, underwriting small business start-ups, and securing a comfortable retirement for American families.

It comes back to financial institutions that trust Blacks and Blacks can trust to give them a fair chance.  One does not trust what one does not know and mistrust on both ends is one reason large scale investing is a wealth-building vehicle that remains off limits to the average Black.

The road to affluence for Black America has to run through financial institutions willing to invest in Black communities, businesses, and Black individuals. That investment will have to include financial education and strategy advice. A financial infrastructure has to be built on a foundation of knowledge trust and long term accessible tangible returns in order for enough Blacks to become convinced they can invest in themselves on a level playing field.

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