Scaling Latino/Minority Businesses in Rhode Island

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November 30, 2013 During the November 14 meeting of the Finance/Insurance/Real Estate/Corporate group, assigned to brainstorm on developing specialized/targeted products and services for the growing Latino and Latino/minority community. The group agreed that a community-based specialized financial institution that will serve Latino and Latino/minority people will help financially excluded communities particularly Latino-owned businesses and Latino/minority families become visible, active, and successful participants in the U.S. financial mainstream. The goal will be to build a new lending model for the low-to-moderate-income consumer to better serve this community. In my vision, this model shall be based on venture capital deals that are likely to generate solid financial
returns and not based on the traditional entitlement nonprofit model practiced in the past that have resulted in failures of the entities developed to address the African American/African communities access to capital , such as Oasis Community Development Federal Credit Union12, the Minority Investment Development Corp3

The Urban Revitalization Fund (TURF)4 and the RIEDC Micro Business Fund. The community-based specialized financial institution will identify profitable investment opportunities that will also have a positive
impact on the economic climate and quality of Life in urban Emerging Latino Markets, by evaluating and developing deals as well as providing ongoing advice, contacts and support. The vision shall also fulfill the following objectives: } } } } } } } } Focus on double bottom line, each investment must make business sense and offer benefits to the investors and the business owner or entrepreneur - not a charity or entitlement. Unite and mobilize the Latino business community in the cause of economic development. Support economic development and social investment goals (e.g., Place-based enterprises, Emerging Latino Markets) High impact projects involving public-private partnerships where the Fund can serve as a catalyst Networking Opportunities with major businesses that provides technical training, advice and could become a business partners with the Latino enterprise funded Provide the intellectual capital that is critical to long-term success. Allow the Best and brightest to share their business knowledge and education with up-and-coming entrepreneurs Provide high-level intellectual capital to entrepreneurs, even those whose projects are not quite ready to be funded, especially to smaller entrepreneurs who sometimes need to rethink strategies in order to grow.

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Community Development Block Grant Success Stories http://www.usmayors.org/bestpractices/cdbg/pub7.htm Credit Union Closes in South Providence, R.I., Due to Financial Problems, http://www.highbeam.com/doc/1G1-122963665.html 3 Minority Investment Development Corp. finds creative way to replenish coffers, http://www.pbn.com/Minority-Investment-Development-Corp-findscreative-way-to-replenish-coffers,9903 4 http://ucc.state.ri.us/CorpSearch/CorpSearchSummary.asp?ReadFromDB=True&UpdateAllowed=&FEIN=000122390

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Scaling Latino/Minority Businesses in Rhode Island According to a research paper conducted by Brown University students in 2009, as part of the Urban Revitalization: Lessons from the Providence Plan class term paper in which they interviewed a board member of the Minority Investment Development Corporation, the program was very forgiving of late payments, and did not have significant involvement in the businesses beyond the financing relationship. The board member blames the organization lack of deeper relationship and counseling with loan recipients for the high default rates that led to the organizations demise. She further advises that that the organization should have a commitment to help their customers find and diversify their markets, diversify its portfolio with high and low risk loans, honesty and transparency with the borrowers, and build relationships among customers to enhance the social fabric of its customers and the industry in which it lends. Democratizing capital access, formation, and accumulation is the way to ensure, first, that Latino/minority groups share more equitably in economic growth and, second, that economic growth is sustained. Home ownership is a good analogy. Home ownership rates in the United States were, at the end of 1998, at a record high of 67 percent. Since 1994, 43 percent of all new homeowners have been Latino/minority families. The growth and development of the home loan market in the United States, particularly the growth achieved in the affordable housing lending industry, presents clear evidence that an effective effort to address access to credit and capital for an emerging market can be successful. We should identify the critical elements that were addressed and important accomplishments within the affordable housing lending market that must be replicated in the small business arena to achieve the desired results. The success in this market is based on the industry's development of "market efficiencies." These efficiencies have been achieved through consistently applied principles and approaches throughout the entire lending process. Borrower education and equity assistance from public sources for down payments support and augment the efficiencies achieved through standardized applications, credit scoring, underwriting, and secondary market products. These efficiencies are carried out consistently by all participants in the process from the borrower application to the securitization and sale of pools of loans. Financial service industry programs are developed and operated in support of reaching all segments of this market. The development of an efficient market for small business lending and investments will permit lenders and investors to price, measure, monitor, and control risks while engaging in emerging small-businesslending market opportunities. This successful model of expanding capital access to underserved markets should now be extended to business ownership as well.
Throughout the brainstorming session, the experience of Navigant Credit Union was discussed, and how taking lessons from such success and applying it to the emergence of the Latino community in the state, Rhode Island could adapt it to catalyze similar growth in the states struggling economic development eco system and help growing Latino business access needed capital to integrate into the states main stream commerce, and economic development agenda.

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Scaling Latino/Minority Businesses in Rhode Island Navigant Credit Union was the vision of six community leaders who recognized a need and took the necessary action to make it a reality. The area was expanding rapidly with the textile mills dominating the landscape in virtually every direction. New families were moving into the area at a rapid pace. The world was in turmoil with World War I, putting new demands on nations from both sides of the Atlantic. And with the textile industry employing large numbers of the area's population, there was the need for a friendly financial institution in which working people could have confidence. From that humble beginning in 1915 Navigant Credit Union continues to experience significant growth. At the end of its first year in operation in 1915, the Credit Union recorded assets of $22,000. Fifty years later at the end of 1964, assets exceeded $15,000,000. And today after two world wars, a worldwide depression and a tremendous shift in the demographic make-up of the community, Navigant Credit Union continues to grow. Now at more than one billion dollars in assets, Navigant Credit Union is among the largest credit unions in Rhode Island and one of the strongest in the country. President and CEO Gary E. Furtado stated, "We've never lost our direction of serving our local communities, those who are solely responsible for our growth and success. Our focus is on our members. We provide all the same products and services as a "big" bank while maintaining a personal touch.5 In similar fashion, Amadeo Pietro Giannini, also known as Amadeo Peter Giannini or A.P. Giannini angered by the era's typical banking practices of making loans to and servicing only wealthy clients, he founded the Bank of Italy in San Francisco in October 1904 as an institution for the "little fellows" the hardworking immigrants other banks would not serve. He offered those ignored customers savings accounts and loans, judging them not by how much money they already had, but by their characters. Within a year, deposits were soaring above $700,000 ($13.5 million in 2002 dollars). Then he expanded the Bank of Italy across California, breaking with an American tradition of independent local banks by providing his egalitarian banking services to the "little fellows" in the Yugoslavian, Russian, Mexican, Portuguese, Chinese, Greek, and other immigrant communities. By the mid-1920s, he owned the third largest bank in the nation. In 1928, Giannini put his banks into a giant holding company he called Transamerica Corporation, reflecting his new ambition. In 1930, he formed the Bank of America, which would eventually become the largest in the United States.6 Thirteen years ago, with the support of nine other Garifunas, Jos Francisco vila 7 founded the New Horizon Investment Club8 in the poorest Congressional District in the US, The South Bronx, with the objective of pooling their capital, talent and organizational ability, to plan means and ways to use our financial resources, in an efficient manner for the collective good and for a better future. Our slogan became Ye$ We Can! ($i Podemo$)

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The History of Navigant Credit Union https://www.navigantcu.org/about-us.aspx PBS: Who Made America? http://www.pbs.org/wgbh/theymadeamerica/whomade/giannini_hi.html 7 Jos Francisco vila, http://www.linkedin.com/pub/jose-francisco-avila/15/576/a95 8 New Horizon Investment Club, http://www.newhorizoninvestclub.com/

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Scaling Latino/Minority Businesses in Rhode Island The idea occurred to him after observing that most Garifunas9 in New York City were involved in a saving scheme in which one person acts as deposit taker and distributes the proceeds in numerical order, this is what the Caribbean call "susu10" and the Latinos sociedad. As he saw it, while the scheme worked for solving immediate financial problems, it does not do much to encourage capital creation and in his opinion thats what was needed. his goal was to get to the point where we could become financially empowered. That idea resulted in a portfolio of over $260,000, despite experiencing the worst financial crisis the world has ever seen, it has also taken him from San Salvador to Benin Africa and everywhere in between under the sponsorship of the Interamerican Development Bank and other multilateral organizations to share his experience with others about raising capital. Interestingly enough President Barrack Obamas 2008 Presidential campaign adapted the same slogan and fundraising strategy that we used and allowed him to shatter all previous records for a presidential campaign, bringing in a total of $500 million! Furthermore, it is also the basis for Crowdfunding, the collective effort of individuals who network and pool their money, usually via the Internet, to support efforts initiated by other people or organizations. Currently the club is planning the implementation of a Community-Minded Crowdfunding program (Not just a campaign!) by scaling the Investment Club for the development of an economic development infrastructure within poor communities, business development, and job creation. The club plans to promote the active participation in the creation of individual and collective wealth in the community where we live, participating as producers, manufacturers and sellers. The goal is making capitalism and the free enterprise system work for poor people. According to vila, traditional approaches to economic development have not included an explicit return for residents because residents were not seen as active partners, stockholders in the development process, and this project will allow poor people to participate as stockholders not just stakeholders in future development projects. It includes members as vested partners with the public, private and not for profit sectors in the process of building a strong, healthy community in which we can live and prosper. vila is also planning leverage the organization into New Horizon Loan Fund, LLC, a community-based specialized financial institution that will serve Low-Income people and work in economically distressed communities in northeast United States;. that will help financially excluded communities, particularly immigrant families become active, and successful participants in the U.S. financial mainstream11. The United States and Rhode Island are going through a period of major demographic shifts, driven by a sustained influx of Latino immigrants and other minorities in need of an institution for the "little fellows" the hardworking immigrants other banks would not serve and leadership vision for an institution to help Latino Businesses the same way La Credit Union de Notre Dame de Central Falls helped the French Canadians, and Bank of Italy did for the Italians and most recently New Horizon Investment Club helping the Garifuna community.

Garifuna People http://en.wikipedia.org/wiki/Garifuna_people Susu http://en.wikipedia.org/wiki/Susu_%28savings%29 11 New Horizon Community Development Financial Institution , LLC, Business Plan
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Scaling Latino/Minority Businesses in Rhode Island The Opportunity

Rhode Islands Latino-owned businesses are a bright spot in the states economy that needs to be integrated into the state's economic development strategy and business development vision to capitalize on this momentum, vibrant, dynamic market looking to grow and create jobs in our state. According to figures from the U.S. Census Bureau 2007 Survey of Business Owners, Rhode Island Latino-owned business jumped from 3,415 in 2002 to 5,764 in 2007, an increase of 68.8 percent. Over the same time period, revenues increased by 115.4 percent, from 213.7 million in 2002 to 460.4 million in 2007. According to research by the Federal Reserve Bank of Boston, there is untapped potential in Rhode Island that could help business owners more while boosting economic growth. Nationally, Latinos are experiencing more entrepreneurial activity than other groups. The report further states that policymakers would be well advised to make Latino entrepreneurship a priority, leveraging its past success and embracing its potential. Government, technical-assistance providers, and lenders should capitalize on the Latino communitys strengths and try to broaden the availability of services to Latino entrepreneurs.12 The domestic emerging market of Latino America currently totals more than 53 million people 16 percent of America's population of nearly 310 million. This is a very large number by any measure.13 Indeed, if Latino America were a nation; it would rank #24 in population among the world's 193 nations ranking just below Great Britain and Italy and just above Korea and South Africa.14

More importantly, even the large size of the Latino population is over-shadowed by its own dynamics. Consider just a few examples from the 2010 Census: The Latino population is growingfast. Over the past decade, the non-Latino US population grew a modest 9 percent; the American Latino population grew a whopping 43 percent; The Latino population is younger more than 34 percent are under 18; compare this to the rest of the US population, which grew less than 23 percent; and The US population is older more than 14 percent are over 65; less than 7 percent of Latinos are over 65.

Most importantly remember, we need to follow the money if we look at the Latino emerging market from an economic perspective, we learn from the Census that Latino purchasing power, which now exceeds 1.2 trillion, will top $1.5 trillion by 2015. According to Jeff Humphreys, director of the Selig Center and author of the Selig Centers annual Multicultural Economy report, "the $1.2 trillion Latino market is larger than the entire economies of all but 13 countries in the world. 15" Latinos future growth is perhaps even more important than its current size and wealth. According to U.S. Census forecasts, the US Latino population is poised to grow by 83 million by the half century mark from the current 53+ million to 133 million by 2043, and 250,000 in Rhode Island.

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The Growth of Latino Small Businesses in Providence, https://www.bostonfed.org/commdev/c&b/2012/spring/growth-of-latino-small-businesses-inprovidence.htm 13 U.S. Census Bureau 14 World Population Prospects, 2010, United Nations, http://esa.un.org/unpd/wpp/Documentation/pdf/WPP2010_Volume-I_Comprehensive-Tables.pdf 15 Jeff Humphreys, director of the Selig Center and author of the Selig Center s annual Multicultural Economy report

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Scaling Latino/Minority Businesses in Rhode Island Despite these opportunities, this emerging market continues to be overlooked and untapped due to misperceptions and lack of information. The continued growth of the Latino/minority business sector and the Latino/minority community will result in skyrocketing capital demand over the next 20 years. Innovative banks and financial institutions as well as credit unions and community development banks recognize these opportunities and are making profitable investments in this market.2 Clearly, knowledge of business trends and investment in this growing sector will provide a competitive advantage to financial institutions as they move into the next century. Furthermore, The United States population is rapidly diversifying. Already, more than half of all babies born in the United States are non-white people. By 2030, the majority of young workers will be nonwhite people. And by 2043, the United States will be a majority non-white people nation. Over the past decade (2000-2010), Rhode Islands Latino population grew 44 percent, adding almost 40,000 residents. The Asian and African American populations also grew by 28 and 23 percent, or 7,000 and 10,000 residents, respectively. The states non-Latino white population shrank by six percent (55,000 residents). A majority of the growth in the states Latino and Asian populations over the past decade has not been due to immigration but to new births among U.S. residents16. The rapid growth of non-white people in Rhode Island is helping to stem population decline in many of the states cities. Five of Rhode Islands nine largest cities (Warwick, Pawtucket, East Providence, Woonsocket, and Newport) experienced population losses of 2 to 7 percent over the past decade, and these losses would have been more severe were it not for the robust growth of their non-white populations. The PolicyLink and PERE analysis of equity in Rhode Island shows that non-white communities are driving the states population growth and are essential to the regions economic success now and into the future. While the state demonstrates much economic strength, wide racial gaps in income, health, access to capital and opportunity coupled with a shrinking middle class and uneven wage growth place its economic future at risk. To secure a prosperous future, the states leaders must take steps to build a more equitable and sustainable economy. A community-based specialized financial institution will serve Latino and Latino/minority people and will help these financially excluded communities become visible, active, and successful participants in the U.S. financial mainstream. The goal will be to build a new lending model for the low-to-moderate-income consumer to better serve this community. Implementing these strategies would put all the regions residents on the path to reaching their full potential, bringing shared economic prosperity statewide, and the growing Latino market provides us a great opportunity.

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PolicyLink and PERE analysis of equity in Rhode Island

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Scaling Latino/Minority Businesses in Rhode Island

Reference
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Scaling Latino/Minority Businesses in Rhode Island Markusen, Ann, How Cities Can Nurture Cultural Entrepreneurs, University of Minnesota, Humphrey School of Public Affairs Measuring the Impact of Latino Population Growth on the Location of and Demand for Commercial Real Estate in the United States, G. Donald Jud, Professor Emeritus Department of Accounting and Finance Joseph M. Bryan School of Business and Economics University of North Carolina at Greensboro Greensboro, North Carolina Nielsen, The African American consumer 2013 report Nielsen, The Latino consumer 2013 report Perkins+Will, Providence Downtown And knowledge district plan, July 12, 2012 PolicyLink and PERE, An Equity Profile of Rhode Island, Posner, Andrew, The Capital Good Fund Business Plan, Brown University, 2008 Resilient, Receptive and Relevant RIPEC, Rhode Islands Economic Competitiveness Rankings: A Report by the Rhode Island Senate Policy Office and the Rhode Island Public Expenditure Council, January 15, 2013 Rhode Island Division of Planning, A Sustainable Rhode Island Three-Year Work Plan 2012 2015, HUD Sustainable Communities Regional Planning Grant Fiscal Agent: Senate Task Force on Small Business Growth and Development, 2010 Smith, Geoff, Zielenbach, Sean, Newon, Jennifer, Duda, Sarah, Collaborators or Competitors? Exploring the Relationships between Community Development Financial Institutions and Conventional Lenders in Small Business Finance, October 2008 The United States Latino Economy In Transition Facts, Figures and Trends. Latino-Owned, 2005 The Ocean State, US Latino Leadership The Immigrant Learning Center, Inc, Impact of Immigrant Entrepreneurs and Workers in Leisure and Hospitality Businesses: Massachusetts and New England,. Malden, Massachusetts

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