Starbucks is teaming up with a network of community-based financial institutions to help create jobs. Beginning Tuesday anyone can make a tax-deductable contribution at a Starbucks store or online to the Create Jobs for USA Fund. The money will go to companies so they can hire or retain American workers.
Mark Pinsky heads the Opportunity Finance Network, a group of about 180 mostly nonprofit lenders that work in underserved communities where credit is often hard to get. Over the past couple of years, Pinsky chatted informally with individuals at Starbucks about ways they might collaborate, but he certainly wasn’t expecting the communiqué he got from the company a couple of months ago.
“I got an email late one Monday night saying we are thinking of doing something, can we talk tomorrow morning?” Pinsky recalls. “We talked on Tuesday and by Wednesday we basically had a handshake deal.”
The deal creates a new pot of money. The Starbucks Foundation is putting up $5 million and is encouraging others to chip in. All the funds are slated for the Community Development Financial Institutions, which are part of Pinsky’s network.
He explains the contributions represent equity: Lenders can use it to leverage even more financing. A $5 contribution, Pinsky says, will likely support $35 in new lending, and will be targeted at job-creating projects.
The Opportunity Finance Network was born more than a quarter of a century ago. Pinsky says Catholic nuns were among to invest in these community lenders.
“There were two things we learned back then that I think are still true for us today: One, when you are borrowing the nuns’ community money, their retirement money, you better do something really important with it; you better do something that matters, right. But the second lesson is when you are borrowing the nuns’ retirement money, you don’t lose the nuns’ retirement money,” he says. “You work really hard to do that.”
Investing In Underserved Areas
Many banks would shy away from the kinds of loans these community lenders make, and, in fact, their default rate is a bit higher. But, Pinksy says, their performance is laudable given the populations they serve and the risks they take.
“We are profitable institutions. Our lending is profitable, but we are not profit maximizing,” he says. “And in the space between profit and profit maximizing, there is a lot you can do if you are willing to work with your borrowers [and] give them the help they need to succeed.
“And that is key to what we do.”
In Philadelphia’s inner city, Pat Burns was able to open two brand-new Fresh Grocer supermarkets in the past couple of years, creating more than 450 local jobs.
“There is no way we would have been able to build these two supermarkets from the ground like we did without having this program,” he said. “It’s as simple as that.”
Fresh Grocer got help from a community development financial institution headed by Don Hinkle Brown, who says community lenders like his offer a variety of financing strategies.
“There are micro lenders, there are credit unions, there are loan funds like us, big loan funds, small loan funds. That’s what’s interesting about the field is that we adapt to the environment,” he said.
‘A Solid Single’
The financial institutions can marry public and private money, and get mainstream banks to partner with them on projects.
Hinkle Brown is excited about the Starbucks initiative and the marketing muscle the company is putting behind it.
Mark Zandi, chief economist at Moody’s Analytics, who sits on the board of directors of one of these lenders likes the initiative, too.
“It’s an effort by the private sector to really make a difference with respect to jobs,” he said. “It certainly doesn’t solve the problem and it’s not a home run, but it’s certainly a solid single. And if other private companies can string together a few more singles, that’s meaningful.”
No one knows, of course, how much money Americans might contribute to the new fund, but the Opportunity Finance Network’s Pinsky envisions contributions of at least tens of millions of dollars and perhaps much more to help create American jobs.