By Roy Urrico
Impact investing is an approach that aims to produce certain positive social or environmental outcomes as well as generate a financial return. Oakland, Calif.-based CNote, a women-led fintech platform, deploys corporate cash gathered from impact investors through community financial institutions.
“CNote helps community financial institutions by providing a new stream of capital, seamlessly delivered when they need it, in right-sized batches. We also help these institutions tell their impact story in a way that attracts new customers and capital partners,” said Yuliya Tarasava, co-founder and chief operating officer (COO) at CNote.
“Impact investors were attracted to CNote from the start because community financial institutions play a direct, measurable role in creating economic opportunity in under-resourced communities and in supporting businesses founded by women and people of color,” said Tarasava.
In addition, “CNote gives corporations, institutions and individuals a simple, effective way to invest in under-resourced communities at scale,” stated Tarasava. She explained to Finopotamus, “The (CNote) platform deploys corporate cash into fixed income and insured deposit products at impact-driven community financial institutions across the U.S. that advance economic equality, racial justice, gender equity and climate change initiatives.”
She added, “The needs in these areas are huge, and there’s an opportunity for CFIs (community financial institutions) to have even greater impact if they get steady streams of funding, like those corporate treasurers and impact investors can provide.”
How CNote Works
Tarasava said in their decades of combined experience working in finance, she and co-founder and CEO Catherine Berman observed that more and more financial innovations “focused on making the wealthiest 1% even wealthier, while racial and gender wealth gaps grew ever larger. We left traditional finance to flip that model on its head, launching CNote in 2016 with a mission to close wealth gaps through financial innovation.”
CFIs have long been community-first responders maintained Tarasava. “These banks and credit unions have a strong track record of reducing the wealth gap by financing homes and small businesses, addressing climate justice through green financing and natural disaster lending, and increasing financial inclusion through access to secure and affordable banking products and services.”
According to CNote, corporations including Apple, Mastercard, Merck, Netflix, Patagonia, PayPal and T. Rowe Price use CNote’s platform to support low-income communities and communities of color. Investors earn returns comparable to what conventional products yield — while providing essential capital to minority depository institutions (MDIs), community development financial institutions (CDFIs), low-income designated (LID) credit unions and other impact finance organizations. Individuals can also invest through CNote.
Tarasava explained the pandemic sparked a broader surge of interest in CFIs, which were the primary providers of PPP (Paycheck Protection Program) loans in under-resourced communities. “The federal government recognized their key role, offering emergency capital infusions and organizing a coalition of companies and foundations committed to investing billions in these institutions.”
As part of a secure diversification strategy, Tarasava also noted that CFIs are receiving increased attention from corporate treasurers. “Treasurers were spooked by the Silicon Valley Bank collapse — their deposits in big banks are at the lowest level in four years. Credit unions are a particularly appealing option for diversification: 91% of credit unions’ deposits are insured, making them highly unlikely to experience a bank run. Plus, credit unions with low-income designations, which provide the highest impact, now make up 55% of all federally insured credit unions.”
Investment Makes a Difference
CNote recently analyzed the performance of 21 Emergency Capital Investment Program (ECIP) recipients in its network (representing 13% of all recipients). CNote found a 14% increase in total deposits; and a 35% increase in the amount of loans outstanding for the sample group from the last quarter of 2021 to the last quarter of 2022.
Tarasava provided some examples of ECIP making a difference.
The $162-million Ithaca, N.Y.-based Alternatives Federal Credit (AFCU) used its ECIP funding to position the CDFI-certified credit union to pursue branch expansion into a new market before it would have otherwise had the means. ECIP has also supported adequately funding loan loss reserves, playing an essential role in supporting the credit union’s primary focus of mission-based lending, which in some cases can present higher perceived levels of lending risk. Mission-driven loans are offered by institutions committed to supporting job-creating initiatives in underbanked and low-income communities with limited financial options.
“Alternatives is proud and grateful to have been chosen as an ECIP award recipient. This funding is enabling us to take our business of impact and mission-driven lending to new levels years ahead of what would have been feasible without these funds,” said Bea Nellenback, development director at AFCU. Nellenback added ECIP funds are supporting development of the credit union’s staff and expansion of its services, which support individuals, families, and entrepreneurs with non-predatory lending products paired with financial education and skill-building.
“There is a clear need for alternatives to the non-inclusive mainstream financial industry and in particular to predatory lending options, as underserved communities rightly seek substantive resources to grow and scale their assets and wealth,” explained Nellenback. “This is what AFCU delivers: non-predatory banking and lending services, avenues for building credit and assets for low income and other underserved businesses, and individualized approaches to financial education and small business technical assistance.”
Tarasava shared another anecdote involving the $899-million Durham, N.C.-based Latino Community Credit Union (LCCU), which recently financed a $250,000 mortgage for a Latino family to buy their first home. “LCCU funds small-dollar loans to people who are building wealth in the local community. Fifty percent of members who have mortgages with LCCU are sole proprietors, and a large portion of LCCU personal loans support small businesses.”
Tarasava also mentioned the Disability Opportunity Fund (DOF) and the Indian Land Capital Company (ILCC). “The DOF is a CDFI that provides financing, technical services, and policy advocacy to increase access to accessible, affordable housing and related services for people with disabilities. One recently completed project is the Schoolhouse Hotel in White Sulphur Springs, W.V., the world’s first fully accessible hotel.”
She added, “The ILCC is a Native-owned, certified Native-led CDFI providing alternative loan options to Native Nations for tribal land acquisition and economic development projects. It recently funded a project that enabled the Cheyenne River Buffalo Company (in Mobridge, S.D.) to increase the size of its herd and scale production to meet demand from local restaurants and butchers.”
Other Institutions Involved With CNote’s Platform
Results after receiving ECIP funds:
· The $536-million Jackson, Miss. Hope Federal Credit Union, based in Mississippi, recently made a $10,000 small business loan to a Black-and woman-owned organic, fresh-roasted coffee distribution business based in Louisiana to expand operations.
· A $300 million asset-size MDI and CDFI Optus Bank in Columbia, S.C., after receiving its ECIP investment, approved more than $30 million in loans in a four-week period in 2022, compared with average monthly lending in 2021 of about $1 million.
· The Atlanta-based CDFI-certified Carver State Bank ($84 million), recently extended a $650,000 working capital loan to a Black-owned housing developer building affordable single family homes.
· CDFI-certified First Southwest Bank, ($519 million; Alamosa, Colo.) supported workforce affordable housing developments after receiving ECIP capital. This included providing financing for a mobile home park that provided housing primarily for lower-income Hispanic families that filled vital jobs in nearby Durango.
Tarasava noted, “In addition to immediate liquidity, CFIs on the CNote platform get a reliable, diversified, low-cost deposit base that provides a hedge against local economic downturns and more capital to invest in products and services for customers. They have to spend less selling money markets and CDs, and they can tap CNote for technical knowledge and resources.”