Lending On Character, Not Credit Scores

  • Opinion

Nov 18, 2021 Common Future

by Chris Winters, YES! Magazine

Traditionally, support for small businesses comes from organizations like Community Development Financial Institutions, or CDFIs, which have long been seen as a way to invest in historically excluded communities. But CDFIs, many of which are federally chartered, are still part of the mainstream banking economy, which means they need to meet risk underwriting and reporting requirements, and often need to show returns, even if those requirements are less stringent than those at commercial banks.

At the local level, organizations within communities of color often have better ties to local businesses, and would be in a better position to meet their needs, if they had the capital.

Foxworth and his team saw an opening: draw on Common Future’s national network of businesses, funders, and support groups—many owned by people of color and especially women of color—to create a fund that could be disbursed to community support groups, who in turn could make low- to no-interest loans to local businesses that need them. 

Read more about Common Future’s Character-Based Lending pilot in YES! Magazine, with our partners MORTAR, Native Women Lead, Community Credit Lab, and ConnectUp! Institute.

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