University-Sponsored Microfinance Initiatives in Depressed Urban Environments: A Case Study

Many American communities are plagued by a history of racial inequality and a legacy of “redlining,” a practice by which minorities were systematically denied access to white neighborhoods, resulting in perpetually disadvantaged minority communities within cities that might otherwise be thriving economically. While redlining has been illegal for several decades, its legacy remains. This divide leads to a cold-start problem: Members of disadvantaged minority communities who possess business acumen and the ability to garner resources to make long-term investments will likely leave these neighborhoods for greener pastures. Many of the historically disadvantaged communities, thus, remain stuck in a vicious circle of poverty, lacking the means – either capital or human – to grow economically. The neighborhood bordering the east side of Loyola University Maryland’s Evergreen campus in Baltimore along York Road is one such “red line”. To address this issue, Loyola University Maryland combined corporate funding, a partnership with Kiva, and faculty and student engagement to build and nurture relationships with businesses along the York Road corridor. We categorize our potential business partners along three dimensions: community-mindedness, trust (in this partnership), and commitment. While our sample size is small as of now, we believe that all three attributes are necessary for a successful community partnership. Some business owners are enthusiastic about helping their communities, but lack the commitment to prioritize long-term growth over short-term needs. Some have this commitment, but do not trust outsiders bearing an offer of assistance. Still others have both trust and commitment, but see their surrounding community as a source of profit and not a partner. It is a rare but valuable partner who possesses all three attributes to lead to a successful relationship, and these partners must be actively and judiciously sought out. This paper presents best practices for community partnerships of the type described above. We discuss student recruitment and engagement, business partner selection and relationship management, capital budgeting methods, and potential legal challenges associated with community lending. This paper benefits those institutions looking to implement similar concepts in their own communities, as well as smaller community lenders seeking guidance on proper lending targets.