Professional Documents
Culture Documents
INTRODUCTION
The availability of financial services, including affordable credit, for
low-income families is emerging as an increasing practice and policy
Julie Birkenmaier is Associate Clinical Professor and Sabrina Watson Tyuse is As-
sistant Professor, The Saint Louis University School of Social Service.
Address correspondence to: Julie Birkenmaier, MSW, LCSW Saint Louis Univer-
sity School of Social Service, 3550 Lindell Boulevard, St. Louis, MO 63103 (E-mail:
Birkenjm@slu.edu).
Journal of Community Practice, Vol. 13(1) 2005
http://www.haworthpress.com/web/COM
© 2005 by The Haworth Press, Inc. All rights reserved.
Digital Object Identifier: 10.1300/J125v13n01_05 69
70 JOURNAL OF COMMUNITY PRACTICE
charges and the trap of a cycle of debt (Wiles & Immergluck, 2000;
Williams & Smolik, 2001).
Although the alternative financial market provides a service to those
unable to use mainstream services, the excessive fees drain capital out of
neighborhoods into corporate coffers rather than reinvesting them into
the local, distressed communities (Bachelder & Ditzion, 2000; Caskey,
1994a; Caskey, 1997; Stoesz & Saunders, 1999). These services offer no
savings products, thus providing their customer with neither incentive
nor opportunity to save (Carr & Scheutz, 2001). Pawnshops and CCOs
are expanding their sphere of operation into middle-class communities by
marketing themselves as one-stop-financial service centers (Lansing &
Casper, 2001). Proponents of alternative credit institutions point out that
low-income families receive needed financial services and that lenders
serving disadvantaged populations should be compensated for the risk
they take by lending to the poor and not conducting credit checks
(Lewison, 1999).
FINANCIAL INSTITUTIONS
Over the past 20 years, the environment for financial institutions has
changed dramatically as a result of banking deregulation. Proponents
laud deregulation as improving efficiency, increasing competition, de-
creasing cost of credit and producing a wider array of services in bank-
ing. However, critics point to less accessibility of affordable financial
services and credit in poor communities because of a high number of
mergers and the increased opportunity to serve more lucrative markets
in non-poor communities as negative consequences of deregulation
(Boher, 1995; Caskey, 1994a).
Three important areas have been deregulated in banking over the past
20 years: interest charges; geographic restrictions; and service offered.
First, the restriction was removed that limited the maximum-allowable
interest rate to depositors by commercial banks, allowing banks to com-
pete through increased interest rates for savings deposits. The rise in
interest rates, in turn, increased the cost of credit for borrowers (Glasberg &
Skidmore, 1997). Second, prior to 1985, banks were not permitted to
cross state lines. However, a 1985 Supreme Court ruling allows inter-
state banking, which has spurred a myriad of bank mergers and inter-
state banking. Third, since the 1980s, financial institutions are allowed
by regulators to become involved in non-financial activities (e.g., real
estate, insurance and securities). Lastly, the increasingly global econ-
Julie Birkenmaier and Sabrina Watson Tyuse 75
omy places poor urban and rural communities in competition with in-
vestment opportunities around the globe (Boher, 1995).
Two laws have been important tools in expanding affordable credit in
low-income communities. The 1977 Community Reinvestment Act
(CRA) requires banks and thrifts (i.e., banks designed to better meet the
needs of low-income households seeking home mortgages) to meet the
needs of low- and moderate-income communities for credit in exchange
for federal deposit insurance and other public benefits and subsidies
(Boher, 1995). Although advocates have been successful in using the
CRA to press for more capital resources for disadvantaged communities
(Green & Haines, 2002), the role of CRA may diminish in the future.
The traditional banking system is becoming a weaker player in the fi-
nancial market as a result of the rise of other types of companies enter-
ing into the financial services market that are not covered under CRA.
The Gramm-Leach-Bliley Financial Modernization Act of 1999 allows
mutual funds, mortgage banks, finance companies, insurance compa-
nies and pension funds to merge with and acquire one another. Mergers
and acquisitions are attractive because such entities can conduct lending
business without CRA oversight and, therefore, only focus on the most
lucrative credit markets without penalty. Early indications from institu-
tions created by such mergers are that insurance banks are making far
fewer home purchase and refinance loans to low and moderate income
borrowers as compared to conventional banks covered under CRA (Ja-
cob, 2003a).
The second important legislation to serving the credit needs of low-in-
come families is the Community Development Banking and Financial In-
stitutions (CDFI) Act of 1994. This act created a community development
fund to provide government monies for equity investments, capital grants,
loans and technical assistance. Activities can include the creation of
low-income housing, business development, financial services and com-
mercial facilities that promote employment and technical assistance. Al-
though CDFI programs are relatively new, they are developing across the
country. CDFIs increase access to affordable credit (Green & Haines,
2002). Current CDFI institutions include 71 banks, 333 loan funds, 20 ven-
ture capital funds, 119 credit unions and 59 micro enterprise entities that
have a primary mission of serving low-income families. In addition to gov-
ernment funding, they also rely heavily on investments from regular banks
and thrift institutions for loans and investments, who invest because they
fall under CRA requirements. CDFI-capitalized ventures result in shop-
ping centers, affordable housing projects, new small businesses and other
needed financial and social infrastructure in low-income areas that other-
76 JOURNAL OF COMMUNITY PRACTICE
wise would not occur because of the lack of ability of conventional finan-
cial institutions to offer credit to such projects (Jacob & Bush, 2003).
Innovations
sons and those with limited assets (Sanders, 2002; Schreiner, 1999). In
fact, from 1987 to 1999, the number of these programs grew from less
than ten to more than 300 (Langer, Orwick & Kays, 1999) and by 2002
to 650 in all 50 states, the District of Columbia, Puerto Rico and the
Mariana Islands (Aspen Institute, 2002). Examples of typical small busi-
ness started through MEPs include clothing alterations, beauty shops, ca-
tering, daycare, desktop publishing and janitorial cleaning services
(Banerjee, 2002; Sanders, 2002).
Since the late 1980s, researchers have considered microenterprise
programs to be an effective anti-poverty strategy to help poor U.S. fami-
lies escape poverty as proved by the growing popularity of the program
(Schreiner & Woller, 2003; Banerjee, 1998). For example, the Aspen
Foundation’s analysis of the Self-Employment Learning Project found
significant household income gains for microenterprise families, rang-
ing from an average income gain of $13,889 to $22,374 and that 53% of
families were able to escape poverty (Clark, Kays, Zandniapour, Soto &
Doyle, 1999). Other researchers have not reached such positive conclu-
sions. Servon (1997) found that MEPs are disproportionately assisting
those at the margins of the mainstream economy, instead of those who
are the most disadvantaged and isolated from mainstream society and
the mainstream economy. Light and Pham (1998) concluded that most
people being served by MEPs are not the truly disadvantaged, but rather
those with some college education and viable credit histories, which
may help to explain the positive findings of some researchers. More-
over, Howell (2000) concludes that microenterprise programs are an in-
effective antipoverty strategy for those without adequate resources,
education, skills training and social networks that are vital to business
success.
In sum, these alternative community credit institutions are emerging to
fill the credit needs of communities not adequately addressed by govern-
ment programs and the market. Although important, the availability of
these credit sources is not yet adequate to meet the demand for affordable
credit or sustainable over the long-run, even with foundation and govern-
ment support (Green & Haines, 2002). Larger, sustainable support is
needed to replicate these institutions and programs to a much larger scale.
Another promising advancement is the development of bank/CCO
hybrids that offer fee-based check-cashing services in concert with con-
sumer banking services. A small number of banks and credit unions are
offering check-cashing services at branch offices or offering banking
services at CCOs. These type of arrangements offers customers the ease
Julie Birkenmaier and Sabrina Watson Tyuse 79
of the CCO and introduces them to the idea of opening bank accounts
and saving. While helping with the profitability of banks and CCOs,
hybrids also offer the possibility of bringing unbanked households into
the banking system (Caskey, 2002b). Other banks are partnering to de-
velop “lifeline” banks for low-income customers, wherein customers
may open an account without a credit check for ten dollars or less, have
no minimum balance and no monthly service fee and other features
which can appeal to low-income customers. Further, banks offering
lifeline banking programs partner with nonprofits to provide financial
literacy workshops and counseling and conduct outreach to market such
programs (Williams, 2000).
EBT) and other measures that have reduced the cost of providing finan-
cial services (Williams, 2000). Given the increasing focus on assets and
the support for low-income families to utilize credit to build wealth, ef-
forts to connect the unbanked with lower cost financial services and
availability of affordable credit must expand. Therefore, social work
programs must include financial and credit content within the curricu-
lum to educate social workers.
Undergraduate and graduate social work curricula should include con-
tent about financial services and sources of credit for low-income fami-
lies, the link between assets and poverty and information on IDAs as
asset-accumulation strategies being implemented around the country.
This material can be included in elective courses on community, poverty,
housing, and wealth and/or dispersed throughout the curricula in discus-
sions of vulnerable populations in HBSE, diversity or practice courses.
To provide this content, social work faculty could collaborate with public
policy or business faculty members who are knowledgeable about finan-
cial services and credit. In addition, social work students should receive
training in agencies working with vulnerable populations and asset-build-
ing programs. Specifically, social work programs should offer practica
opportunities in agencies providing IDAs, homebuyer and mortgage
counseling and financial literacy to further develop students’ knowledge
and skills in working effectively with low-income and minority popula-
tions who are seeking to utilize credit to build assets. Students should
have opportunities to work with community organizations that are in-
volved in providing financial literacy and who work with financial and
lending institutions to advocate for financial services and products geared
toward low-income families. Classroom knowledge about financial ser-
vices and credit combined with opportunities for fieldwork in agencies
involved in this topic will serve to educate future social workers to work
toward financial empowerment for their clients.
CONCLUSION
nancial services and credit have a major impact upon the lives of low-in-
come families and social workers would make a valuable contribution
to the economic empowerment of their clients to educate themselves
and become more involved in advocating at both the policy and service
levels for low-income families.
While the “first-generation” of asset-development policy has focused
on the concept of accumulating financial resources toward building as-
sets, program implementation of asset-building programs and evalua-
tion of such programs, the “second generation” of such policy must
focus on the financial market families utilize to build and maintain as-
sets. Asset advocates must be interested in policy and practice that sup-
ports not only asset accumulation, but also asset affordability and
post-purchase maintenance so that the effects can be enduring. Beyond
financial literacy for consumers and a focus on actual loan products,
(e.g., home mortgage loans, car loans, student loans and small business
loans), advocacy regarding public policy that affects credit affordability
and availability must be strengthened and increased for low-income
households to maximize their limited financial resources toward saving
and investing. Without attention to the financial capital market accessed
by families, families may find themselves in the awkward position of
acquiring assets that they can ill-afford in the long-run. For long-term
benefits from asset development, the devil is in the financial details.
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