Every time it faces a disaster, Hope Credit Union comes out bigger and stronger than it was before.
Hope was founded in 1995 by the members of Anderson United Methodist Church, in Jackson, Mississippi — the only church-based credit union in the state at the time. But Hope today is more than a credit union, and that’s not a tagline. It’s a hybrid of a credit union and a nonprofit loan fund, with a policy research arm, all working hand-in-hand.
“Our end is to reduce the extent to which things like race, geography, gender and things like that limit the ability to prosper,” Hope CEO and co-founder Bill Bynum says. “Our means for accomplishing that are financial services.”
Hope’s first credit union branch outside of Jackson was in New Orleans’ Central City neighborhood. At the invitation of a coalition of neighborhood groups, Hope opened the branch in December 2004, the first formal banking institution in the neighborhood for decades. Nine months later, Hurricane Katrina hit. Hope responded by tripling in staff. The credit union’s overall loan portfolio went from $2 million in December 2004 to $30 million by December 2006.
Later, the Great Recession hit the Mississippi Delta region hard, and the recovery was slower in the Delta than in other parts of the country. But Hope went from seven branches before the Great Recession to 24 branches after. In terms of total assets, the credit union doubled in size, from $68 million in December 2008 to $124 million by December 2009.
Today, Hope Credit Union is the size of a community bank, with $307 million in assets. The loan fund has another $150 million in assets, mostly loans to economic revitalization projects considered too risky for a credit union. The credit union has more than 35,000 members, more than 70 percent of whom are black, located all up and down the Mississippi Delta, New Orleans, and Memphis. It recently expanded into Alabama. The credit union has also had positive net income every year since 2011 — a contrast from its earlier years, when rapid growth plus a focus on hard-to-reach clients and communities often meant ending the year with a net income loss.
Because of COVID-19, Hope Credit Union may post a net income loss this year, but it has the capacity — and the mindset — to weather that and maybe even come out stronger when the pandemic clears.
“I would estimate a third of our portfolio has requested some kind of deferment or other loan modification, and we continue to grant that upon request,” Bynum says. “Obviously that is going to have an impact on our revenue but we feel like that’s something we need to navigate because those are the realities our communities are facing.”
Growing in a disaster comes natural to Hope. In many ways, disaster is the normal for the communities it seeks to serve. Hope Credit Union members have an average credit score eighty points below the national average. Thirty percent of southern households overall are unbanked or underbanked, according to the FDIC — a rate higher than in any other region of the country.
“It’s hard to talk about what this crisis means to our members without acknowledging the realities that existed before,” Bynum says. “It’s not a silver lining, but one of the things I hope will be a positive outcome is just pulling the cover off of so many structural inequities that quite honestly is why we’re in this position in the first place.”
Hope’s hybrid model was born not entirely by design, but rather from experience. The loan fund and credit union were founded as separate organizations at first. The founders were looking to figure out how they could use finance to support communities facing structural barriers compounded over generations of slavery, Jim Crow, redlining, and continued discrimination. Just one hybrid financial institution can’t undo all of that history, but it shows what’s possible when communities who have lived that history find ways to bring others into alignment with their vision for what to do.
Bynum didn’t intend to start a credit union when he moved to Jackson in 1993. A consortium of leaders across the region called the Foundation for the Mid-South was searching for someone to launch and run the Enterprise Corporation of the Delta, a nonprofit loan fund intended to make loans to manufacturers and eventually other companies in the region, with the goal of helping those companies grow and create more and better paying jobs. The group recruited Bynum from Self-Help Credit Union, one of the largest credit unions in North Carolina, which he helped found in 1983.
“Credit unions helped me from when I was a child,” Bynum says. “My family benefited from credit unions in the black community that were there to support people who did not have access to community banks in North Carolina. So I saw back then what credit unions can do.”
After moving to Jackson to run Enterprise Corporation of the Delta, Bynum became a member of Anderson United Methodist Church. At his member orientation, the Pastor asked him about his background, and Bynum told him about his credit union career back in North Carolina. It turned out the church had been wanting to start a credit union in the neighborhood for several years.
“Check cashers and payday lenders had been devastating the neighborhood,” Bynum says. “So the pastor said, ‘Okay, well, that can be your ministry.’”
Hope Credit Union was eventually chartered in 1995. Like church-based credit unions across the country, in its early days Hope was run entirely by volunteers from the church’s congregation, including Bynum. You had to be a member of the church in order to become a credit union member and take out a loan. In 2000, Hope expanded its membership to include dozens of other religious congregations across the Delta, growing its deposits tenfold by 2002. But the credit union remained limited in what it could do in terms of lending products. Until 2003, the credit union’s loan portfolio consisted only of unsecured personal loans and used car loans.
Meanwhile, Bynum says, Enterprise Corporation of the Delta was also experiencing growing pains. The nonprofit had cultivated relationships with the few foundations located in or interested in supporting the Delta, and it had been successful obtaining federal grants as part of the first wave of federally certified community development financial institutions, or CDFIs. Certification means at least 60 percent of the organization’s lending and other economic development services go to low- and moderate-income census tracts, and it also provides access to a range of federal grants for CDFIs.
But grants can only take a nonprofit so far. It needed to tap into a bigger source of cash, or liquidity in financial terms, to meet the borrowing needs of a region deprived of responsible lenders. So in 2002, Enterprise Corporation of the Delta formally merged with Hope Credit Union.
“We knew we couldn’t do what was needed just through the 501c3, we needed a more scalable source of liquidity, and that’s what the credit union offered us,” Bynum says. “It was a natural partnership.”
Technically, the nonprofit became the credit union’s sponsor, meaning anyone could become a member of the credit union by making at least a nominal donation to the nonprofit. The nonprofit’s staff became full-time staff of the credit union. But the two organizations maintain separate legal entities and separate boards of directors, with some serving on both boards. (The nonprofit changed its name to Hope Enterprise Corporation in 2011.)
It’s common for nonprofits, including churches, to sponsor a credit union. Back in North Carolina, Bynum was an employee of the Center for Community Self-Help when, in 1983, that nonprofit became the founding sponsor of Self-Help Credit Union. But it is rare for a credit union to have a nonprofit loan fund as a sponsor.
Paired in this way, a nonprofit loan fund and a credit union have multiple ways of strengthening each other. With more full time loan officers, Hope soon added home mortgages, new car loans and small business loans to its loan offerings. It became a Small Business Administration 7(a) lender, giving it access to government guarantees to help scale up its small business lending operation.
In the aftermath of Katrina, Hope was able to attract philanthropic support to the nonprofit. It’s the path of least resistance for philanthropy. There’s established legal paperwork and familiarity among boards of directors for making donations to nonprofits as opposed to a credit union. That philanthropic support to the nonprofit translated to benefits for the credit union. First, it could triple its staff, even though its New Orleans branch had to close for several months following the hurricane; and second, it could use some of the donated cash to provide loan guarantees for emergency loans from the credit union to small businesses and homeowners. With the loan guarantees from the nonprofit, the credit union could take on more risk than it otherwise would.
Sometimes grants do come directly to Hope Credit Union, like those that come from the CDFI Fund, the arm of the U.S. Treasury Department that certifies and makes grants to CDFIs. A few foundations over the years have also made grants directly to the credit union, including the Mary Reynolds Babcock Foundation, the W.K. Kellogg Foundation, and the Silicon Valley Community Foundation. Grants directly to the credit union may go for specific lending programs or they may go directly to the credit union’s retained earnings, which means they count toward the credit union’s regulatory requirement that it set aside at least one dollar of equity capital for every $16 in assets.
Foundations and other supporters of Hope’s work can also make a deposit into the credit union by purchasing a certificate of deposit. With the connections to philanthropy brought by the nonprofit, these kinds of “socially conscious” deposits at Hope skyrocketed after the nonprofit and credit union merged. At the end of 2003, Hope had $3 million in deposits. Just one year later, it had $14 million in deposits. Another wave would come in support of Hope’s post-Katrina work, and by the end of 2006 the credit union had $37 million in deposits.
Recently, in a transaction that has become typical for Hope, the nonprofit received a loan from an outside investor, and the nonprofit used those dollars to make a secondary capital investment into the credit union. Secondary capital investments are another way for credit unions to build up required equity capital. The outside investor in this case was the Olamina Fund, a newly formed investment fund that is looking for opportunities to invest in ways that advance racial justice.
“Hope has multiple corporate entities and so we were looking for what would be the most catalytic,” says Lynne Hoey, managing director of Olamina Fund.
Secondary capital can also come directly to the credit union, instead of going through the nonprofit, depending on the funder’s preference. Hope currently has $24 million in secondary capital. Only one credit union has more — Bynum’s former employer, Self Help.
Without secondary capital or grants from the CDFI Fund and others, Hope Credit Union would not have been able to meet its regulatory requirements in order to grow as quickly it did after Hurricane Katrina or during the Great Recession.
“We have to import wealth or import deposits, either from larger places in our region or outside of the deep south, from investors or depositors who are willing to let us use their wealth in places where wealth has been extracted for generations, dating back to before the Civil War,” Bynum says.
The COVID-19 crisis has already provided one opportunity to import some wealth to Hope’s communities, through the SBA’s Paycheck Protection Program.
Since the credit union was already a licensed SBA lender, it was able to make its first few Paycheck Protection Program loans without having to worry about where it was going to get the liquidity to fund those loans.
But Bynum says early on in the crisis Goldman Sachs approached Hope with an offer to provide a dedicated $75 million line of credit to fund Paycheck Protection Program loans through the nonprofit side of the house. That setup would keep the loans off the credit union’s balance sheet, which otherwise might be a limitation even for a $307 million credit union. Goldman Sachs also provided a grant to ramp up staffing for the nonprofit to administer its Paycheck Protection Program operation and also to partner with other trusted community organizations to help small business owners through the application process.
And that’s how Hope has made nearly a thousand Paycheck Protection Program loans so far, totaling more than $65 million, with a median loan size of just $13,000. Bynum anticipates most if not all those loans to be forgiven later, as part of the program.
The loans, like the credit union itself, may seem small compared to the trillions of dollars in wealth floating around in the financial sector. But every dollar Hope grows is that much more of the financial sector taken back by the communities that own Hope, and there is plenty more room for growth.
“A lot of these businesses and nonprofits in a lot of these towns are some of the largest employers, and are providing services during a critical time,” Bynum says. “But I also know there are many multiples more we haven’t served, who still don’t know about Hope.”