Bridging the Economic Disparity Gap in the Mississippi Delta

Bill Bynum
Bill Bynum

Bill Bynum is the founder and CEO of HOPE (Hope Enterprise Corporation and Hope Credit Union), a community development financial institution established in 1994. He has advised Presidents Clinton, Bush and Obama on community development while serving as a Chairman for the U.S. Treasury Department’s Community Development Advisory Board. He currently serves as Chairperson of the Consumer Financial Protection Bureau’s Consumer Advisory Board. Bynum has received several honors including National Entrepreneur of the Year (Ernst & Young/Kauffman Foundation), Ned Gramlich Award for Responsible Finance (Opportunity Finance Network) and Annie Vamper Helping Hands Award (National Federation of Community Development Credit Unions). Today, HOPE is highly regarded as a financial institution and policy institute that advocates economic inclusion across Mississippi, Arkansas, Louisiana and Tennessee and influences related policies and practices nationwide.

Key Takeaways:

  • Generally, capital is more difficult to access in the Mississippi River Delta region – which includes parts of Mississippi, Louisiana and Arkansas ­– than in other areas of the Southeast, because it is home to many underdeveloped, rural communities that investors don’t find attractive.
  • Many minority business owners live and work in rural regions like the Delta where access to capital is limited.
  • Bringing traditional financial services back to low-income areas will stimulate economic growth by giving entrepreneurs the opportunity to build equity.
  • Community Development Programs, like the New Market Tax Credit Program, are a good way to bring capital to areas deemed less desirable, like the Delta.
  • With a growing and diverse population, the Delta offers strong business opportunities for entrepreneurs who can think creatively about sourcing the capital they need.

Q: How available is capital to middle market companies in the Delta? Is it becoming more available or less available? Why?

A: Generally speaking, the economy has recovered from the recession, and capital is looking for a home, but entrepreneurs are more cautious about taking on debt than they were several years ago. Lenders are more cautious, too, which has slowed movement in the market. They’re more likely to invest in companies with good cash flow and collateral, leaving less capital for small companies in the early stages of business development. I say all of this with a caveat, because I’m based in Mississippi where the cash flow is much lower than in other states. The state also has the highest poverty rate in the country and doesn’t have a lot of “megabanks” to support a vibrant financial climate.

There are fewer investors in Mississippi than in most other states, and they’re generally seeking investments on a different level. I also work in Louisiana, Arkansas and West Tennessee. In the larger markets of those states, like Memphis and Little Rock, you see significantly more activity than in rural regions. There’s also the anomaly of New Orleans, which has seen a vibrant revitalization since Hurricane Katrina, due to investments from the federal government and other sources. Apart from those areas, however, capital is difficult to come by.

Q: What does this mean for the region’s demographics? Is it also more difficult for minorities to access capital? And if so, why do you think that is?

A: In the early 90s we worked with Bain & Company to get an assessment regarding the level of access to capital in the region. We discovered significant gaps around access to capital for minority-owned businesses and non-agricultural businesses, and this hasn’t changed much in the past two decades. This disparity is still very evident.

There’s a long history of not investing as much in the development of people in rural areas, which are largely occupied by minorities in our region. According to the U.S. Census Bureau, while there are more than 27 million businesses in the country, only 5.8 million of those are minority-owned. Some of this disparity in the Delta can be attributed to a lack of assets. Statistically, black families have smaller net worth than white families. This is evidenced by an Urban Land Institute report that finds black families averaged a little more than $11,000 in wealth in 2013, while white families averaged more than $134,000. And because there are so few banks in the Delta, it is more difficult to get the financing needed for a loan, making it harder to buy a home or a car — assets that can serve as collateral when trying to secure a loan for an entrepreneurial venture. When you don’t have assets, you have less access to the entire banking system, and that stunts business development.

In fact, after the recession, 93 percent of all banks that closed were in low-income regions, so that’s taken a toll on our area and one reason why we haven’t seen much improvement.

Q: As the leader of HOPE Credit Union, you’ve been working toward economic development to bridge these gaps. What strategies has HOPE used to combat economic disparity in rural areas?

A: We’ve found that there was a comparable level of manufacturing activity in the Delta to the rest of the country, but there weren’t enough service and retail businesses to support the economy. These businesses are especially important, because they are necessary to attract and retain talent. Initially we were investing in manufacturing, but when the need for more service and retail businesses became apparent, we broadened our scope and started financing a wide range of businesses in an effort to grow and strengthen the economy.

Also, we learned investing in health care provided the opportunity to create a large number of well-paying jobs with benefits in areas desperately needed. We developed the tools and expertise to provide financing to rural hospitals and physicians in these markets.

In an effort to further stabilize the local economy, we also started financing homes to first-time homebuyers. Since many rural areas lack traditional banks — typically the main source of lending for a home — it was difficult for people in these areas to purchase their own homes and build the equity to finance businesses later on.

Q: Given the disparity in access to capital and traditional banks in the Delta, how do you foster more middle market activity in this region?

A: You start with what you have and build on what exists in the community. In addition to having fewer people to support businesses in these rural areas, there is less technology expertise and the region also lacks a robust innovation economy that you see in other markets. We have to support small businesses that build over time. As those small businesses grow and thrive, that level of activity will grow to support larger companies that demand more capital and generate jobs.

Also, to jumpstart middle market activity, you need capital—and lots of it. Community development programs, like the New Market Tax Credit Program, are a great way to bring capital to areas deemed less desirable. We need to work with leaders to make these more available and accessible, but once the capital is there, investors will put it to use and find a way to generate profit.

Q: In the meantime, what can business owners in this region struggling to raise capital do to meet their needs?

A: It’s a significant challenge to raise capital in the absence of banks, so business owners have to be creative. A couple things that come to mind are online financial service providers and crowdsourcing. Capital is certainly harder to come by in the Delta than it is in some of the more robust regions, but that’s what separates strong entrepreneurs from people with good ideas. The entrepreneurs that break through and succeed will set the example for others to follow until there are more opportunities readily available.   

Q: What expectations do you have for the Delta region moving forward?

A: I expect that the Delta will support a combination of traditional financing and alternative financing solutions to navigate economic development. I’m hopeful that people recognize the financing system in this country is multi-faceted, and, in this region in particular, capital is needed to intentionally support community development financial institutions. It’s also important for the area to build a robust traditional banking sector that serves the needs of all residents – particularly in an environment of changing demographics.

We have a growing and diverse population in this region, which offers a significant business opportunity. Moving forward, it will be important for companies to look at that diversity as an asset to be developed rather than a liability to be managed. Facilitating economic development in low-income and rural regions will benefit the country as a whole.

Brought to you by the team at FourBridges.

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