Netflix is helping to elevate a Black-led credit union with a huge infusion of funding and possibly setting a precedent for other companies to follow its lead in the process.
The streaming platform will deposit $10 million into Hope Credit Union. The Jackson, Miss.-based credit union plans to use the money to make loans to more than 2,500 entrepreneurs, homebuyers and consumers of color in the next two years.
Netflix’s funding will assist Hope with getting credit to often overlooked businesses but the partnership also could provide a roadmap for other organizations to invest funds into Black-led financial institutions.
“Credit unions have an obligation as member-owned institutions to meet the needs of the people and places we serve,” said Bill Bynum, president and CEO of Hope. “We don’t always do that as well as we should — the first thing we need to do is look in the mirror and assess whether our boards, our leadership in our organization and our members reflect those communities that we serve.”
Netflix pledged up to $100 million to support Black communities by investing in Black-led financial institutions after demonstrations erupted across the United States. Protests are bringing attention to Black Americans who have died while in police custody and are highlighting social justice issues.
Besides the investment through Hope, the company will put $25 million in the newly created Black Economic Development Initiative, which is being managed by the Local Initiatives Support Corp. That fund was set up to invest in Black-owned financial institutions that serve low-income areas.
Netflix hasn’t disclosed yet how it will invest the remaining funds.
The industry is hopeful that the Netflix-Hope partnership will encourage other companies to invest in Black-led credit unions.
For instance, Inclusiv established a Resilience Fund in June and will provide grants to help credit unions that serve communities of color hard hit by the coronavirus and that are marginalized. The fund is being supported by companies such as JPMorgan Chase and Capital One.
“People are paying attention to what Netflix is doing and by the fact that they’re making an investment in a CDFI, an MDI and a credit union — I think that helps elevate us,” said Pablo DeFilippi, senior vice president of membership and network engagement at Inclusiv.
Last year there were 514 minority depository credit unions, down 3% compared with 2018, according to a report from the National Credit Union Administration released in June. That decline can mostly be attributed to mergers, with many executives citing providing expanded services to members as the reason for joining another institution. A handful had other issues, such as poor financial performance.
Overall MDIs are well capitalized, according to the NCUA report. As of Dec. 31, these institutions had a net worth ratio of 11.77%, higher than the industry’s net worth ratio of 11.37%.
However, some Black-led community development financial institutions may have a harder time raising capital. White-led CDFIs are 2.5% better capitalized compared to Black-led CDFIs, Bynum said.
"The significance to me is an acknowledgement that part of the work that we need to do around racial justice and income equality more broadly is look at wealth creation and look at getting access to capital to communities that have been cut off from those assets,” said Sada Geuss, investment manager at Trillium Asset Management, which works with credit unions and banks, including CDFIs.
Netflix will be utilizing the “transformational deposits” product offered by Hope. That product includes both a share certificate and a money market account, and the interest earned will be contributed back to the credit union as a donation.
Netflix’s investment will include a two-year CD with a 30-day call option in case it needs the liquidity. But the company’s intention is to keep the funds with Hope for the entire period, Shannon Alwyn, treasury director at Netflix, said during a webinar.
The company did not have to become a member of Hope to make the deposit.
“We did put that deposit at $10 million, which is beyond the [federal] insurance limit and we got comfortable doing that because, again, we decided we wanted to take on a little more risk if we want to create change and we kept it an amount that was small enough for Netflix that it wouldn't be detrimental if it went south,” Alwyn said during the webinar.
A large percentage of the $309 million-asset Hope’s membership is low-income and historically, have not received a proportional level of investment compared to more affluent communities, Bynum said.
The average Black American family's total wealth was $17,600, according to 2016 data from the Federal Reserve. That’s one-tenth of the wealth seen in the average white American family. That gap widens even further for families living in the South.
Hope tries to end this disparity by purposefully entering underserved communities. For instance, it holds 58% of the $1.2 million in local deposits for residents in Itta Bena, Miss., according to Bynum. Itta Bena has a poverty rate of 42%.
Netflix’s deposits will help bring credit to consumers and businesses in areas such as that. Hope is speaking to other corporations as well, though Bynum was unable to disclose who those might be.
The economic turmoil related to the pandemic has emphasized the importance of ensuring that consumers and small businesses, especially in underserved areas, have access to mainstream banking services and credit.
“I think every small business is struggling,” Geuss said. “I think we know that when [Paycheck Protection Program loans] came out it was hard to access for the small businesses and it really looks like many entrepreneurs of color were kept out of that because they didn't have established banking relationships.”
