Editor’s Note: This Q&A is with Jenny Flores, Head of Corporate Social Responsibility for Bank of the West. Grameen America recently announced a new collaboration with Bank of the West, which is donating $2 million to assist with the launch of a new Grameen branch in Fresno, California.
What is the relationship between Bank of the West and Grameen? Does Bank of the West provide the funds and Grameen evaluate the loans and administer the program?
Building on a relationship started in 2017, Bank of the West made an initial $1.5M investment to provide lending capital to Grameen’s Bay Area, Los Angeles, and New York branches, helping to establish Bank of the West as one of Grameen’s key business partners in the U.S.
The Bank of the West investment (which is structured as flexible, long-term subordinated debt that acts like equity) helps capitalize Grameen America’s microloan fund. While Grameen is responsible for maintaining certain fiscal requirements to ensure they are operating responsibly, the organization is otherwise given complete control over how the loans are distributed and managed.
Bank of the West has provided a $500K grant and a $1.5 million equity investment in Grameen. How does the investment function? Does Grameen return that $1.5 million to Bank of the West at a certain point?
The $1.5M was structured as a special type of long-term subordinated debt called an Equity Equivalent Investment, or “EQ2”. In order to qualify as an EQ2, an investment must meet certain criteria established by the Federal Reserve to ensure that its terms are flexible enough to effectively act like equity for the borrower. For example, an EQ2 must be unsecured, subordinate to other creditors, carry an interest rate independent of the borrower’s income, and have an indeterminate maturity. Because the EQ2 is technically still debt, the money will eventually be repaid to Bank of the West. However, it is extremely likely that the proceeds would be subsequently reinvested back into Grameen, or another nonprofit microlender serving under-resourced communities.
Why Fresno? Have you worked with Grameen in other locations?
There are an estimated 76,000 low-income women living in the Fresno Area. With 1 in 4 U.S. households either unbanked or underbanked, low-income women continue to be excluded from the financial mainstream. Grameen America’s expansion in Fresno aims to address this inequity in the Central Valley.
We have been working with Grameen since 2017, initially investing $1.5M to enable mico-loans in the Bay Area, Los Angeles, and New York. The new branch in Fresno will be Grameen’s 23rd branch in the U.S. and its 15th city.
Have you engaged in similar partnerships with other organizations?
Bank of the West has made significant commitments to drive change and positive social impact in our communities. We are working to increase support for the development and growth of women entrepreneurs with partnerships such as the one with Grameen. We help women entrepreneurs build wealth and assets, we contribute to a brighter, sustainable future for families and the cities where we live.
Bank of the West also maintains a $40M loan fund that makes similar EQ2 investments in Community Development Financial Institutions like Grameen across the country. In addition to providing micro loan capital for new entrepreneurs, the fund has helped support the development of small businesses, community facilities, environmental infrastructure, and affordable housing.
What will the average loan be? The press release says the program will serve 500 women and provide 727K in microloans. If it was one woman per loan, that would be roughly $1,500; what can they do with such a small amount?
While $1,500 may seem inconsequential within the context of a typical business loan, it’s important to remember that for the average Grameen client the amount can be transformative. These women are generally interested in leveraging an existing skill to provide supplemental income for their families. They are looking to start a catering business, food cart, or cleaning company. These types of businesses don’t require a great deal of capital to get started, but have enormous potential to generate long term wealth and financial independence. Also worth nothing is that most Grameen clients continue with the program and are constantly renewing, and often expanding, these loans as their business grows – all while building their credit in the process. The result is that by year 6, the average loan size will have more than doubled to $3,800.
The press release states, “By year five, Grameen America aims to serve 7,000 women and cumulatively disburse $21 million in loans.” Where does the $21 million come from? Will the program be self-sustaining or do you anticipate having to provide an additional infusion of money down the road?
Since starting in 2008, Grameen has launched more than 20 branches around the United States and Puerto Rico. Over that time, they have really honed their business model to the point where each new branch can reliably be expected to achieve self-sufficiency within an average of 5 years. Or in other words, within 5 years the branch will generate more in interest income than it costs to operate. The latest projections actually show that by 2024 the Fresno branch will have distributed more than $49M in loans, which is an amazing – yet highly achievable – level of growth. Those loans are funded initially by Grameen’s pool of investment capital (which includes Bank of the West’s $1.5M EQ2 investment), but over the long term by the branch’s ongoing business operations; as clients are continually borrowing and repaying, with interest, their loans every 6 months. Since inception Grameen client’s cumulative repayment rate is greater than 99%.
How is Bank of the West different than other banks?
When you put your money into a bank, it doesn’t just sit there. It goes out in the world and finances different things. We are one of the few major U.S. banks that has chosen to restrict the financing of fossil fuels, tobacco, palm oil and other activities harmful to the planet. Instead, we are helping fund more than $1 billion in renewable energy projects in support of our $1 billion pledge to finance energy transition. We believe that energy transition has the most immediate impact on the future, and we’re making hard choices to leave the planet better off than we found it.
What does a typical day (or week) look like for you in your role as Head of Corporate Social Responsibility? What are the biggest challenges in this role?
My typical day is spent doing three things: 1) meeting internally with my team or BOTW colleagues to discuss strategy, touch base on on-going initiatives or evaluate new opportunities; 2) connecting with external stakeholders, non-profits, corporate or government leaders and clients, to catch up on developments in their respective organizations and stay up to date on changing trends, and 3) attend events to represent Bank of the West and share my expertise externally—these can be conferences, meetings or community partner gatherings.
In terms of challenges – there is a lot of information I have access to; I need to synthesize and bring back to the bank the releveant data that allows us to be more responsive to community needs and to opportunities for us to deliver value. Secondly, I have to constantly engage the business lines in CSR opportunities and for that I need to build out a clear value proposition that goes above and beyond community impact. To be sustainable, the solutions I bring to the table not only create positive change in the world, but also help grow our business.
Did you come to this position from the banking side, or from social services or another area?
I came to this position from another bank, but I spent the earlier part of my career working in non-profit and in government. This makes me a very agile leader and I am an effective bridge builder between Bank of the West and other sectors and industries.
Read more about this announcement here.
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