A Conversation with Jean Pogge of ShoreBank
(From The Capital Institute)

To be designated a Community Development Finance Institution by the United States Treasury, a bank, loan fund, venture capital fund, or credit union must prove under rigorous standards that it conducts the majority of its business with economically distressed populations. ShoreBank, the country's oldest and largest CDFI, is now operating under a cease and desist order and must raise its Tier 1 capital ratio to 9 percent or face a regulatory takeover. The bank has thus far succeeded in raising over $150 million from a consortium of major banks and has applied for an additional $75 million in TARP funding under the Community Development Capital Initiative. The Federal Reserve Bank has indicated that $225 million may not be enough to save the bank. The bank consortium has extended Shorebank's deadline to obtain TARP money until August 6. Meanwhile Treasury’s response to Shorebank's TARP application is by no means assured.

Some say ShoreBank strayed too far from its roots on Chicago's South Side and erred when it moved into some of the most depressed markets of Detroit and Cleveland, abandoning its tried and true risk management strategy of doing business only in those low-income markets that had viable working populations and functional local governments. Others say it diversified too much from its core banking function or was focused too much on its mission at the expense of its bottom line. Still community development advocates are pained to see this international model of community banking struggling for survival.

Recent unsuccessful efforts by members of Congress to throw up roadblocks in the way of ShoreBank’s TARP application draw the ire of Richard Taub, a University of Chicago professor and former ShoreBank advisor. While Taub admits the bank has lately taken some missteps, he questions why it has been the target of so much political venom. “There is real injustice in this story,” he notes. “Here is a small local bank deliberately dealing with low-income people. No matter what happens you can’t see ShoreBank as a failure. The fact remains that there are thousands of people on the South Side of Chicago who, beginning in 1973 up to the present, would never have gotten a chance to build equity with a conventional mortgage were it not for this bank.”

At a time when the need for job creation in the inner cities has never been more critical, when the knock-on effects of the financial crisis have hit the least resilient communities the hardest, and as the wealth gap yawns wider every day, the country clearly needs more alternative finance institutions with stronger balance sheets, not fewer. The question now hangs in the air...does ShoreBank, which may have overextended itself in the service of communities largely abandoned by the bigger banks that have received taxpayer bailouts, deserve to be saved?

A Q&A with Jean Pogge

The Capital Forum speaks here with Jean Pogge, Executive Vice President of ShoreBank, for a perspective on how the bank is forging on, now operating under the constraints of a cease and desist order, to serve the financial services needs of a community with a 23 percent reported unemployment rate.

Pogge, the bank’s Executive Vice President of Consumer and Community Banking, previously directed the bank’s Development Depositors program, which draws deposits from institutional and individual depositors nationwide to support the bank’s community development work. Before joining ShoreBank Pogge was president of the Woodstock Institute, a Chicago-based nonprofit research and policy organization with a primary focus on fair lending, wealth creation, and financial systems reform.

Capital Forum: There are now 9 million unbanked and 21 million underbanked households in America according to the most current FDIC statistics. Can you talk a little about the implications for those households of living outside the traditional banking system?

Jean Pogge: When you have a cash economy that operates outside of a traditional banking community you create a second class of citizens who pay more to borrow than they should and do not have the same access to financial products. Payday loans are a perfect example. They fill a short-term need. “I don’t have cash today so I mortgage my paycheck to pay for food.” Or, “the transmission on my car went out so I need money today and I will pay high rates to borrow against future paychecks and eat macaroni to pay for it.” Whereas if these individuals had access to banking products and services that met their needs there might be ways for them to access that money in a more reasonable and cheaper way.

Another example is currency exchanges or check cashers. We are all confused by why people use check-cashing services. We sometimes forget that banks often will not cash a check for a non customer so individuals without a bank account have limited options for cashing their paychecks. Another reason people like check cashers is that they can get their money quickly. Because banks often impose a hold on the funds over $100 when a check is deposited into a checking account, using banks can be difficult for low-income people. The smaller your budget the more urgently you need your cash. Another purpose of check cashers is simple budgeting. I had a frequent user of currency exchanges explain to me that she used check cashing services as her budget system. She cashes her check, buys money orders to pay her bills and never spends more than the cash she has left. The real consumer need filled by check cashers challenges banks to figure out a business model for delivering a service to consumers with small dollar transactions.

Capital Forum: Can we talk a bit more about the difficulties of delivering the appropriate financial services to this type of consumer in the context of a traditional banking model?

Jean Pogge: Trying to serve underbanked or nonbanked individuals is hard; it is a low-transaction, high-volume business that is expensive for a bank to deliver. It takes a lot of creativity to get the nonbanked into the banking system.

For years ShoreBank struggled to make its deposit products serving our community profitable. Just look at the retail banking side of our business as an example. Fifty percent of our customers using the retail branches make less than $35,000 a year. They have small balances in their accounts and do lots of transactions. They also like to come into the bank and see a person. That is the way they are comfortable managing their money. A traditional checking account does not meet their needs and is not profitable for the Bank. Recently, ShoreBank has been working to develop thoughtfully designed, technology- based products and services to serve these customers better.

For example, we have a new product called Access Checking. It is a regular checking account but the only way to access it is electronically. Direct deposits in and a debit card out, and no overdraft rights. It costs the customer nothing—the direct deposit is free and the debit card is free. So an individual can set up an Access checking account, have their paycheck direct deposited and have immediate access to their money with a debit card that can be used for groceries, gas and other retail purchases. All without paying any fees for these services.

Capital Forum: Banks working in low-income communities also need to be highly skilled at assessing credit worthiness in nontraditional ways. Can you explain why?

Jean Pogge: The credit side is an area where we all have to do more thinking going forward. In the past everyone was pushing for more home ownership. That resulted in the development of predatory mortgages that would allow individuals with less money and horrible credit scores to get a mortgage. Many of those mortgages were not good for the consumers or the lenders.

ShoreBank got a lot of push back for many years because we were only offering 30-year fixed mortgages. But in the excitement to increase home ownership some lenders went too far in the other direction and created bad products and did bad underwriting. It hurt all of us and we are now paying the price. We have to be careful that the industry learns the lessons of this economic disaster and does not go back to wild and reckless lending.

Recently, there has been public discussion about whether or not home ownership is for everyone. Thoughtfulness about who qualifies for home ownership is good but we must be careful that we do not draw the conclusion that the only alternative for low-income people is to rent. That isn’t the answer. The right thing to do is to find the right fit for each individual--building more affordable housing, creating smarter credit products. The good news about this recession is that housing prices are cheap. The bad news is we still have high levels of unemployment and individual credit has been damaged by the recession.

When you underwrite a loan, the Five Cs of credit are important but it is also important to have the ability to look behind the numbers and examine nontraditional factors. ShoreBank likes to look our borrowers in the eye and ask, “what happened, why didn’t you pay your bill on time, how can we be sure that won’t happen with our mortgage?” We want to be sure their financial history demonstrates they understand that the obligation of credit is to pay it back. For people without a credit history, sometimes you can look at utility bill payments, rent payments and savings deposits to see how responsibly the customer handles their money.

The financial lives of low-income people are by nature episodic. They pay bills responsibly but then things happen. Mom goes into hospital, has no insurance and the children pay the bills. And then they get behind on their own bills for a month or two. You can say what they are doing is responsible from a certain perspective but from another it looks bad.

As a community development bank we understand that our delinquencies may run a little higher than our peers in the banking industry. But we have to be sure our underwriting is strong, and our losses are within expectations and that we have adequate reserves.

Capital Forum: Can you talk a bit about your energy efficiency financing programs and how it works and why it is so important?

Jean Pogge: Seventy percent of Chicago emissions come from cars and the built environment and the majority of that percentage is from the built environment. Buildings in downtown Chicago and the more affluent north side will go green. They get it, it will happen. But the majority of the housing in Chicago is in low- to moderate-income communities on the south and west side. How do we get that green? It is not expensive. Generally, it requires new insulation and sometimes a new furnace. Unfortunately low- and moderate-income people do not have the cash flow to make the investment even when they will realize savings in lower utility bills,

A few years ago we started a program where we gave our borrowers a free energy audit. If the customer agreed to do the rehab to follow the energy auditor’s recommendations we extended a rehab loan to pay for it. When the rehab was completed we gave the borrower a free energy star rated refrigerator and took the old refrigerator away. That was a very good way to help homeowners make their homes more efficient. We often had to talk people into it; they were not dying to spend the money on energy efficient upgrades. However, once we got a few houses done, the borrowers saw their energy bills go down and became our best referral source.

Capital Forum: In terms of small business lending, very often community development bank customers need more than just a loan, they also need equity and technical assistance to get their businesses off the ground. And they often have no collateral to back them up in the beginning. How does a community bank address those needs?

Jean Pogge: Clearly banks cannot do equity investments. One of the tools we have used in the past and we hope to do more in future is well-designed SBA lending. The value of the SBA guarantee is it can boost a loan that would not otherwise meet underwriting standards because of a lack of collateral. The SBA guarantee is as good as or better than collateral. We did two SBA loans recently that illustrate this point. One loan was to an African American doctor who wanted to open a new clinic in an underserved area. We made a loan for leasehold improvements. There was no way she could have had this loan but for the SBA guarantee. It was the perfect loan for her. She didn’t have collateral but the market for her services is high and she will do well financially. The second loan was for a daycare center that needed to move and again the SBA guarantee was the right tool for that loan.

In terms of technical assistance, there are a lot of other resources for that and it is not the best use of our banking resources. We see ourselves as a lender in partnership with our customers. For example, if a customer needs a line of credit we may say you don’t have the financial strength you need for us to give you the line of credit you have asked for, but if you put up cash as collateral we can give you a smaller line of credit and increase it over time. This structure forces them to save. It doesn’t happen overnight but it helps the customer build a solid business.

That is the essence of what we are trying to do. We want to be partners with our customers; we want them to realize their possibilities and dreams.

Capital Forum: What do you find most troubling about the current recession in its longer-term implications for the community that ShoreBank serves?

Jean Pogge: I am most concerned that this recession is so long lasting and seems to be creating a permanent downgrade in the standard of living. I see customers who have lost jobs with benefits and decent salaries and have now managed to get new jobs but are getting paid by the hour with no benefits. I have communities in my service area with 23 percent reported unemployment not counting the unreported unemployment. Meanwhile the State of Illinois has not really yet come to grips with its budget problems. So I am afraid that we will be seeing more bus drivers and teachers and park district workers laid off. All of the communities where we do business are vulnerable to rising unemployment.

Capital Forum: Can you talk about what the CDFI industry can do to address the fallout from this recession and what it cannot do?

Jean Pogge: It has to be understood that there is poverty and there is unemployment. CDFIs do not have the tools to fix systemic poverty. But ShoreBank’s customers are good, hard-working Americans who are being victimized by this recession. We need public policies that create jobs and support the businesses and institutions that have the potential to provide them with work. Where are the training programs for green jobs? There is work to be done to help our country transition to a green economy and those jobs can help low and moderate income communities.

The cure to fixing the economy now is to create jobs that are meaningful, that have the possibility of advancement and pay a decent living wage, not hourly jobs with no benefits. We CDFIs can do our part. We can create jobs by making good loans to small businesses. But we cannot do it alone. We need a better partnership with government, large banks and corporate America. We are all in this together and putting people in low and moderate income communities back to work will benefit us all.

Capital Forum: Do you think that community banks should be subject to different regulatory rules than the larger commercial banks?

Jean Pogge: The reality is that as much as regulators cause higher expenses and are not always fun to deal with, they serve a purpose. ShoreBank’s current problems arose in part from the fallout of lack of regulation in the lending industry as a whole, not too little regulation. If we are saying that hedge funds should be regulated then CDFI banks need regulation too. We have to be good trustees of the deposit dollars we hold.

HOPE for Japan’s Economy

The BBC reports, “Japan joins France and Germany in terms of leading nations that are showing positive growth after a torrid year.” The BBC claimed that, Asia’s “largest economy is showing signs of recovery, which means increased Japanese demand for their products and greater trade between the nations.”

HOPE for the long-suffering Japanese economy has emerged from over $400bn in government stimulus programs over the past year. Japan did not experience the banking system failure of Europe’s near collapse and the U.S. and U.K. near total collapse. The Japanese stimulus has focused on supporting manufacturing and exporting of fuel-efficient vehicles and consumer electronics. One stimulus program offered Japanese consumers environmentally products at a discount. (Going Green Boosts Japanese Business)

While Japanese consumers and businesses continue to feel economic strain, the news of “exiting recession” boosted spirits and economies on the Asian continent.

Read more 

Shoes for Tots: One for One

“Using the purchasing power of individuals to benefit the greater good is what we're all about.”

In 2006, Blake Mycoskie created TOMS, a shoe store with one important goal- Sell shoes in Order to Donate Shoes.  TOMS website claims, “For every pair you purchase, TOMS will give a pair of shoes to a child in need. One for One. Using the purchasing power of individuals to benefit the greater good is what we're all about.”

On a trip to Argentina, Blake realized few children wore shoes, a basic commodity in most first-world countries.  He created TOMS and later that year came back to Argentina and donated 10,000 shoes.  While many people might think things like water, clothing, and food come first, owning a pair of shoes for children in developing nations means being able to walk more comfortably, not contract soil-transmitted parasites, and being able to attend school (schools require that children wear shoes). This year TOMS expects to donate more than 300,000 shoes.

What a concept. Capitalism that replaces exclusive self-interest with a new model: inclusive world-interest. You gain, I gain, and along the way we help a barefoot child.

Read more 

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Buying Local: The Real Business Community

The May 2009 BALLE (Business Alliance for Local Living Economies) conference in Denver, Colorado brought “together small business leaders, economic development professionals, government officials, social innovators, and community leaders to build local living economies.” BALLE’s website states it provides, “local, state, national, and international resources to this new model of economic development.”  BALLE

Green Blog Triple Pundit reports that locally-owned businesses are green by default and breeding grounds for positive change. Buying local goods keeps more money in the area, creates more jobs, and shortens “the supply chain of the products” in turn reducing the carbon footprint. Local businesses are more likely to invest in the community and donate to non-profits and local organizations. According to Triple Pundit, this is the “real business community.”

At the recent conference, 400 attendees showed strong support for the local business coalition by traveling from 40 states and Canada (some irony there) to inspire each other with new products and services that support local enterprises.

The initiative is strong and well-supported by businesses whose unified voice is now being heard by consumers and policy makers. Long lost in the shuffle behind Big Business Chain America, where ordinary stores are city blocks long and the clone stores can be found in every county in the nation, local independently-owned business is staging a come-back in a big way with BALLE.

But did locally-supported independent businesses ever disappear? Is the business model really “new” as professed on BALLE’s site? Or hasn’t local independent business been the heart of business for over four thousand years?

I recall on a trip to Rome, passing a rambling multi-storied stone ruin full of catacombs and compartments in the center of the city. I asked my guide what is that intriguing relic? “That is the oldest shopping mall in the world,” he said matter-of-factly. A shopping mall in Ancient Rome? Whoda thunk?  I wondered what the confessions of an Old World shopaholic would sound like. “I couldn’t resist this linen toga…”

Read more 

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Patricia Aburdene, International Conscious Capitalism Leader, reports on her recent trip to Oslo Summit and Business for Peace Conference
From www.patriciaaburdene.com

June 2009: The Oslo Summit and Business for Peace Award  

I just got home from the Oslo Summit and Business for Peace Award conference. Talk about an international event! Honorees and speakers came from Africa, Asia, Latin America and Europe to Oslo City Hall, site of the Noble Peace Prize Awards, to a spectacular room covered in magnificent murals. I'll now describe the day's three parts, but fair warning: I've saved the best for last!

Part 1: The Business for Peace Foundation, our sponsors, wowed us with welcoming videos from Nobel Peace Prize winners Muhammad Yunus and Wangari Maathai (of course, we all wished they were there in person). They then lined up Jan Egeland, Director of the Norwegian Institute of International Affairs and negotiator the 1993 Oslo Agreement between Israel and the PLO, to moderate the day.

Mr. Egeland faced an ambitious morning in the debut of The Natural Resource Charter, a set of principles on how resource-rich, but comparatively poor countries can harness these assets for the benefit of their people. How enlightening to hear from President Festus Mogae, Botswana's recently retired head of state, describe the ins and outs of the diamond trade, including complex negotiations with De Beers and how Botswana set up a fund earmarked for future generations. Nigeria's Nuhu Ribadu, an outspoken crime buster, and UNIDO's Dr. Kandeh Yumkella rounded out the African perspective.

Next a team of resource experts headed by Stanford University Professor Michael Spence, the Nobel Prize winner in Economics, introduced the Charter, reviewed its guidelines and opening the floor for debate.

Part 2: The overall conference theme: "The World in Recession –- A Call for a More Ethically Aware Capitalism?" was certainly a perfect intro to Conscious Capitalism and I was thrilled to speak during Part 2, which began with a frank and enlightening keynote by China's top trade negotiator Mr. Long Youngtu, Secretary-General of Asia's Boao Forum (The Norwegians explained that Boao is a sort of Asian rival to the World Economic Forum in Davos, Switzerland.) Mr. Long candidly reported that once China understood the potential of "win-win" negotiations – a foreign concept until recently - its trade relationships could really move forward.

In preparing my talk, I came across (well, actually, it was my researcher Joy Moloney) three green Norwegian initiatives that knocked my socks off and fit right into the Values-driven Consumer module. Here they are:

• Norway vowed to be carbon neutral by 2050, then changed it to 2030!
• 80 Oslo buses run on sewage & save half a Euro per liter. Emissions? Zero!
• Norway is testing less expensive, "floating" wind turbines, which will revolutionize the wind sector with turbines in deep ocean waters.

Norway, home of solar pioneer REC, might be the green capital of Europe.

 Read More...

http://patriciaaburdene.com/megatrends

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 MONEY AND MEDICINE

“Indian entrepreneurs are channeling the country’s rich technological and medical talent towards frugal approaches that have much to teach the rich world’s bloated health-care systems.”

In effort to reduce high costs of medical care for patient, industry and nation, innovative doctors in Bangelore are creating safe and inexpensive alternatives to expensive and complex procedures in the U.S.

For example, heart bypass surgery is a serious and costly surgery that requires American surgeons to break the chest bone to reach the heart. The painful procedure requires general anesthesia and a three month long recovery program.

Dr. Vivek Jawali in India has invented a new bypass surgery called “awake surgery” that allows the patient much faster recovery and less physical stress during the operation.  Unlike wealthy nation medical care that depends on costly and complex equipment, India has a “patient-centric health system” that encourages doctors to innovate. Read more…

Lessons from a frugal innovator - Apr 16th 2009 | BANGALORE
From The Economist print edition
The rich world’s bloated health-care systems can learn from India’s entrepreneurs

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BIG BLUE REGAINS ITS COLORS

Ecomagination: It's Not Easy Being Green

IMAGINE THE UNIMAGINABLE: A Fortune 500 energy company becoming eco-conscious on its own without being forced to by litigation or regulation. Well, once upon a time in May 2005, General Electric (GE) launched its “Ecomagination” campaign to promote and create eco-friendly products. CEO Jeff Immelt claimed it was necessary for the energy giant to answer the needs of planet, people, and profits. Along with new products, GE boldly committed to significantly reducing its carbon footprint by 2010. Early on, GE began to take heat for what environmentalists call “greenwashing.” Claims that GE exaggerated the greening of its business initiatives cast doubt over GE’s environmental responsibility. As GE pursued Ecomagination, the Wall Street Journal reported in 2007 that GE was also pursuing coal and oil energy production.

Despite criticism, it is clear that Ecomagination is making some progress. Immelt claims GE will meet its 2010 target with sales for eco-products reaching $20,000,000. GE’s new planet saving products include hybrid electric vehicles, battery automobile technology, and Light Emitting Diode bulbs used in 500 Wal-Mart Stores. CEO Immelt states that green technology is no longer a “fringe” issue. Green has gone mainstream. At some point in the not-so-distant future, consumers will set the agenda for big business eco-products. They will not pay the green unless the product is truly green. GE is wise to see the trend on the horizon.

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A New Commodity Exchange: Trading Carbon

THE NEW COMMODITY EXCHANGE called Carbon Trading proves that global capital markets can make money while serving the planet. Climate exchanges are springing up around the globe to capitalize on the clean air, clean world boom. Sustainable business is not easy to maintain for some corporations who produce more than their “share” of environmentally damaging emissions. The resolution has evolved to buying carbon credits to offset carbon emissions. Where would a company buy “carbon credits” you may wonder? The Chicago Climate Exchange (CCX) bills itself as “the world’s first and North America’s only Greenhouse Gas Emissions Registry, Reduction, & Trading System. CCX was founded by economist Richard Sandor in 2003 as a “legally binding integrated trading system.” Named “father of carbon trading” in 2007, Sandor was also cited as “Hero of the Planet” by Time Magazine back in 2002.

The impressively long list of CCX trading members includes Dow Corning, DuPont, and Ford. Companies commit to reducing emissions by 1% per year in accordance to their emissions baseline. An independent auditor, the Financial Industry Regulatory Authority (FINRA, formerly NASD), sets the standards for voluntary legally binding emission control and reduction. Companies who successfully reduce emissions below their target can sell carbon credits to companies who have not yet reached their targets.

Evolutionary Markets (EM) based in White Plains, New York and London claims to be the “world's highest volume environmental broker, having facilitated more than $50 billion in trades of environmental commodities, including more trades of Certified Emissions Reductions (CERs) than any other broker.” EM claims to assist governments in designing effective carbon markets. EM brokered the first European Union’s International Emissions Trade under the Kyoto Protocol in 2003.

When the US (the world’s largest carbon producer) finally catches up to the EU by establishing legal standards for sustainable business, these markets and their brokers will become enormous. In the meantime, EM and CCX are profiting handsomely while answering the call to protect nature’s bounty.

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