The goals of this project are: 1) to document the types of lending institutions involved in the Paycheck Protection Program (PPP) and how they channeled flows of loans toward or away from businesses in poor and minority communities; 2) to develop and assess hypotheses from organizational studies, economic sociology and comparative political economy about the impact of organizational diversity, bank types, policy and politics on redirecting credit and capital to historically marginalized communities; and 3) to highlight for advocacy and public policy under-recognized organizational possibilities within American banking for genuine financial inclusion. To achieve these goals, the PIs and undergraduate assistants: 1) constructed and quantitively analyzed new census-, zip code-, and congressional district-level data sets on lender institutions, loans, socio-economic conditions and political factors; and 2) constructed and qualitatively analyzed publicly available information and data from 90 interviews with PPP borrowers and lenders, advocacy groups, lender associations, Congressional staff, local leaders, and others.

The research generated three main findings. First, there was more diversity among banking enterprises in the US than generally recognized, and striking differences across lender types in how they channeled credit to or away from poor and minority communities. Overall, giant bank corporations, regional commercial banks, community banks, credit unions and farm credit associations were more likely to avoid lending to small businesses in communities that were high poverty or majority non-white than otherwise, and made fewer loans on average to such communities if they issued any loans there. In contrast, community development financial institutions (CDFIs) and financial technology lenders (Fintechs) were more likely to lend to poor or non-white communities than otherwise, and made more loans to those communities than low poverty or majority white ones.  

Second, the PPP pivoted from a markedly exclusive to a likewise inclusive allocation of loans. Loans first flowed overwhelmingly to larger firms in more affluent white areas, yet then flowed to smaller firms in poorer and minority communities, driving coverage there to parity with low poverty and white places. Moreover, this pivot was based in interactions over time between the PPP’s policy architectures, the politics and feedback processes they activated, and lenders’ shifting organizational compositions and practices. The pivot resulted most proximally from politics and targeted policy reforms that promoted inclusive lenders and that nudged lenders of all types to become more inclusive. Reforms let CDFIs and Fintechs issue nearly three million loans in the PPP’s last round (nearly half that round’s total), and moved mainstream banks from aversion toward neutrality in engaging poor and minority communities. Yet policy reforms themselves flowed from the PPP’s initial design, its initial reliance on exclusive mainstream institutions, its unequal allocations and the media outcry and political backlash they produced.  

Third, CDFIs, despite historically struggling to navigate tensions between expanding their lending capacity while staying true to their mission to serve marginalized borrowers, were able to scale up in ways that had previously characterized Fintechs, offering an alternative for inclusive finance at scale.  CDFIs scaled along three pathways : 1) by doubling down on high-touch localism in which loan officers prioritize personalized support and community embeddedness, increased staffing and streamlined procedures;  2) by sharing labor, partially automating operations and collaborating in new ways with community based organization to provide hands on support; and 3) by crafting a CDFI-Fintech model that embraced technology as a primary tool, and moblized online platforms, fully automated operations, and economies of scale to issue small loans in volume.  

These findings challenge conventional scholarly and policy approaches to financial inclusion in the US by highlighting unrecognized possibilities within the American banking system for non-predatory inclusion and by shedding new light on policy interventions that use financial markets to manage crises or foster development. Focusing on mainstream banks and often affiliated “alternative” banks let researchers and activists demonstrate conclusively how American banking systematically excludes Black and brown communities from access to financial services—or provides those on terms so onerous as to qualify as predatory.  It also helped illuminate how credit expansion policies that work though the private banking system can and have gone awry. Yet bank types vary and matter far more than commonly recognized, connecting banking and credit institutions to marginalized communities in diverse ways and creating a key implication: Advocacy and policy can foster financial inclusivity not just by empowering individuals (at the micro-level) or regulating mainstream banks (at the macro level) but also by leveraging organizational diversity among lenders and promoting institutions whose business models, governance structures, and missions center on lending to poor and minority communities in ways that support autonomy and wealth. Moreover, while Fintechs have taken center stage in key circles, attracting attention and concern, CDFIs are also an option, have themselves carved out multiple pathways for reaching poor and minority communities, and have demonstrated capacities for genuine financial inclusion at scale.

Last Modified: 03/03/2025
Modified by: Mark K Cassell