Bank of America has pledged $40 million for low-interest, long-term loans to fund primary health care in regions that lack medical resources, including communities of color and rural areas.
This “builds on the company’s recent $25 million collaboration with leading health organizations” to improve health outcomes in such places, the company said in an announcement of the project in June.
The bank will partner with community development financial institutions, nonprofit lenders that will distribute the money to vetted local health providers around the country. The bank lends the $40 million out at a 1% interest rate to the CDFIs, said Dan Letendre, managing director of ESG capital deployment at Bank of America. The CDFIs then loan the money out at higher rates, which are still below the market rate for banks in the area, he said.
“It’s not easy or extremely profitable to start and operate [a] health care clinic — otherwise there would be a lot more of them in these areas we’re talking about,” Letendre said. “They’re often riskier to finance in less populated areas, or poor areas.”
CDFIs have proven safe sources of income for the bank, though. “We’re going to be repaid every dollar, I have no doubt of it. All the performance of CDFIs that we lend to is stellar,” Letendre said. He added that while smaller banks may be less familiar with the strategy, “I would encourage all banks to think about it.”
BofA will also provide CDFI partners $100,000 in grants to help pay their staff and operations. The grants come from a pool that the Bank of America Charitable Foundation, the bank’s philanthropic extension, set aside for projects to increase racial equity and economic opportunity. When the fund was created in 2020, it was planned as $1 billion over four years, but last year the commitment grew to $1.25 billion across five years, of which $450 million has been spent on other initiatives, the bank said.
The fund reflects “work that we’ve been doing in our market for quite some time,” said Eboni Thomas, chief executive of the Bank of America Charitable Foundation.
Following the onset of the COVID-19 pandemic and the murder of George Floyd by a police officer in 2020, the bank increased its focus on these areas, she said, with a strategy to give targeted aid for projects in health, jobs, small business and housing.
This month’s rollout is a “phase 1” of several more that Letendre and Thomas are planning for their collaborative offering of loans and foundation grants, Letendre said.
For CFDIs, a “catalytic” opportunity
“This money is really catalytic for us because it is so low-cost in a rising interest rate environment,” said Louise Cohen, chief executive of Primary Care Development Corp., one of the largest intended recipients of the money. PCDC plans to get the funds quickly to its clients, starting with a low-income housing project in Florida.
“We do think [of] the Bank of America as being a market leader, in that many banks do lend to CDFIs as part of their Community Reinvestment Act obligations, but they don’t necessarily do it at such low rates and for such a long period of time,” Cohen said. The CRA was a law passed in 1977 that requires banks to offer loans and capital to people of color, to help communities that have been disenfranchised by redlining.
“A lot of small businesses turn up at the doorsteps of a CDFI after they’ve been turned down for a bank loan,” said Jennifer Vasiloff, chief external affairs officer at the CDFI trade group Opportunity Finance Network. CDFIs offer a customized approach to lending money, often coupled with support services such as business counseling tailored to each client.
Vasiloff said Bank of America “has been an extremely strong partner” to the entire industry of CDFIs, serves as their biggest funder among banks, and is the lead sponsor for their industry-wide annual conference.
But she also sees interest in CDFI partnerships growing among banks at large. “Clearly the pandemic and the racial reckoning that the whole country is grappling with is a piece of that,” she said.
“It’s not just a focus on having lending capital”
To bankers of color, initiatives like this from legacy big banks are welcome but warrant continued scrutiny.
“I wouldn’t say that they’re industry-leading,” said Nicole Elam, president and chief executive of the National Bankers Association, of Bank of America’s racial equity plans. The association is a leading minority deposit institution trade group. “I would say, though, that Bank of America was the first to make a commitment. And so from that standpoint, that is good,” she said, referring to the bank’s early pledge to address systemic racism.
Elam is a former vice president of government relations at JPMorgan Chase, where she led public engagement for its pledge in 2020 spend $30 billion over five years for racial equity.
“They took more time to develop their strategy. It was a little more holistic,” Elam said of JPMorgan’s racial equity programs. “Now you’re starting to see Bank of America add on new things that they didn’t have before, like this particular initiative.”
She also praised Bank of America for offering grant money in addition to loans in the plan. “So often people are doing these low-interest loans,” she said of other banks. “But what most MDIs and CDFIs also need is a grant component in addition to that. So it’s not just a focus on having lending capital but there are some other things that they need in order to deploy the capital.”
For Elam, the key with these pledges is how well they are implemented through policy, business strategy and philanthropy, and how far into the future they go. “Most of these banks are making five-year commitments. What is it going to look like 10 years from now?”