By Alan Rappeport
The Biden administration unveiled a plan Thursday to invest $9 billion in minority communities, taking an initial step in fulfilling its promise to ensure that those who have been hit hardest by the pandemic have access to loans as the economy recovers.
The Treasury Department said that it is opening the application process for its Emergency Capital Investment Program, which will provide a major infusion of funds to community development financial institutions and minority depository institutions as they look to step up lending.
The effort is a priority of Treasury Secretary Janet Yellen, who has warned that the fallout from the pandemic is exacerbating U.S. inequality.
“America has always had financial services deserts, places where it’s very difficult for people to get their hands on capital so they can, for example, start a business,” Yellen said in a statement. “But the pandemic has made these deserts even more inhospitable.”
She added: “The Emergency Capital Investment Program will help these places that the financial sector hasn’t typically served well.”
Yellen has for years been an advocate for community development financial institutions, arguing that they are an important tool for fostering a more inclusive economy.
The relief programs that were rolled out in 2020, such as the Paycheck Protection Program, for small businesses, drew criticism from minority groups, who said Black and other minority-owned businesses were at a disadvantage in applying for a limited pool of funds because many had weaker banking relationships than their white-owned counterparts. A Federal Reserve Bank of New York study last year found that Black-owned businesses suffered the sharpest rate of closures in the first part of 2020.
The Treasury Department is using funds that were approved in the $900 billion stimulus package that was passed in December and signed by former President Donald Trump.
Community development financial institutions, which provide affordable lending options to low-income consumers and businesses, were largely neglected under Trump and his Treasury Department. President Joe Biden and Yellen have signaled that they will be critical for improving racial equity in the United States.
The new program will make direct investments in local lenders that support small businesses and consumers in low-income communities. The investments will have low interest rates and provide lenders with greater incentives to offer small loans to those who are most in need, both in rural areas and in places where poverty is persistent.
Treasury officials said that they want the new program to reinforce the health of CDFIs. The department is also in the process of putting in place two separate programs that will provide an additional $3 billion in grants and other support to the lenders.
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