Try this as an exercise… quickly name as many banks as you can. Maybe you can think of ten? 20? Now imagine you can name 38 – and that’s because they all rejected you for a loan.

That was the experience of Tim Waters while he was building a discount supermarket in downtown Florence, South Carolina. Fortunately, he found the support of Optus Bank and has since been advancing his business plans. His tale of rejection, however, is not a one-off for many minority-owned businesses.

As Wally Adeyemo, Deputy Secretary of the US Treasury, said in a speech in October 2022, “Minority and underserved communities in this country are not held back by lack of talent or ideas. Their potential is too often capped by lack of opportunity.”

Adeyemo gave the example of eight Black women small business owners he met in Memphis a few months earlier. “For these women, the difference between securing a life-changing contract and closing their businesses for good was as simple as finding a bank willing to open a line of credit,” he said, emphasising how banks are a critical conduit of capital.

Optus Bank is one such bank, founded in 1921 by visionary African American leaders to support those who would otherwise be excluded from the banking system. And that need still exists today, especially since the pandemic when – as Adeyamo notes – hundreds of thousands of businesses had closed and the effects were particularly acute in communities where Black, Latino and Native American workers were more likely to lose jobs. “What global disruptions like Covid do is throw fuel on a flame. They illuminate and exacerbate existing disparities,” said Adeyamo.

Minority Depository Institutions (MDIs) – which are owned or led by members of certain minority groups – and Community Development Financial Institutions (CDFIs), which have a mission of community development, provide a lifeline for small business owners, but they struggle to meet the demand. The National Bankers Association notes that 42% of Americans identify as minority, yet only 2.5% of federally-insured banks are MDIs.

Corporate treasurers and institutional investors have wanted to help, but it isn’t as simple as depositing large sums at these banks. In fact, this wouldn’t actually help —it would dramatically increase the liabilities on their balance sheet and dilute the capital buffer they need to stay in business.

Keith Washington, Executive Director at J.P. Morgan Asset Management, explains that MDIs typical model of borrowing and lending is vulnerable during times of crisis, and these institutions need to diversify and create new revenue streams. Washington, through his discussions with these institutions, where he was advising on off balance sheet investment solutions, soon spotted an opportunity where institutional investors could have a positive impact.

Washington explains that many corporations want to help and invest directly in MDIs, however they are restricted due to their investment policies. He explains that a typical blue-chip company’s investment policy would prohibit them from engaging with a bank below a certain size or credit rating. He saw that J.P. Morgan Asset Management could help bridge the gap.

“We realised that these banks needed help and corporations wanted to help, but they could not connect because of the obstacles in the way,” said Richard Pagnoni, Managing Director, Head of Financial Institutions Sales at J.P. Morgan Asset Management explains, “To solve this, we developed and launched the Empower Share class on four of our largest US money market funds and created a way for these mission-driven banks to distribute them.”

For corporations, this investment vehicle provides ring-fencing and doesn’t carry the counterparty risk that can come with depositing a large sum with one bank or financial institution. It also creates a new, recurring revenue stream for the distributing MDI. “More importantly, through their investments into the Empower Share Class, corporations of all sizes are able to directly impact these institutions’ mandate to support their community,” Washington adds. The advantage of the Empower share class is that it is not simply about writing a check, but rather it offers a new product that these financial institutions can distribute.

The Empowering Change initiative was established in February 2021, with Google anchoring the programme’s launch with an investment of $500 million. At the time of the launch, Juan Rajlin, Vice President and Treasurer at Google, said, “Google is committed to helping create sustainable equity and economic opportunity for all. We know that racial equality is directly linked to economic opportunity and are proud to partner on the Empowering Change program, which will help create new business opportunities for minority institutions.”

Blue-chip companies from a range of industries have since joined the initiative, such as the National Football League (NFL) Leyline Renewable Capital, a provider of development-stage capital for renewable energy projects and Giant Food, a greater Washington DC regional grocery chain and HubSpot, the customer relationship management platform.

J.P. Morgan Asset Management has also committed to an annual 12.5% donation of the gross revenue received from the management fees on the Empower share class to support development. In August 2022, the firm announced its first annual donation of $1 million to support underserved students as well as single mothers.

In addition to the Empowering Change initiative, JPMorgan Chase has created a comprehensive programme using its capital, expertise and solutions to support leading MDIs. In 2021, the firm announced a direct investment of $100 million into 16 diverse-owned and -led institutions that collectively serve more than 90 communities across 19 states across the U.S. The firm is also providing intangibles, such as employee expertise and tailored training opportunities, that will help MDIs build for the long-term.

These investments are a part of J.P. Morgan Chase’s $30 billion racial equity commitment, which aims to overcome structural barriers in the United States that have created racial inequalities, and to help close the racial wealth gap.

One financial institution that has been involved in the Empowering Change programme is Sunstate Bank, which was founded in Miami, Florida, and has a mission of serving the local community. Yvonne Debesa, Executive Vice President and Chief Operating Officer at Sunstate Bank, explains the partnership with J.P. Morgan means that “Sunstate Bank is now going to be stronger than ever and we are able to help more organisations.” She adds that they can now help more customers and be the intermediary to address many of the financial gaps in their local community.

Kenneth Kelly, Chairman and CEO at First Independent Bank, explains what the initiative has meant for his institution: “Empowering Change gets to the fundamental words – ‘empowering’ and most importantly, ‘change’. There are less than 20 African-American-owned and -controlled banks out of the over 4,800 banks in this country. We believe that there’s an opportunity for us to be leaders, to inspire, and to motivate those to know that the banking community welcomes them. And so, every day, when I get up, I’m thinking about how do we have a broader impact on the economy.”

Since the programme launched, notes Pagnoni, the impact has extended beyond the financial. He explains there has been growing interest from corporations about what they can do to help communities and their financial institutions in the work they are doing.

Washington agrees and adds, “The more clients are invested, the more revenue there will be for our financial institution partners. However, the programme does more than grow AUM. This is a lot more than just a product with revenue – that is a secondary outcome. We are now seeing other benefits from the programme and corporations wanting to get involved and have an impact.”