Martin Eakes, Self Help, and What I DId Last Summer

Yesterday I listened to an absolutely amazing podcast lecture given by Martin Eakes, CEO of Self Help. Mr. Eakes is a Southerner with a great accent and an even better sense of humor and humanity. He grew up amidst poverty and racial strife and has made the decision to use his charm and intelligence for the good of Americans who have not had the same opportunities as himself.

The first part of his lecture describes some of the problems with payday lending and check cashing, and this reminded me of my work last summer with Bank on San Francisco. As I have mentioned in previous blogs, Bank on SF is an innovative program designed to give lower income San Franciscans access to credit and fair financial services. By fair I mean that the program is developing products tailored to the needs of this economic group, with the help of financial institution partners like Bank of America, Wells Fargo, and local credit unions.

My work last summer centered on payroll methods. Check cashers are able to operate, even in community-minded places like San Francisco, because employers of low-income and middle-income workers pay their employees in paper checks. Thus, the Bank on San Francisco team decided to research the potential for conversion to electronic payroll methods. This would mean that employees would open bank accounts, perhaps through the Bank on SF program, and thus gain access to credit building, money management, and savings programs.

It turns out that that two big barriers to direct deposit are trust related:

• Distrust of the traditional banking system, often due to previous bad experiences like high fees for bounced checks or debit card overdraft.
• Distrust of electronic payments. Employees feel more financially secure when they physically hold their paycheck even though this may put them at risk for theft and require additional resources (time, bus fare, check cashing place) to turn into cash.

A third barrier is costs to employers. Sometimes payroll companies charge more for direct deposit even though it may cost them less. thus, employers lack incentives to learn about direct deposit and try to educate their employees.

So any solution to the problem of check cashing is going to require trust building and education, both of which are quite difficult. Luckily, two fabulous CFED Innovators-in-Residence are working on the problem: my former manager, Eugenie Fitzerald and behavioral economist Mindy Hernandez are continuing work on the project. This blog will be updated when more information is available. This could be as early as Spring of this year.

CRA and the Investment Test

MBA students are not required to do a thesis at GW, but being the former liberal arts major that I am, I have invented a psuedo-thesis for myself in the form of an independent study. Why, you ask, would I do such a thing when I could be relaxing in a Negotiations or Corporate Strategy class?

There are many reasons I have taken on this task, including an inexplicable desire to do difficult things. However, the fact is that my interest in domestic community development is not widely shared on campus and this is one of the only ways for me to learn more about the mechanisms by which community development occurs in this country. The 1977 Community Reinvestment Act is one of the most important pieces of legislation in this area, because it requires banks to "give back" and this is often accomplished by bank investments in Community Development Corporations (CDCs) aka those nonprofits which have inspired me to complete my degree and make a difference in the places I call home.

I have chosen to focus on the Investment Test, one of the three tests that constitutes the CRA (the others are Lending, 50% and Service, 25%). There is already a good deal of research on lending data, but it is unclear how exactly banks comply with the Investment Test. Sometimes they makes grants to CDCs, other times they use Mortgage-backed securities, and often they use investments in affordable housing via mechanisms like the Low-Income Housing Tax Credit. My goal is to look at two of the Big Four, Bank of America and Wells Fargo, and understand what they chose to do in California, my home state.

Like many researchers, I have struggled with access to data. CRA Performance Evaluations are public information, made available through the FDIC, OTS, OCC and Federal Reserve. However, while the PEs report the total amount of the Qualified Investments, the percentage breakdown is less obvious. I plan to comb through the text of different Assessment Areas and break out the available numbers. Then I will compare the results of the two banks as well as the differences in results between Assessment Areas.

It may not sound like the riveting project you would have designed for yourself, but I am happy to learn more about this important topic, and to have an excuse to talk to industry professionals about their opinions of the regulation's effectiveness. Stay tuned.

Robin Hood Marketing

This week in Nonprofit Enterprise we are reading Robin Hood Marketing by Katya Andresen. Why Robin Hood? The subtitle is: "stealing corporate savvy to sell just causes."

What I like about the book is not the gimmicky folktale reference, but rather the emphasis on understanding the audience rather than selling the cause. Too often we become self-absorbed, thinking we have all the right answers and we simply need to convert others. This can be especially powerful in a group of likeminded people, as is often the case in nonprofits.

While nonprofits do have many useful answers (I avoid the word "right"), the conversion approach is limited. If, for example, we want to motivate people to stop drug trafficking in Latin America, it would be a daunting task for our audience to learn about the history of this trafficking and all the mechanisms that make it work. Instead, we need to identify who exactly we are trying to motivate (Andresen suggests focusing on low-hanging fruit, so perhaps college students or politically active constituencies with ties to Latin America) and what can motivate them to act. For motivation, I found a different example compelling: sending rebellious teens messages that smoking is bad not for its own sake, but because Big Tobacco was co-opting teens for profit. This transforms the meaning of smoking and makes it less appealing from a political standpoint. It works with natural teenage rebellion, instead of against it. Getting back to the drug trafficking example, I have often wondered why advocacy groups don't ref-rame drug using as playing into the hands of cartels rather than "It's bad for your health. Don't do it." This message might work well for some of the liberal, more educated drug users such as university students and those in metro areas like San Francisco.

One of the more controversial arguments is that the intended audiences don't need to fully understand the issue; they simply need a reason to act and a concrete idea of what that action is (writing to Congress on X bill, for example). In some ways, this is disappointing because nonprofit professionals seek to educate their audiences and spread their passion. Yet, Andresen is correct that only a limited number of people can truly be converted. Most people want to act and then move on with their day, going back to the thousands of other things that make demands on their time and energy.

Ultimately I agree with Andresen's points, especially for issues that require a large volume of people to act. There are issues where a small, better-educated group might be more persuasive (scientists studying the effects of a particular environmental issue, for example), but, for appeals to the general public, a shallow understanding is better than none.

Most importantly, Andresen reminds us that for any cause, it is important to continuously check in with the target audience (after having defined it). Too often we think we have a solution to a problem (say, crime in a certain region) and later our solution turns out to be insufficient or ineffective. Yet, by that time, we have become invested in our way of doing things and distanced ourselves from the people we claim to serve. If readers take nothing else from the book, at least they can remember that the core of any successful organization is adaptability and responsiveness to key constituencies.

Nonprofit Enterprise class

As part of my application for the new GW Certificate in Responsible Management, I am writing about coursework related to the goals of PRME. I am just starting a great class entitled "Nonprofit Enterprise" which deals with business strategies in the nonprofit sector.

This week we will discuss a fabulous book entitled Nonprofits and Business by Joseph Cordes and C.Eugene Steuerle. I have only read the first chapter, but I am confident the rest of the book is equally interesting. The most interesting questions posed by the first chapter are:

1. How can nonprofits use business strategies without causing mission drift?
2. How do we define social enterprise? The US definition appears more narrow than the European one.
3. Is a hybrid structure a good idea? It has certain advantages in revenue capabilities and disadvantages in terms of complexity, staff time, and potential mission drift.
4. Is it a good thing that many foundations are pursuing social investing, combining their charitable activities and their endowment building?
   

The chapter is also good at demonstrating how nonprofits, like private businesses, evolve over time. It highlights both structural change and internal change in staff thinking.

My opinion has been that nonprofits should generally make an effort to generate revenue independent of donors. This is based on my view of donors as rather short-term in their thinking and fickle in their support as they tend to exit after a few years, moving to the next sexy nonprofit topic.

However, the Stanford Social Innovation Review (podcasts available on this blog) has published some good articles highlighting the drawbacks (and the benefits) of business approaches to charitable activities. Especially relevant to this class was last summers article "The Hidden Costs of Cause Marketing" by Angela Eikenberry. This article argues that when people pay extra for a product due to its charitable intentions, sometimes they do not feel obligated to make donations. Cordes and Steuerle do not address this issue, but they do bring up the case of the American Diabetes Association's endorsement of low-sugar, high-calorie foods. This is cited as an example of potential mission drift and donor alienation.

This brings the discussion back to the differences between various types of nonprofits and a continuum of organizations serving a social purpose. On one side is traditional philanthrophic and charitable activity, no fees for service, all money from grants. On the other side of the continuum is private business that has a social or perhaps environmental mission: for-profit wind companies, for example. In between are nonprofits with earned income or hybrid structures (Pacific Community Ventures and Enterprise Community Partners would be examples of hybrid structures).

Commercialization and market principles certainly have benefits, but these issues are tough ones to tackle. Cordes and Steuerle conclude with this advice:

"The task is for policymakers and nonprofit practitioners alike is to learn when there are real rather than simply apparent benefits to integrating more businesslike features into their charitable activity's operation and to identify best practices for doing so." (P.19)

2010 Microfinance USA Conference in SF!

Students get in for a low price. Last year's event was amazing and I would expect the same this year! http://www.microfinanceusa2010.org/home/

CFED's new website

Last semester I worked with CFED as an intern/consultant on their website and on their Innovators-in-Residence program.

Today CFED has officially launched the new site design http://www.cfed.org/ Check out their site and all the great work they do to help American's build their financial assets.

International Residency Nostalgia

January marks the beginning of my final semester here at GW and brings to mind many questions, mainly "What kind of job am I going to have?" and "Where will it be?" It also reminds me that around this time last year I was mentally gearing up for our international residency project. I was in the Mexico-microfinance group on the Risk and Portfolio Management team. It was quite the experience since I had fairly minimal financial training before that. However, it was an immensely positive experience. I appreciated Prof. Bhatia's detailed training in how to analyze the numbers for a microfinance organization as well as the readings he chose and the visits we made to practicing microfinance organizations.

I was disappointed that swine flu prevented us from going to Monterrey and conducting on-site surveys of staff, but I was glad we had the opportunity to go to New York City and meet with Grameen America and Project Enterprise. The latter was one of the best experiences I've had through GW: a live group lending session. Despite having studied group lending all semester, we were surprised by the process in terms of its organization and procedure. It was invaluable to have real people presenting real ideas sitting before us. I felt that everything we had discussed up to that point suddenly made more sense. It was also more meaningful, because the group was essentially debating the future of a business idea for one of the members. I would love for every student of microfinance to have a similar experience, even if only through a YouTube posting.

Our consulting project/residency ended with a final presentation to the team at a Mexican microfinance organization. I was impressed by the ideas of my classmates and by the serious way that the top management listened to our ideas. I am glad that another group of students will be able to have a similar experience this semester-and maybe they will even go to Mexico!