Economic Development

Four Learnings to Improve Rural Capital and Credit Access

August 24, 2022  • Community Strategies Group

We know that access to affordable capital and credit is an integral part of growing rural prosperity – but what are some of the major capital and credit trends right now for rural practitioners? 

Following a recent Field Perspective brief, on August 12, 2022, around 50 rural community practitioners and allies gathered at an Open Field session to share how they think and act on this question. This blog curates four big learnings (and related resources) shared by participants. We may not have all the answers, but together, we are learning strategies to overcome financial challenges and how to make better investments to help rural communities and Native nations thrive. 

Learning to Overcome Barriers to Access. Rural organizations and businesses have long struggled with access to affordable capital, and residents of rural communities, particularly non-white and historically disadvantaged communities, face many challenges in accessing affordable credit. Open Field participants vented their frustrations and shared their experiences with a broad range of barriers to rural capital access. They also shared some new ways the federal government and regional Community Development Financial Institutions (CDFIs), including Native CDFIs, are changing the game on rural capital access. 

One leader from the Four Bands Community Fund shared the perspective that financial systems and institutions were not built with rural, non-white, or Native voices at the table and that they do not serve their interests well. So when staff from the Fund interact with a customer who talks about being previously denied access to credit, they focus on solutions that help educate the client on why and help them access the resources they need. Their strategy is to focus on the systems holding people back, to get curious and ask why people can’t access capital in a given context – and continue to ask why all the way up the ladder to the federal government.

The federal government is the largest investor in rural places, and many federal programs offer capital to rural and Native organizations and businesses. One participant who works with the federal government shared information about the White House and USDA-led Rural Partners Network, an “all of government” effort to coordinate and improve programs to make it easier for rural people and organizations to access federal investment. This effort includes the Housing and Urban Development’s first-ever Rural Prosperity Coordinating Council to serve rural places better and raise awareness of HUD’s rural programs.

Other participants noted that competing federal definitions of “rural” make it challenging for some places to access capital. Many practitioners know the old chestnut that a place may be considered rural under one federal definition, the Census or Office of Management and Budget definitions, for example, but not under another. This divergence changes the eligibility of a community to access funds. Participants pointed to the Center for Rural Innovation’s Rural Aperture Project, a tool they’ve created to explore this issue in depth, one that can potentially help rural folks and lenders overcome barriers to capital access.

Learning to Face the Challenge of Closure and Consolidation. Participants shared how bank consolidation and the reduction of bank branches have been a particular challenge for rural communities and one that has accelerated throughout the COVID-19 pandemic. As bank branches close, rural people and businesses are less likely to be able to access affordable credit – and more likely to turn to predatory payday lenders. Participants shared the Center for Responsible Lending resources that can help local, state, and national policymakers protect rural residents from payday lenders. 

The upcoming renewal of the Community Reinvestment Act (CRA) was another related topic of conversation. The CRA encourages banks and other lenders to help meet the credit needs of the communities in which they are chartered or operate, particularly in low- and moderate-income (LMI) neighborhoods. Some of the organizations represented at the Open Field session recently provided comments to the federal government on the renewal of the CRA – including the Reimagining Rural Assistance Network’s comments on how the CRA could better serve rural places. A stronger CRA has the potential to better serve the credit and capital needs of rural communities.

In addition to bank closure, a major corporation closing within a rural community can have devastating effects on the local economy. One participant shared a desire for their community to work with a mining company that plans to shutter its operation to create a fund that could provide capital for investment in new entrepreneurial opportunities for the local community. Ensuring just and equitable economic transitions for rural places is often thought of as only concerning coal communities, but the values of place-based shareholder engagement suggest that all places deserve a seat at the table when making big economic decisions. 

Learning to Make Equitable Rural Investments. Participants suggested that major lending institutions have a track record of redlining rural communities. This means that people of color within rural geographies are less likely to receive conventional loans. One participant suggested this is because banks and other big lenders have preconceived vehicles and tools to offer credit, like mortgages and loans, and many, particularly Native applicants, do not fit the mold. They called this phenomenon a type of functional fixedness that discriminates against Native people and other rural people of color. 

Instead, Native CDFIs and other non-traditional lenders offer capital and credit in ways that work for real people’s lived experience and overcome barriers to access capital. Participants shared innovative ideas like manual underwriting for mortgages and small-dollar Kiva and other person-to-person loans that create a deeper relationship between lender and recipient – and have very high loan payback rates. 

Other non-traditional lenders like Steward offer small-dollar capital to rural businesses to help entrepreneurs grow their direct-to-consumer sales. One participant noted that small loans to organic beef farmers in the Great Plains allow them the flexibility to develop direct-to-consumer sales, rather than entering the wholesale meat market. This allows the farm to make a higher return on their beef and grows stronger regenerative and regional food systems that support people and the planet. 

Learning how Philanthropy Can Help Right-Size Investments for Rural. What is the right-size investment for a rural community? This was a big topic of conversation that resonated with our recent Call to Action on the principles of measuring success. Some participants argued that even a fraction of a multi-million dollar investment in a city like New York would have a transformative impact in a rural place like Eastern Kentucky – but historically, urban lenders and philanthropy have been unwilling or unable to make that investment. Other participants suggested that it is an example of a “scarcity mindset” to pit urban and rural against one another and that there are deep commonalities between these places. 

In line with the suggestions laid out in our report on restructuring and reorienting capital, a participant from Locus Impact Investing suggested that philanthropy’s role should be to provide catalytic capital. That is, support organizations by providing flexible dollars to help provide the match necessary to draw down federal funds or to jumpstart local entrepreneurial ecosystems. Patient capital was another aspect of philanthropic investment that came up in the discussion; unlike other lenders, a foundation doesn’t need to see a return on its investment and can have the capacity to wait five or more years to see an entrepreneurial effort become profitable. 

Another insight is that community philanthropy can play an essential role in helping larger national and regional funders grow their scale in rural places. One participant from a community foundation in the Ozark region shared how they are working with a local health conversion foundation to reinvest their money in local efforts and projects. A national or state philanthropy may be well-intentioned but not know how best to invest in a rural region. Like other rural development hubs, transformational community foundations have their ear to the ground – they understand their communities. By partnering with them, national groups can scale their investments and make a deeper impact. 

The ideas and most of the resources shared in this blog arose from a wide-ranging conversation among rural development practitioners and allies. The blog was curated and written by Devin Deaton, Action Learning Manager with the Aspen Institute Community Strategies Group.

Open Field sessions are a part of Aspen CSG’s work with the Thrive Rural Framework, a tool that aims to help communities and Native nations across the rural United States become healthy places where each and every person belongs, lives with dignity, and thrives. To join the next Open Field session, register here.