The Face and the Flow of Finance: How Impact Investing can Move the Racial and Gender Wealth Gap
By Phuong Pham, Katie Janowiak
This year, the women’s suffrage movement’s centennial celebrations were extended to commemorate the historic victory guaranteeing women’s institutional right to vote. As we honor Black, Native American, Asian American, and Latinx women suffragists in history, their stories painfully remind us that the 19th Amendment excluded women of color. A century later, women of color still face enormous barriers to achieve true equality.
The Equal Pay Day movement highlighted that working women earn about 79 cents on the dollar compared to men. If the income gap outrages us, the women’s wealth gap is even more sobering. According to Closing the Women’s Wealth Gap (CWWG), women own only 32 cents on the dollar compared to men; for women of color, the gap widens to pennies on the dollar. Gender inequality compounded with the legacy of systemic racism makes women of color economically insecure. This blog explores the wealth gap that perpetuates inequalities and how gender lens investing can be an essential tool for philanthropy to tackle this barrier.
Access to Capital and the Economic Disparity
Black and Latinx women are two of the fastest-growing groups of business owners in the United States. In 2019, women of color represented 39% of the total female population in the U.S. but accounted for 89% of the net new women-owned businesses per day. And yet, according to Goldman Sachs, less than 1% of all venture funding goes to Black and Latinx-led women-founded companies.
“Black women are some of the most highly educated borrowers, but some may carry a high debt burden because they’ve taken on student loans,” said Shadiya Hagisufi of Accion, a nonprofit lender committed to bringing affordable small business loans to microentrepreneurs. As an underwriter who has worked in both nonprofit finance and traditional financial institutions, Shadiya looks at a borrower’s debt-to-income ratio as one input to calculate a loan’s risks. Shadiya believes a new, creative, and holistic approach is needed to ensure equitable access to capital and she values working at Accion, where holistic approaches are encouraged. As a woman of color and an immigrant, Shadiya calls for investors to understand that there are no monoliths and to carefully consider each borrower’s lived experiences.
“It puts more work on underwriters, but we must balance risk assessments with opportunity for impact,” Shadiya said.
Racial Equity and Gender Lens Investing
Gender lens investing promotes gender equity and addresses gender issues — such as women’s leadership and products, services, and practices that improve women and girls’ lives. “Gender lens and racial justice investing are no longer a case that needs to be made, but an approach that is sought after and becoming a fundamentally necessary approach for any impact investing strategy,” said Heather Marie Burke of Mission Driven Finance, an impact investing firm dedicated to building a financial system that ensures good businesses have sufficient affordable access to capital.
Mission Driven Finance’s approach is consistent with Shadiya’s guidance: Constantly look for ways to say yes to tenacious small businesses and nonprofits. Yes to their vision for impact, yes to their plans for growth, and yes to their understanding of what kind of capital they need and when to realize those plans.
“This may seem like a simple equation, but it’s a kind of radical act in the field of finance where most lenders ask borrowers to fit in a specific box,” Burke said. “The act of listening to women and BIPOC communities is in and of itself a transformative act.”
Mission Driven Finance is optimistic that they are not alone in the quest to change the face and flow of finance, a strategy well encapsulated in their Community Finance Fellowship. They stand alongside an incredible growing community of lenders, impact investors, activists, and businesses — including the Indigenous Women’s Investment Fund advisory council with Native Women Lead; Inclusive Capital Collective, incubated by Zebras Unite and Common Future; the J.E.D.I Collaborative; Social Venture Circle’s community capital working group and restorative investing initiative; and signatories of the Responsible Business Lending Coalition’s Small Business Borrowers Bill of Rights, Racial Justice Investing’s investor statement of solidarity to address systemic racism, Confluence Philanthropy’s Belonging Pledge, and the Due Diligence Commitment. “We are very intentional about engaging in the inclusive finance ecosystem in ways that complement, challenge, and advance our work,” said Burke.
Role of Philanthropy
As philanthropy seeks to address the intertwined crises of systemic racism and economic recovery from the pandemic, the team at Philanthropy California agrees with Mission Driven Finance that we need an “all-in approach — one that is cross-sector, across asset classes, and inclusive of multiple stakeholders. Most of all, we need more individuals thinking and acting in ways that take into account the dynamics of intersectionality — a framework that civil rights activist and lawyer Kimberlé Crenshaw coined — to provide a lens through which you can see where power comes and collides, where it interlocks and intersects.’”
Mission Driven Finance believes that philanthropy can do more to catalyze private capital for the public good. For community foundations and donor-advised fund holders, this may look like engaging DAFs to make first-loss investments in local small businesses. Burke explains that for institutional philanthropy, this means—as a start—digging into a leverage strategy for philanthropic dollars by asking: How can we draw capital to a solution by taking an early lead or assuming a junior or gap-filling position in a capital stack? By moving to a truly mission-first stance on capital allocation — beyond the preservation of capital — Burke believes that philanthropy has the power to mobilize money in pursuit of mission more than ever before.
“The cultural weight and norm-setting ability of philanthropy of all kinds should not be underestimated to shift the flow of capital for good,” Burke advises.
“Building a new financial system with a feminist and racial justice lens that works for and includes everyone? That’s not so easy, but it’s happening. And that is why we stay ever optimistic,” Burke concludes.
Through Philanthropy California, SCG and Catalyst have a shared, robust calendar of impact investing learning opportunities planned in 2021 and a cohort-based investment collaborative. Visit our impact investing page to learn more and to get engaged.