Credit Unions Help Farm, City Replenish Food Deserts
Rows of fresh turnips, okra and watermelons were the images Helen Godfrey Smith had in mind when she visualized farmland in the Mississippi Delta.
“While the Delta has been a vibrant community, that's not the case anymore,” said Godfrey Smith, president/CEO of the $102 million Shreveport Federal Credit Union in Shreveport, La. “What's happening is casinos are moving in, the older people who have farms – the younger people are just not interested in farming. With that in mind, we began to look at what we can do.”
What the credit union found were swaths of food deserts or urban neighborhoods and rural towns without ready access to fresh, healthy and affordable food, as defined by the U.S. Department of Agriculture. Instead of supermarkets and grocery stores, these communities were often served by fast food restaurants and convenience stores. The USDA's Economic Research Service said 23.5 million people live in food deserts, more than half of them low-income.
In 2011, Shreveport FCU merged with a $5 million credit union in Mississippi that had $4 million in its loan portfolio, Godfrey Smith said. In one of the poorest parts of the U.S., the credit union sought to help residents secure homes, vehicles and small business loans. “We wanted to get them out of predatory lending,” she explained. “In a short amount of time, we’ve become active in the community and community development and connected and engaged with the members.”
Over the past three years, Shreveport FCU has made more than $21 million in home, auto and small business loans to members in the Mississippi Delta. Through a partnership with the Alcorn State University Extension Program in Jackson, Miss., the cooperative also developed a program under the Department of Treasury's Healthy Food Financing Initiative. Created in 2009 to support fresh food retail in underserved communities, the HFFI provides loans to small crop farmers to expand their growing operations in food deserts. Since its launch, $77 million has been allocated for HFFI, according to Treasury. President Obama's fiscal year 2015 budget calls for $35 million for the program.
Godfrey Smith said it was a bit of a learning curve for a credit union that focused mainly on urban issues.
“It's a huge rural market. We had very little exposure to rural farmers,” Godfrey Smith said. “Moving into the Delta, we noticed there was a lack of resources.”
Residents are at least 10 to 15 miles from grocery stores and medical services. Right away, Shreveport FCU discovered having reliable transportation was a necessity for those in the Delta and began offering auto loans. The credit union also became a Community Development Financial Institution, which helped with its economic development efforts.
Farmers in the region were accustomed to basing income earned on the unpredictable seasonal changes. To the rescue were hoop houses, semi-circular polyethylene tunnels that use solar radiation and protect crops from hazardous weather year-round. The USDA provides financing for the hoop houses but the arrangement is on a reimbursable plan, meaning the farmers have to pay up front and then apply to the agency for reimbursement. Shreveport FCU provides the financing to farmers who don't have the upfront funds.
“In the spring, they have tomatoes, okra and turnips and in the fall, collards and broccoli. It allows them to have income year round,” Godfrey Smith said. “(The hoop houses) also take away some of the risks of lending for us.”
The maximum amount for the micro loans is $50,000 with up to five-year terms. Farmers provide some sort of collateral to cover any risks. Defaults have been minimal. The credit union recently had to charge off two loans of under $3,000, Godfrey Smith said. Many of the farmers had little to no credit histories because they had never taken out loans, according to Godfrey Smith. Shreveport FCU helped by connecting them with accountants and tax professionals and providing assistance with recordkeeping computer software. Shreveport FCU relies heavily on resources such as the Farmers’ Almanac and other entities involving crop production. One discovery was matching the loan term to when a certain crop would produce. Just as important was tearing down walls of suspicion.
“In the beginning, there was skepticism. There was a period of time to build trust,” Godfrey Smith said. “They’re not used to a CEO coming in, kicking off her designer shoes, putting on flats and walking the farm. I’m that kind of CEO. I had to go out there and learn this piece of the business. The shoulders and backs are straighter, the heads are held higher because they’re given an opportunity to be successful. This is social service at its best.”
The $324 million ASI Federal Credit Union in the New Orleans suburb of Harahan, La., also received an HFFI grant in 2011 to help replenish food deserts and has loaned out more than $2.5 million to help members open corner grocery stores, full grocery stores, food co-ops and a restaurant that gets much of its food from local farmer markets, said Robert Bell, ASI director of lending.
Even though it's been nine years since Hurricane Katrina pummeled much of the Gulf region, parts of New Orleans are still struggling to rebuild, Bell noted. ASI's partnership with the HFFI has helped to provide loans up to $500,000 over a maximum term of 15 years. The average HFFI loan is about $250,000 but even though the low interest rate program is user friendly, the hardest challenge has been finding qualified business owners, Bell noted. ASI's nonprofit division helps by providing financial counseling and so far, the credit union has not experienced in defaults or chargeoffs.
“After Katrina, a lot of money was pumped into the area in the form of grants. Some thought the majority of the money would come from grants but they weren't aware they had to repay these dollars,” Bell explained. “It kind of created a few barriers but we were able to educate them.”
Meanwhile, the South Carolina Community Loan Fund in North Charleston, S.C., has approved more than $19.2 million in loans resulting in the development of over $163 million in community development projects. The SCCLF's healthy food loan program provides loans up to $500,000 to finance food outlets in South Carolina's underserved communities, said Anna Hamilton, the fund's strategic initiatives director. A n HFFI grant recipient, the SCCLF has approved more than $1 million in healthy food loans. In early May, the SCCLF hosted a forum for banks interested in investing in the revolving loan fund.
“We would welcome the opportunity to work with credit unions because our missions are along the same lines,” Hamilton said.