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Community Development Financial Institution Engagement with the

Hispanic Population in the Lehigh Valley

By Kendall Wilkins

ECO 371

15 May 2016

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Introduction

The Rising Tide Community Loan Fund, located in Bethlehem, PA, is a 501 (c) (3)

Community Development Financial Institution (CDFI) that exists “to meet a need in the

community for accessible financing options to business owners whose risk factors make it

difficult to obtain funds from traditional lenders.” This organization serves prospective, start-up,

and established businesses in five Lehigh Valley counties by providing a full range of one-to-one

business counseling services and microloans to business owners where resources and

opportunities for growth are limited (Rising Tide).

In recent years, The Rising Tide’s client base has reflected the demographic distribution

of the Lehigh Valley in all but one area; though lending has been proportional among white and

African-American borrowers, The Rising Tide has been unable to attract Hispanic clients to their

programs. Considering that Hispanics make up twenty percent of the population in the Lehigh

Valley, it is important to understand if they are being underserved and how they could be

better served by The Rising Tide Community Loan Fund and organizations like it (Landauer).

Hispanics in the United States use

financial services differently than the

general population, and research shows

that small business owners in the Hispanic community are less likely to use formal financial

services than other demographic groups. The Rising Tide can draw from practices used by CDFIs

both in Pennsylvania and across the country to better serve the Hispanic community in the

Lehigh Valley.

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Hispanic Americans & Financial Services

The first step in investigating The Rising Tide’s lack of engagement with the Hispanic

community is understanding how Hispanics use financial services overall. In the United States

the Hispanic population numbered fifty-five million in 2014, and Hispanics are the fastest

growing population group in the country, expected to grow 167% between 2010 and 2050

(“The Hispanic American Financial Experience”). In general, the Hispanic community is young

and family-oriented, and their financial needs are shaped by strong multigenerational

relationships, cultural attitudes surrounding debt, and lack of trust in and access to financial

service providers. These factors impact the needs of Hispanic business owners and their use of

financial services in several ways.

In the U.S. Hispanic households have a median income of $40,963 and make up 28

percent of impoverished households in the U.S. The financial condition of Hispanics is impacted

by the cultural norm of a close-knit family structure; over 67 percent of Hispanics surveyed in

2013 supported at least one other person, including children, parents, and extended family

both within the U.S. and abroad. 42 percent of

Hispanics born outside of the U.S. send remittances

averaging six-hundred dollars a year to support family

living in Latin America. On the surface, the data would

point to lower rates of saving among Hispanics

(“Hispanic”). However, if “savings” was defined as

“deferred consumption” and included remittances and

Total Assets (in Thousands)

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care for dependents, the Hispanic population saves differently than the general population, but

at a similar rate (Kamasaki 3).

Another theme affecting the use of financial services among Hispanics is a deep cultural

aversion to personal debt. Over sixty percent of Hispanics believe there is no such thing as

“good debt,” but the majority also believe that it is acceptable to use credit for big purchases

like buying a home, starting a business, and going to college (“Hispanic”). This data reveals that,

in the Hispanic community, the necessary reality of personal debt is juxtaposed with a negative

cultural stigma surrounding indebtedness. Congruently, Hispanic net worth is well below that of

the general population. Hispanic households with an annual income of $25,000 or more hold an

average of $33,000 in total financial assets compared to an average of $97,000 in the general

population. This data reveals that

Hispanics are using less financial

services of all kinds, including

both savings and credit. The

Hispanic population is generally more risk adverse than other Americans, and they seek to save

more for short-term goals like reducing debt, purchasing a home, or creating an emergency

savings account. These tendencies, coupled with the fact that Hispanics are less aware of how

“good debt” can be used to achieve long-term financial goals, reveal a need for trustworthy

financial advising (Kamasaki 4).

Part of the reason that the lack of understanding of “good debt” exists is the lack of

access to and trust of financial service providers and advisors within the Hispanic community.

Hispanics rank family and friends as the most important sources of information for financial

“THIS DATA REVEALS THAT, IN THE HISPANIC COMMUNITY, THE NECESSARY REALITY OF PERSONAL DEBT IS JUXTAPOSED WITH A NEGATIVE CULTURAL STIGMA SURROUNDING INDEBTEDNESS.”

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decision-making and professional financial advisors as the least important. Many would assume

that language is a barrier in Hispanic access to professional financial advising; however, only

seven percent of Hispanics stated language as a key component in seeking financial advice. The

lack of use of formal financial service advisors (banks, credit unions, financial advisors) is

instead a result of lack of trust, lack of understanding of financial products, and a lack of

knowledge of where to go for sound financial information (“Hispanic”). This data reveals an

opportunity for financial service providers to meet the needs of the Hispanic community, and

Hispanics have a strong desire for financial

advisors that are a part of their local

communities. Hispanics “are half as likely to

be contacted by financial advisors”

compared to the general population, but

they are just as likely as the general

population to use financial advising services

when contacted (“Hispanic”).

This data reveals several unique characteristics about the Hispanic community in the

United States that are important for financial service providers to be aware of when serving this

population. First, an understanding of cultural beliefs and practices surrounding debt in the

Hispanic community is especially important for organizations like The Rising Tide, which offers

affordable credit products to business-owners and entrepreneurs. This aversion to debt within

the Hispanic community is often rooted in a lack of understanding of how to use credit to

achieve financial goals and lack of trust in financial service providers. It would be essential for

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any CDFI trying to attract Hispanic clients to gain the trust of this community and be able to

communicate effectively about the usefulness of financial products like business loans.

Hispanic-Owned Businesses in the Lehigh Valley

The Hispanic population in the Lehigh Valley grew at a rate of twelve percent between

2012 and 2015, and today make up one-fifth of the total population (Landauer). Hispanic-

owned businesses in the United States numbered over four million in 2015, and revenues for

these businesses reached $660 billion in the same year (Rosenberg). In the Lehigh Valley,

Hispanic-owned businesses reflect the profile of American businesses in general—“most are

small with annual revenues under $200,000 and employ a handful of employees” (Parker 9).

The Center for Community and Organizational Research at Penn State Lehigh Valley conducted

a study in 2008 that examined Hispanic business owners and professionals in the region,

exploring several key trends of small business ownership in this community. It presents several

conclusions that are valuable to community development financial institutions in the Lehigh

Valley that aim to serve this population well.

Hispanics business ownership in the Lehigh Valley exists in a wide range of industries,

including manufacturing, warehousing, transportation, construction, retail, business services,

and food services. As of 2008, seventy-five percent of Hispanic-owned businesses in the Valley

were owned by men, and the majority were structured as a sole proprietorship (Parker 12).

Downtown Allentown and South Bethlehem had the highest percentage of Hispanic business

owners, who accounted for thirty percent of all small business owners in these two areas.

Southside Bethlehem and downtown Allentown also have a high percentage of Hispanic

residents, who are disproportionally affected by high poverty rates, crime, and failing schools in

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their neighborhoods. Urban revitalization efforts on the Southside and downtown Allentown

have positively impacted Hispanic business owners, who in turn often give back to their

communities both financially and by volunteering their time (Parker 11).

Most Hispanic-owned businesses in the Lehigh Valley surveyed in this study got their

start between 1998 and 2008, and the median annual business revenue ranged between

$50,000 to $100,000. This data is gendered—thirty-seven percent of Hispanic men reported

revenues over $200,000, while only twenty-five percent of Hispanic women reported the same

amount (Parker 13). Hispanics in the Lehigh Valley choose small business ownership for a

variety of reasons, but the majority reported that they are

in business because it provides them “the best means for

achieving their goals in the U.S. economy.” These goals are

centered on achieving a middle class standard of living

and providing educational opportunities for their children

(Parker 15).

This study presents a useful picture of Hispanic business owners’ past capital

expenditures and their plans for future expenditures. Sixty-

seven percent of Hispanic-owned businesses in the Lehigh

Valley “made capital expenditures to improve their

businesses” between the years 2004 to 2008, with a median

amount of $40,000 (Parker 17). When this study was

published, almost three-quarters of Hispanic business

owners planned to make capital expenditures in the next

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five years (2008 to 2013), with a median planned expenditure of $25,000 and a mean

expenditure of $159,000. This data, like that of business revenue, is also gendered—seventy

percent of Hispanic men made capital investments in the past five years compared to sixty

percent of Hispanic women, and seventy-five percent of men planned to make capital

expenditures in the next five years, compared to sixty-two percent of women (Parker 18). More

than ninety percent of these capital expenditures were spent in the Lehigh Valley.

In reference to their plans for future capital expenditures, the majority of Hispanic

business owners reported that they would need to borrow money to accomplish these goals.

Most reported knowing how to go about borrowing money, though a lesser amount of female

business owners reported knowing how to navigate borrowing money than men (Parker 19). In

starting their existing businesses, most Hispanics used a combination of both loans and savings;

fifty percent relied on loans, and

seventy percent used savings.

These loans came from a variety

of sources, with only twenty-five

percent using loans from a formal

source (a bank or other financial institution). Other sources included personal loans to business

credit cards, friends and family, home equity loans, and small business administration loans.

Hispanic women used their networks of family and friends for loans at a much greater

rate than Hispanic men—forty-seven percent of women borrowed money from friends and

family compared to twenty percent of men. This study also found that the demand for formal

lending services among Hispanics in the Lehigh Valley would increase. Sixty-seven percent of

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business owners planned to rely on banks for future capital expenditures, compared to twenty-

five percent who used formal financial institutions for start-up funding. Hispanics also planned

to decrease their reliance on credit cards and social networks for sources of funding in the

future (Parker 21).

The data reveals that Hispanic business owners have a generally positive relationship

with formal financial institutions in the Lehigh Valley. About half of the business owners

surveyed had applied for a bank loan between 2004 and 2008, and seventy-one percent were

approved. Those who were rejected by banks reported “objective factors (rather than personal

ones) such as bad credit history as reasons for being rejected” (Parker 22). Again, there is a

significant difference between the experience of Hispanic men and Hispanic women when it

comes to formal lending. Less than a quarter of Hispanic female

business owners have applied for a loan in the past five years,

compared to fifty-five percent of Hispanic males. Of the women

who did apply for a loan, only half were accepted; in contrast,

nearly three-quarters of Hispanic men who applied for bank loans

were accepted (Parker 22).

Hispanic business owners are fairly well connected in the Lehigh Valley, with eighty

percent reporting access to networking opportunities with both Hispanic and non-Hispanic

business owners. The Hispanic Chamber of Commerce of the Lehigh Valley is one of the

avenues that exist for networking, and it includes both professionals and small business owners

from many industries across the region. The Hispanic Chamber counts over three-hundred

businesses as members, many of whom attend networking events and business workshops that

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connect them to other business owners in the Lehigh Valley (Cartageña). The Chamber is

currently working to expand its membership to microenterprises like neighborhood bodegas

and mechanic shops through door-to-door marketing efforts in downtown Allentown.

Several prominent members of the Hispanic Chamber emphasize the value of

relationship that is unique among Hispanic business owners and believe that relationship and

business within the Hispanic culture are intricately connected. Tony Ortiz, a member of the

Hispanic Chamber and producer of Nuestro Valle, a public television program in the Lehigh

Valley, emphasized trust as a key factor when operating in the Hispanic business community.

“First, you sit down and eat a meal. Once I (the business owner) know who you are, about your

family and your life, only then will I feel comfortable doing business with you” (Ortiz). Samantha

Cartageña, the coordinator for the Hispanic Chamber, explains it similarly—“Hispanics are

passionate people, and their businesses are their life’s work. They want to know that the

people they do business with are trustworthy,” and in Hispanic culture, that means knowing

their family, their work, where they go to church, etc.

In Spanish, there are two verbs used for the English verb to know. The verb saber is used

in the context of knowing facts, information, and data. The verb conocer is used in the context

of knowing a person or place through relationship that reveals a familiarity and understanding

beyond basic information. Hispanic business culture operates on the principle of conocimiento;

personal relationship, familiarity, and understanding are the foundation of strong business

relationship. This cultural principle is vital for any service provider to understand if they wish to

make connections in the Hispanic business community.

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Latina Entrepreneurs: A Growth Opportunity

The data from Penn State’s 2008 study on the Hispanic business community reveals

important differences between men and women who own small businesses in the Lehigh

Valley. The gendered differences of this data echo much of the literature that exists on female

entrepreneurship in the United States. In the Lehigh Valley, businesses owned by Hispanic

women are more likely to report lower revenues, less likely to have made recent capital

expenditures, and less likely to use formal financial services to finance their businesses.

Developing strategies to empower female entrepreneurs, specifically Hispanic females, to use

formal services like CDFIs could have an important impact on the families and communities of

Hispanic women in the Lehigh Valley.

Across the United States, Hispanic female entrepreneurs are generally less experienced

and have more issues with financial management in their businesses than Hispanic men. They

are less likely to be married, and they struggle more with balancing

their work and home life than do men when it comes to running a

small business (Eastlick). Smaller and more informal networks of

friends and family are the largest source of business advice for the

majority of Hispanic women, so tapping into this social network could

be an important component to CDFI success within the Hispanics

community (Eastlick). Research suggests that mentoring programs and

workshops that focus on capital management could provide ways to remedy the disparities that

Hispanic female business owners face when it comes to networking and gathering information

about their business.

*in the Lehigh Valley

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These kinds of workshops are already happening in the Lehigh Valley. Sonja Vazquez,

principal of Donegan Elementary School on the Southside of Bethlehem, has organized several

job training workshops for the parents of its students in recent months. Connecting with

initiatives like this, in addition to partnering with local churches, the Hispanic Chamber of

Commerce, and other community development organizations in the Lehigh Valley to develop

workshops that are geared toward entrepreneurs would make important information more

accessible to those in the Hispanic community. Providing business education resources through

trusted sources like churches and Hispanic community organizations appears to be an

important component to the success of such programs.

Hispanic Americans & CDFIs in the United States

There are several community development financial institutions within the microfinance

industry in the United States that are successfully lending to Hispanic entrepreneurs and

business owners. Grameen America, Accion USA, Community First Fund, and FINANTA, though

distinct in structure and practice, have successfully attracted high numbers of Hispanic

borrowers to their lending programs.

Grameen America is the United States division of Grameen Bank, which was founded by

Muhammad Yunus in Bangladesh during the 1970s. Grameen America got its start in New York

City in 2008, and the organization now has locations in eleven U.S. cities. Grameen’s lending

structure aims to serve “the poorest of the poor;” they provide unsecured loans in amounts up

to two-thousand dollars to women, all of whom live under the poverty line and ninety percent

of whom are Latina, to use for starting and growing a microenterprise in their community

(Klien). Grameen America, like its parent organization Grameen Bank, lends only to women,

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who are less likely to access formal financial services no matter where they live. More than half

of people living under the poverty line in the U.S. are women, and poverty rates are highest for

families headed by women, especially Hispanic women. Research has found that American

women are just as likely as women in poorer countries to put their family’s needs ahead of their

own” (Skibola).

Grameen’s lending structure in the United States is similar to the structure they use

throughout the rest of the world. Women who want to borrow from Grameen organize

themselves into groups of five, and each woman in the group receive an initial loan of $1500.

The group is not formally liable for each other’s loans, but Grameen will not lend additional

money to a group that has previously defaulted. These loans are designed to help women

launch microenterprises in their communities, and Grameen reports repayment rates upwards

of ninety-eight percent. In addition to microenterprise lending, Grameen provides non-

predatory access to credit for things like “paying off higher-priced debt, accessing more

affordable sources of consumer financing, or building credit” (Klein). As of 2015, Grameen

America has served over 64,000 clients in eleven U.S. cities and invested $381 million in serving

underbanked Americans (“Grameen America’s Impact”).

Accion USA is another CDFI that has had success within the Hispanic community across

the U.S. Accion began in 1991 and its member organizations have lent $400 million to more

than 50,000 clients over the past 25 years. The majority of their borrowers are women, and the

client base in Southern U.S. has a Hispanic majority. Accion is distinct from Grameen in that it

underwrites “larger business loans on a number of factors: the character and credit of the

borrower, the cash flow of the business, and in some cases, available collateral. The goal of

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Accion’s larger loan program is to build businesses that can provide higher incomes to families

and provide jobs for the owners and others.” In 2012, Accion USA’s average loan size was

$14,000. As of 2012, microlending has helped increase clients’ household income by a median

of twenty-four percent, and the businesses supported create an average of three jobs (Klein).

Accion Texas, a subsidiary of Accion USA, has had marked success along the Texas-

Mexico border, lending over seventeen million dollars between 2010 and 2015 (Nivin). Ninety-

three percent of their borrowers are Hispanic, and many of them are immigrants. The

increasing immigrant population and the high poverty rates along the Texas-Mexico border left

many households without access to financial institutions and suffering from high

unemployment rates. Accion’s microlending programs have become popular in the border

region due to several reasons. First, many low-income immigrants lack proper documentation,

which fuels an informal sector where cash-based microenterprises thrive. Second, “the

ethnically concentrated community” of Hispanics in the border region “carves out niche

markets for ethnic goods” that many microentrepreneurs sell. Finally, microenterprises are

proving to be an important tool “to increase family income, gain control over finances, and

reduce dependence on social support programs” among Hispanic families (Assanie 7).

In the case of Grameen USA and Accion USA, CDFIs can draw an important conclusion.

Immigrant communities around the country are an important source of business for both of

these organizations, and they have had significant success when working with these

populations. The Lehigh Valley has experienced an increase in the number of immigrants who

live here, adding over 12,000 residents from outside U.S. borders in the past five years (Krauss).

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Increasing access to financial services and financial literacy programs among immigrants in the

Lehigh Valley could open doors for microentrepreneurs to participate in CDFI programs.

Grameen and Accion may be power players in the U.S. microfinance industry, but the

majority of CDFIs are much smaller with loan portfolios averaging three million dollars per year

(Walker 386). Small, local CDFIs in Eastern Pennsylvania are doing some interesting things to

connect with the Hispanic community in the region; Community First Fund and FINANTA are

just two who stand out.

Community First Fund (CFF) is a community development financial institution that

operates in thirteen counties throughout Central Pennsylvania. Founded in 1992, Community

First provides loans ranging $2000-$2 million in microloans, small business loans, and economic

development loans in the region. Over the past five years CFF has hired Spanish-speaking loan

officers, who now account for half of their staff. Their offices are located in the downtowns of

Allentown, Lancaster, and Harrisburg, in neighborhoods with a high percentage of low-income

and minority residents. After intentionally hiring bilingual employees from the majority-

Hispanic neighborhoods in which Community First was operating, they saw an increase in

Hispanic borrowers in places like downtown Lancaster and Reading (Buerger). Community First

partners with the Small Business Development Center at Kutztown University to provide sound

business consulting services to its clients. These services are offered in both English and

Spanish, which is attractive to the Spanish-speaking population in the Reading area.

FINANTA is a CDFI founded in 1996 that operates within the city of Philadelphia, and it

has lent over ten million dollars in the past twenty years. They offer several different kinds of

credit products designed for small business owners, first-time home buyers, and

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microentreprenuers. FINANTA was founded with the goal of serving the diverse communities of

Philadelphia, and a large percentage of their client base is of Hispanic descent. Like Community

First Fund, FINANTA has many bilingual staff who are able to work with clients in both Spanish

and English to provide information on their services. They do not, however claim this to be the

draw for the majority of their Hispanic clients. Instead, FINANTA points to the importance of

relationship and reputation that they have built within this community in Philadelphia. Their

greatest tool for marketing in Philly has been word-of-mouth, according to a loan officer.

FINANTA has built such a strong reputation as an ally in the Hispanic community because of its

flexibility. Many of the clients that FINANTA serves work outside of the traditional financial

system, lacking documentation, credit scores, and business records. Rather than turn these

clients away, FINANTA takes time to work with people who are unable to provide traditional

verifications of creditworthiness and business assets, using utility bills, manual records, and

other tools to perform due diligence (Standifer).

Each of the aforementioned CDFIs have several things in common in their work reaching

the Hispanic community in the United States. First, each has Spanish-speaking staff that is able

to serve a client base whose first language is not English, making these borrowers feel more

comfortable with the products they are using. Second, each of these organizations employs

various kinds of financial products, including savings accounts, ROSCAs, business consulting

services, small business loans, and economic development loans. This variety of products allows

them to meet the needs of a client base with different needs. Finally, each of these

organizations are heavily involved in the communities that they are trying to reach. Loan

officers come from and live in the communities that their organizations are trying to reach, and

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they often rely on borrowers to share information about their products with their social

networks.

Conclusion

The Rising Tide and CDFIs like it exist to provide services to people who have historically

been excluded from the financial system. A key question that community development

organizations must continue to ask is, “Who’s not here?” In the case of The Rising Tide, the

answer to that question is the Hispanic community. Hispanics make up twenty percent of the

population in the Lehigh Valley, and they have several unique circumstances that make

engagement among this community more nuanced than other groups of people. A cultural

stigma surrounding indebtedness, a lack of understanding of the financial system, and a lack of

trust in financial service providers are some of the main barriers that Hispanics face in engaging

with financial institutions. There is an increasing demand for credit products among small

business owners in the Hispanic community of the Lehigh Valley, but there is a lack of use of

formal financial services, especially among Hispanic women. CDFIs in the United States who

have had success in engaging the Hispanic community tend to employ Spanish-speaking staff

and offer a wide range of credit and savings products. The Rising Tide has a smaller scale than

the organizations mentioned in this research, but it can use these examples to cast a vision for

the future of its programs. Building a strong relationship between The Rising Tide and the

Hispanic community in the Lehigh Valley will create a bright future for both.

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Works Cited

Assanie, Laila and Raghav Virmani. “Incubating Microfinance: The Texas Border Experience.”

Southwest Economy. Federal Reserve Bank of Dallas. Sept/Oct 2006: p. 3-7.

Bueger, Jim. Community First Fund. Personal Interview. 21 April 2016.

Cartageña, Samantha. The Hispanic Chamber of Commerce of the Lehigh Valley. Personal

Interview. 11 April 2016.

Eastlick, Mary Ann and Soyeon Shim. “Characteristcs of Hispanic Female Business Owners: An

Exploratory Study.” Journal of Small Business Management. July 1998: p. 18-34.

“Grameen America’s Impact.” Grameen America. n.d. Web. 20 April 2016.

“The Hispanic American Financial Experience.” The Prudential Foundation. Prudential

Research 2014. 2014. Print.

Kamasaki, Charles and Laura Arce. “Hispanic Americans and Financial Services.” National

Council of La Raza. Issue Brief, August 2000.

Klein, Joyce. “What We Know About Microfinance in the U.S.” The Aspen Idea Blog. The Aspen

Institute. 31 Oct. 2013. Web. 3 April 2016.

Krauss, Scott. “Migration Driving Lehigh Valley’s Recent Population Growth.” The Morning Call.

2 April 2016. Web. 16 April 2016.

Landauer, Bill and Eugene Tauber. “Hispanic Population Crosses Threshold.” The Morning Call

26 June 2014. Web. 3 April 2016.

Nivin, Steven. Economic and Fiscal Impacts of Lift Fund: 2010-2015. Lift Fund: April 2016.

Ortiz, Jose Antonio. RCN Productions. Personal Interview. 13 April 2016.

Parker, Jennifer Talwar. “2008 Portrait of Latino Business Owners and Professionals in the

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Lehigh Valley.” Center for Community and Organizational Research. Penn State Lehigh

Valley. Nov. 2008. Print.

The Rising Tide Community Loan Fund. “About Us.” n.d. Web. 5 April 2016.

Rosenberg, Joyce. “Get Started: Hispanic Business Growth Outstrips Rest of U.S.” The

Associated Press 21 Sept. 2015. Web.

Skibola, Nicole. “Bringing the Girl Effect Back Home: Microfinance Projects for American

Women.” The Huffington Post. 23 Feb. 2011. Web. 23 April 2016.

Standifer, Stella. FINANTA. Personal Interview. 3 May 2016.

Walker, Olivia. “The Future of Microlending in the United States: A Shift from Charity to

Profits?” Ohio State Entrepreneurial Business Law Journal. Vol 6.1. 383-410.

2011.