Morgan Stanley Planning Small Business Program: Report
Posted by: John Tozzi on February 12, 2010
In a wide-ranging profile of Accion, the nonprofit lender’s president Gina Harman says the group is working with Morgan Stanley on a plan help the investment bank meet its requirements under the Community Reinvestment Act. That 1977 law, which rates depository institutions on how well they serve their communities, now applies to investment banks like Morgan and Goldman Sachs that became bank holding companies during the financial crisis. Maria Aspan writes in American Banker:
Accion Texas, for example, has a groundbreaking partnership with Citigroup Inc., which buys some of its loans. And Harman said Accion USA is in talks with Morgan Stanley to create “a unique program” to help the Wall Street firm meet its new Community Reinvestment Act obligations as a bank holding company.
“We’re not immune to the banks’ lessening tolerance for risk,” she said. Yet “as banks consolidate and they have larger CRA obligations, or have incurred CRA obligations for the first time, like Morgan Stanley, they’re trying to figure out, how are they going to meet their obligations?” she said.
Accion USA spokeswoman Laura Kozien said the group can’t comment on the details yet. Morgan Stanley did not immediately respond to a request for comment.
Banks, having slashed their own small business lending, are increasingly seeing organizations like Accion as an effective channel to reach borrowers. Morgan Stanley’s potential deal with Accion echos Goldman Sachs’ announcement last fall to direct $250 million in loans and $50 million in grants to Community Development Financial Institutions like Accion. And major commercial banks like Wells Fargo, JP Morgan Chase, and Bank of America have long made loans to non-profit CDFIs as a way to reach small business customers that don’t meet the banks’ regular underwriting standards. These lenders typically work in low- to moderate-income neighborhoods. And CDFI loans come with a level of technical assistance for the borrower that traditional banks don’t provide.
From our story last month on this:
[Seedco Financial president Lesia Bates] Moss sees a growing role for lenders like Seedco to partner with such institutions to channel money to businesses that will create jobs in neighborhoods where they are needed most. “What is occurring now is really a systemic shift in the whole financial markets,” she says, as banks reduce their risk and their capacity to lend directly to small businesses. “It really supports the case for CDFIs and other alternative lending sources to play a much more critical role to fill that gap.”
The Obama Administration has also increased funding to the Treasury fund that invests in CDFIs and committed $1 billion in TARP money for such lenders.