Posted by: John Tozzi on October 18, 2011
New York Times columnist Joe Nocera today lauds Starbucks for supporting community development financial institutions, the nonprofit lenders serving small businesses and affordable housing in low-income communities. The coffee chain is donating $5 million and encouraging customers to pitch in at the checkout line as well. CEO Howard Schultz touts it as a way to help create jobs, without relying on Washington for help. Nocera writes:
With the government a nonfactor, Schultz began mulling other ideas. He knew that small businesses created most new jobs, but that many small businesspeople couldn’t hire because they had lost access to credit after the financial crisis. He thought about Starbucks’s involvement in microlending programs in some of the countries where it bought coffee. He wondered if there was some way that that could be applied to small business lending in this country. Finally, he thought about the nearly 7,000 Starbucks stores in the United States, and its tens of millions of customers. Surely, he mused, there must be some way to take advantage of Starbucks’s sheer size.
Last year Mark Pinsky, CEO of the group that will distribute the Starbucks funds to lenders, described in Bloomberg Businessweek how CDFIs work. They combine careful underwriting and lots of hands-on help for business owners to make good loans that get paid back, even though many of their borrowers aren’t considered credit worthy by mainstream lenders. Demand has only increased through the recession and limp recovery.
Starbucks is the latest big brand to get behind CDFIs. Financial institutions including Goldman Sachs have funded the lenders, looking to benefit from the halo effect of aiding small businesses. In addition to the money, CDFIs will benefit from the marketing oomph of one of America’s biggest consumer brands. That may be even more important for the industry, which as Nocera says, operate “mostly under the radar.”
For more, see Bloomberg View’s take on Schultz’s plan.