Black in the Red

Everyone expected Charles Howze's Z Mart to be a model for minority-run businesses in Dade. In a sad way it was: It went bankrupt.

The fact that banks always have been loath to invest in black businesses and black neighborhoods is what prompted the federal Community Reinvestment Act (CRA) of 1977, which requires banks to make loans in all communities where they accept deposits. Still, South Florida banks have an abysmal record in this realm. Citing federal data, Kenneth Thomas, a local banking consultant, says Miami's CRA record is third-worst in the nation, behind only Los Angeles and Chicago.

Largely in response to pressure from the Clinton administration, some of South Florida's biggest financial institutions have made gestures to close the lending gap. This past year, for example, a group of banks tried to develop the so-called Overtown Community Banking Center, a branch office in which several banks would provide basic services at the same location. (Despite a population of about 14,000, the impoverished downtown Miami neighborhood doesn't have a single bank.) While boosters argued that the plan would allow participants to survey the market before committing to a full-service branch, critics called the move a cowardly effort by powerful institutions that have the ability to do a lot more. The plans were shelved this past fall, when the project was deemed too cumbersome to operate. Since then, two local banks have announced their intentions to open branches in inner-city neighborhoods.

Without banks, minority entrepreneurs must rely on community-based programs such as the Beacon Council, Miami Capital (a lending arm of the City of Miami), and the BAC. Once these organizations agree to loan money to a venture, the thinking goes, banks are confident enough to sign on, too. The trouble is, the community organizations themselves don't have all that much money, and what they do have isn't always conveniently available. The Beacon Council, for instance, received $1.5 million in posthurricane aid through We Will Rebuild, but although those funds were earmarked for black businesses, they were restricted to projects in South Dade.

Financial limitations have forced the BAC, too, to restrict its program, according to president Gregory Hobbs. A nonprofit development organization established with private contributions after the McDuffie riots of 1980, the BAC is now almost exclusively devoting its resources to financing investments associated with minority set-aside governmental contracts. (Hobbs says the organization changed its name from Business Assistance Center to BAC "because we're trying to stay away from 'assistance'.")

John Copeland, staff director of Miami Partners for Progress, argues that Miami needs a large-scale equity fund for black entrepreneurs. He envisions contributions from a variety of private sources, all of which would have a limited partnership in the venture, and thus a stake in its investments. "The idea is that all the folks would be sitting around the same table, literally," notes Copeland, whose organization was established to help implement the "economic blueprint" that emerged from the black tourism boycott that ushered in the 1990s in Miami.

The Beacon Council is trying to develop such a fund, using the $1.5 million of hurricane money as a cornerstone to attract limited partners from the private sector. The council's goal: $25 million. "We want banks to be able to leverage our deals and loan money to the companies we invest in," explains Beacon Council vice president John Hall. Still, the venture is crippled by its utter lack of a track record.

Barnett Bank board member George Knox cautions against viewing a venture capital fund as a substitute for bank financing. It's more likely individual investors will step forward to participate in a business investment once a bank has declared its interest in the project, rather than vice versa, Knox argues: "A bank's level of scrutiny is necessary to give confidence not only to potential investors but to the community at large that this is a worthwhile project."

Regardless, he continues, banks must radically change the way they invest in black businesses and low-income communities. As it stands, many loans are made simply to comply with federal guidelines, with no hope of return. "I think it's a recipe for disaster," Knox complains. "It's just play money; no one is really committed. The attitude here is, 'What can we do in order to comply? How can we keep federal regulators off of our backs?' There's no heartfelt equity on the part of the investors. The banks satisfy their minority-lending commitments and write it off as a business loss."

Knox believes that if change is to occur, banks must become partners in their investments, financially and psychologically: "They can be more proactive. They can help put packages together rather than waiting for the package to come to them. They have to step forward and become team members. They've got to have a stake in the outcome. They have to go into it with a reasonable expectation that there's a return and that their investment is big enough to inspire them to get involved."

For his part, Charles Howze welcomes any movement of parties taking a stock in their investments. "If you're serious about economic development, you're going to get that dealing with people who are interested in taking dollars and getting a return on that investment," he notes. "You're not going to get that dealing with [impersonal] organizations."

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