Financial Institutions as Vehicles for Community Development

Dear Colleagues,

Income and wealth inequality have increased greatly in many countries over the last few decades. Although the causes are complex, the finance industry has surely contributed to this trend by lending and providing services to the haves rather than the have-nots. Such an outcome is expected because serving those with means brings greater profits with less risk. Financial institutions, however, can at least slow the march of inequality and help low-income communities and households to achieve greater economic development and financial security. Indeed, they already do a great deal of this work, but more can be done. The call for papers for this Special Issue focuses on how financial institutions can or do go beyond regulatory incentives such as the Community Reinvestment Act (CRA) to expand their missions to assist low-income communities and promote community development. This shift in mission can be difficult and risky. What do the theories and empirical research say about the best ways to make this shift? Relevant paper submissions include but are not limited to the following themes.

Beyond regulatory requirements, how can/do financial institutions aggressively promote community development and serve low-income (wealth) households and (start-up) businesses in their market areas, yet simultaneously balance margin and mission? What are the lessons learned from institutions that have succeeded or failed in these initiatives? How is the extra risk that comes from these efforts managed?

Have financial institutions with alternative organizational structures such as community development financial institutions (CDFIs) and microfinance companies been successful in serving low-income communities? What accounts for their successes or failures? Are specialized organizations necessary to promote a community development mission or can this mission be accomplished within the standard organizational structures?

How do financial institution products and services harm community development and promote financial instability among low-income households? For example, do late and missed payment fees and high interest rates disproportionately affect low-income households? Alternatively, how do financial institution products and services promote community development and access to funding by low-income households? Are there new or innovative services and products that are working?

How does the entrance or exit of depository institutions in low-income communities affect those communities? If a bank branch closes, for example, what are the economic and financial implications? Do other financial institutions enter (expand) to fill the gap? If so, what types of institutions enter and what are the economic and financial impacts? What can be done to incentivize depository institutions to enter or remain in low-income communities?

Prof. Dr. Timothy Yeager
Guest Editor

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• Community development
• Financial institutions
• Financial services
• Income inequality
• Low-income communities
• Mission versus margin