Can Compassionate Lending Bridge the Racial Wealth Divide?

The opportunity to build generational wealth in the United States disproportionately skews toward White, upper-class men of European descent. Through redlining, subprime mortgages, and predatory lending, US banks have helped perpetuate the racial wealth divide. These patterns of race-based discrimination have prevented many Black and Latinx families from buying homes or acquiring affordable business loans.

While community development financial institutions (CDFIs) lend to underserved populations and while some hold out hope that financial technology—better known as fintech—can help, I’m an advocate for something a little more ambitious—what I call compassionate lending—a strategy that combines a CDFI with an on-the-ground community or faith-based partner to achieve transformative community results.

A Personal Connection

I’ve worked in the nonprofit sector for two decades, but my commitment to the compassionate lending movement grew more recently, out of a family crisis. My younger sister had taken on several payday loans with staggering interest rates in excess of 300 percent. Her situation led me to ask myself: How could the educational nonprofit that I lead effectively intervene in cases like hers?

Compassionate lending…combines a CDFI with an on-the-ground community or faith-based partner.

When I explored equipping my educational nonprofit with a lending capability, I encountered the Jewish Free Loan Association (JFLA). Rooted in the Jewish tradition of gemilut chassadim (acts of loving-kindness), the JFLA provides interest-free loans to people of all faiths and backgrounds who are in need.

Originating in Eastern Europe centuries ago, these programs helped Jewish communities overcome financial hardship without the burden of interest, which is prohibited by Orthodox Jewish law within Jewish communities. JFLAs now exist worldwide and have provided millions of dollars in loans for education, small businesses, medical expenses, emergencies and more.

Adopting Compassionate Lending

UPI or Unified Progress International Education, the organization I lead, was founded in 2004 to provide life skills training courses primarily for Black youth. When we created the UPI Loan Fund (UPILF) in 2020 to give women and communities of color access to capital without predatory interest rates, I looked to JFLA as our business model.

The effort has been, broadly speaking, successful. In the five years of the loan fund’s existence, demand for lending and financial services has grown steadily, with 60 percent of loans going to Black Americans and 40 percent to other communities who lack access to capital.

Compassionate lending may seem like an abstract concept. But our track record of providing low-interest or, importantly, even no-interest consumer and business loans to underserved communities makes a difference in many people’s lives.

A Model Rooted in Partnerships

To pursue this vision, UPILF has developed many partnerships like the one that we now have with the African American Christian Clergy Coalition (AACCC) in Arizona, where Pastor Aubrey Barnwell of First New Life Church (FNL) in Phoenix, partnered with UPILF to address financial needs among his church members.

To establish the partnership, the church invested $5,000 into UPILF as a foundation for financial assistance. Like most churches, FNL often receives member requests for assistance with rent and emergency expenses. Prior to partnering with UPILF, church staff managed the requests, but as Barnwell tells NPQ, the process was “often overwhelming and follow-up with recipients was haphazard.”

Nowadays, when a church member requests financial help, FNL directs them to UPILF’s website to complete an online application for assistance. Then we meet with FNL to determine the amount of assistance and whether it should be given as a grant or if a portion of the money should be an interest-free loan. With a compassionate lending approach, the applicant’s unique circumstances are the primary consideration—not their credit score or employment history.

For example, through its partnership with FNL, UPILF was able to assist a young man on the verge of homelessness after the death of his infant son. With the support provided, he’s now begun rebuilding his life.

Although most FNL loan recipients fulfill their repayment obligations, occasional exceptions occur. However, since FNL staff have a follow-up process with their parishioners, they can engage in candid conversations about how unmet obligations affect others in need. This level of transparency helps “reinforce a sense of accountability and stewardship in our church community,” Barnwell tells NPQ.

Pastor Barnwell says the partnership has as its “greatest strengths…flexibility and efficiency.” Funds are distributed by check or payment app, ensuring that recipients quickly receive necessary support.

UPILF also partners with NEST, a community development organization that offers loans and financial education to first-time homeowners in underserved Connecticut communities.

Kevin Taylor, executive director of NEST, explains that their approach is to operate a revolving loan fund that provides microloans up to $50,000, home improvement and repair loans up to $25,000, and credit-builder loans up to $3,000. Recipients of credit-builder loans are required to complete NEST’s financial education class and participate in one-on-one financial counseling. UPILF’s role, as with FNL, is to provide back-office support to help make this work possible.

The key elements are simple: a CDFI-like loan product, a faith- or community-based partner, and a focus on compassion for the borrower.

Across the country in Webster, TX, the Multicultural Center (MCC) offers a third community partnership example. MCC offers food, tutoring, health, and legal services. In partnership with UPILF, it also offers interest-free microloans of $250 to $2,000. Echoing the vision of the Order Sons and Daughters of Italy in America, MCC’s core community are new, often Muslim, immigrants living in Harris County, TX.

In one case, says Hamza Reed, MCC’s director of operations, a newly widowed restaurant owner from India was turned down by a traditional bank for a loan to purchase commercial-kitchen appliances. Through a microloan from MCC, she was able to buy the equipment necessary to expand her restaurant’s menu. In another case, a Black business owner who co-owns a mobile elder care business with her sister was turned down by every local bank for a business loan. MCC provided the funds to repair their company vehicle and purchase essential equipment.

Success stories like these highlight how the compassionate lending model can bring nonprofits and lenders together to fill gaps left by traditional financing—improving the lives of underserved people and strengthening the community overall.

A Broader Vision

The compassionate lending movement offers an important pathway to build a more inclusive financial system. The key elements are simple: a CDFI-like loan product, a faith- or community-based partner, and a focus on compassion for the borrower. It sounds simple—and, in a sense, it is. But it also underscores the need for a broader transformative vision that must guide our efforts.

In my work, I’ve seen firsthand how compassionate lending can help bridge the wealth divide created by structural racism. The compassionate lending movement represents far more than financial transactions: It aspires to build a new financial system, one that emphasizes economic fairness and community investment over greed and profit and prioritizes historically disadvantaged populations over those of privilege.