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Closing the racial wealth gap through rent relief and alternative credit building 

A Black couple applying for a loan.

When Joe found a 10-day eviction notice on his front door in the spring of 2022, his heart sank. He had lost his hotel job and depleted his savings. As unpaid rent accrued, so did sleepless nights fearing what could be next for him and his wife. “To be homeless at this stage of my life, I wouldn’t be able to continue,” he said.

The Bridgespan Group’s recent report, Boats for a Rising Tide: How Philanthropy Can Narrow the Racial Wealth Gap, describes five critical drivers of the racial wealth gap in the United States and offers strategies to help close it. Our research included interviews with more than 50 philanthropists, impact investors, and social entrepreneurs pioneering new models of wealth creation in communities of color. One of the drivers of the racial wealth gap is the disproportionate debts, fees, and fines levied on communities of color. We see a role for philanthropy in supporting targeted, innovative solutions.

Wealth, emergency savings, and the traps of poverty

More than simply providing economic opportunity, wealth offers resilience and security for families—particularly when you consider the role of emergency savings. With the average white household holding five times the wealth of Latinx households and six times the wealth of Black households, there’s much more cushion to draw from.

Seventy-two percent of white families can borrow $3,000 from friends and family, compared to only 41% of Black families. For many low-income households of color, the inability to tap into emergency savings—for themselves or others—leaves them exposed and reliant on predatory lenders charging exploitive interest rates up to 600%. The Financial Health Network estimates that Black and Latinx households pay over $100 billion in interest and fees annually for everyday financial services. Despite having lower incomes than white households on average, Black and Latinx households pay more in interest and fees—both by percentage of income and in absolute terms. This creates a vicious cycle in which poverty is penalized with not only higher fees but also greater exposure to eviction and homelessness. 

Pairing rental relief with credit building 

Interventions like Stable Home Fund’s (SHF) rental relief program interrupt that cycle. With his poor credit history, Joe was shocked to be approved for a no-interest loan of $3,150 for his back rent. To date, SHF has helped some 11,000 families avoid eviction, 79% of whom are Black and Latinx and earn less than 80% of the area median income.

“The financial sector is perverse,” says Année Kim, executive director of Stable Home Fund. “While people who can least afford it pay the highest borrowing rate, the people who have all the money in the world can access credit for almost free. We’ve provided over $20 million in rent relief and have proven that even a modest-sized loan of $2,000 can make a lasting difference.”

While mortgage payments help build a credit history, rent payments historically have not. Today, roughly 15% of Black and Latinx Americans have no credit history at all, compared with 9% of white Americans. These “credit invisible” consumers struggle to access loans on reasonable terms. 

Yet, credit histories influence more than just access to lower-interest loans; they become mechanisms for access to employment, insurance, and even essential utilities like electricity, water, and gas. Therefore, pairing rental relief loans with model alternative credit building can rewrite one’s financial future—offering pathways out of predatory lending and into economic opportunity.

Looking beyond emergency rent relief loans, Kim and Stable Home Fund see the need for an affordable, accessible follow-on financial product akin to microlending—loans at rates their low-income, sub-prime borrowers can afford to repay. “There’s a huge swath of working-class families that can’t escape credit card debt and need to consolidate it,” says Kim. “To get people out of poverty, we need human services paired with concrete financial products so there’s a path. Philanthropy can be that bridge to start things off.”

Philanthropic support for testing, validating, and scaling up interventions

Our research suggests that philanthropy and impact investors can reduce the racial wealth gap by testing, validating, and scaling up interventions that ensure access to wealth-generating assets for low-income communities of color. They have at their disposal a broad spectrum of investment options—equity, debt guarantees, concessionary capital, and grant funding. These investments can support dynamic partnerships between government, nonprofits, and for-profits—like the work of SHF and Esusu—in ensuring a rising tide can lift all boats. 

A small but growing group of foundations—the Kataly Foundation, The California Endowment, the Heron Foundation, and others—are leading the way by aligning 100% of their investable resources with their mission. As some of the largest and most nimble asset holders, the philanthropic community has the power and the capacity to help shape an economic system that treats people with dignity and provides a pathway to shared prosperity.

As for Joe, he’s back on track, repaying his loan and keeping up with rent. “I’m working at a great new place,” he said. “And enjoying my life as it should be.” 

Photo credit: Drazen Zigic via Getty Images


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