HOPE and Transformational Lending: Netflix Invests in Black Led Banks

Following the killing of George Floyd on Memorial Day in 2020, the large US corporation Netflix elected to make a "transformational deposit" of $10 million into Hope Credit Union (HCU), a small Black led community development finance institution (CDFI) based in Jackson, Mississippi. This was part of a $100 mm commitment by Netflix and mirrored similar efforts by other large entities like Biogen, with that firm's deposits into OneUnited, the largest Black owned bank in America. HCU and its CEO must consider how to invest the funds: for example very conservatively, to lower the risk to Netflix's deposit; or doing business as usual, but more of it (including residential mortgages); or in "transformational lending" to match the intent of the "transformational deposit," for example to back companies that had the opportunity to create jobs and create economic growth in the region (including real estate and plant and equipment loans), but were poorer credit risks (paying higher interest rates to borrow, and also representing higher default risks). The decision highlights the business obstacles facing Minority Development Institutions (MDIs) because prudence could also lead to lower margins and less competitiveness; whereas aiming for transformation might be damaging or fatal. The parties also have to consider what willl constitute success and impact: how will Netflix and HCU gauge efficacy? if the program is effective, can it scale up to attract both more of Netflix' cash and also encourage deposits from a meaningful number of other corporations? Finally, if this method might fall short of importing enough capital into the region to mitigate poverty and spur economic development and the revitalization of small American cities and towns, might other means need to be considered as matters of national economic development policy, for example universal basic income or race-based reparations?