CAPACITY BUILDING

Even when well-intentioned people with

diverse interests unite around a shared vision, they may not know how to realize it. This is why capacity building is so im- portant. Too often, however, it focuses on increasing the effectiveness of residents through education, training, and other tools when they participate with more sophisticated parties—rather than build- ing the skills of developers, government representatives, and professional advo- cates to work effectively with residents and each other. Attention must be paid to developing everyone’s capacity to under-

stand each other’s interests and engage in constructive dialogue and negotiation.

In this respect, effective facilitation is essential. Community building demands more than conversation; it requires con- versation about how to converse. This is one area in which foundations, profession- al associations, nonprofits, and academic institutions can have significant impact by supporting demonstration projects, re- search case studies, lessons learned, and other tools that teach people how to ad- dress a community’s unique needs.

Our take-away message about external

alignment is that successful placed-based development requires creating a commu- nity where people live not just by accident but by choice and where improvements to the community’s future don’t hurt the people who live there today. Ethical com- munity development unites and aligns a neighborhood with local government, businesses, and institutions to develop a new and better vision for the community. This requires leadership, community en- gagement, shared vision, sustained com- mitment, and new capacities Ultimately, people and institutions that reside, invest in, and govern each neighborhood must institutionalize the commitment to ethical change that is rooted in respecting and improving the lives of every resident.e

Response Essay

By Elwood Hopkins Emerging Markets, Inc.

Los Angeles Tom Dewar describes what for me are the

most important set of issues that have defined the evolution of comprehensive

community change efforts in the past decade: the widespread awakening of in- terest in aligning external resources with community needs, and the new interme- diaries that have emerged to facilitate that alignment through partnerships based on mutual self-interest.

It would be hard to sum up more succinctly the issues that have informed my own work in the field over the past 15 years. Los Angeles was the site of one of the first rounds of place-based initiatives that began in the early 1990s. Immedi- ately after the Los Angeles civil unrest of 1992, a consortium of foundations called Los Angeles Urban Funders (LAUF) was formed. I was hired by LAUF to help the funders frame and carry out place-based initiatives in neighborhoods that had been most impacted by the rioting or were considered potential locations for future riots.

Even then, LAUF members understood the importance of bringing in resources from outside the community. The root cause of the civil unrest, they felt, had been a lack of economic opportunity: In one of the largest, most prosperous regions in the world, economic opportunities were not fil- tering down to the poorest neighborhoods. LAUF conceived of itself as an honest bro- ker that could help create new channels through which growing industries could bring their opportunities to the geographic areas that needed them most.

To be sure, progress was made. By 2000, neighborhoods targeted by LAUF were showing signs of increased economic productivity and readiness. Financing in- fused through local business assistance programs had grown microenterprises into viable firms. School-based programs mea- surably improved student academic perfor- mance, and new workforce pipelines con-

nected adults with jobs. A range of financial education and asset building programs, delivered through churches and schools, prepared households to participate in the mainstream economy. And block clubs were organized to document their buying power in order to persuade national retail- ers to come to their communities.

But despite this progress, one of the principal goals identified by residents— the attraction of new bank branches—re- mained out of reach. Bank executives had been brought to the table. They had con- tributed to the pooled fund that supported the capacity building work. But from the perspective of the financial institutions, the entire effort was as a philanthropic venture. They did not see it as a means to their ultimate self-interest: profit.

The problem, of course, was not new. Over the past generation, a number of intermediaries have arisen to address the failure of banks to serve low-income neighborhoods. Some, like Community Development Finance Institutions, have compensated for the lack of banks by pro- viding alternatives to mainstream financ- ing. Adversarial groups have mounted pressure campaigns aimed at forcing banks to do a better job of meeting the financial needs of the poor. And national community development intermediar- ies have sought to help banks comply with the Community Reinvestment Act through partnerships with community de- velopment corporations.

But even when they explicitly set out to meet the self-interests of banks, these intermediaries are often so strong- ly identified with the communities they serve that they struggle to influence the financial sector. They tend to speak community development language and approach their conversations with out-

side institutions from the perspective of community needs. While they have succeeded at bringing financial resourc- es into low-income communities, they are rarely viewed as “insiders” by the banking world.

In recognition of these limitations, LAUF leadership began to evolve a new, bifurcated structure, one that could be- come an insider in both the community and the banking industry while building bridges that would span the two worlds.

A nonprofit, the Center for Place- Based Initiatives, was established to build the neighborhood’s capacity to access economic opportunities. It helps commu- nity groups in targeted neighborhoods adopt a market orientation, incorporating a range of asset building and family eco- nomic stability services into regular pro- gramming. The center works intimately with these groups and is privy to the or- ganizations’ internal challenges and ca- pacity needs. It supports community-wide investment strategies aimed at expanding decent housing stock, cultivating small business districts, and generally growing the neighborhood economically and im- proving its productivity as a market. And it mobilizes the philanthropic support re- quired to carry out this work.

In parallel, a for-profit consulting firm, Emerging Markets was established that could contract directly with banks to help them find profitable business op- portunities in the low-income neighbor- hoods. Emerging Markets looks and feels like a conventional corporate consulting firm, and its team includes individuals with expertise in banking who can speak the language of banks. Like any corpo- rate consulting firm, it signs nondisclo- sure agreements with its clients and is granted access to internal business data

and proprietary business models. And its contracts are defined and evaluated in terms of their impact on corporate prof- its.

Unlike conventional consulting firms, however, Emerging Markets only helps banks with business development strate- gies in low-income neighborhoods. And in addition to having personnel with back- grounds in various business disciplines, Emerging Markets has hired more than 100 neighborhood residents who also serve as consultants, bringing their local market intelligence and relationships as neighborhood influencers to the table as a resource for the financial institutions. Many residents who were enlisted for neighborhood research projects or to lead financial education workshops as part of LAUF’s early work now find that their knowledge and experience are of great value to corporations interested in doing business in their neighborhoods. It is a new spin on the old concept of “resident engagement.”

The Center for Place-Based Initia- tives and Emerging Markets are distinct in a legal and fiscal sense, and they have firewalls that prevent the free flow of in- formation between them. However, they also have interlocking staff and boards and a shared strategic framework that allows them to coordinate work in the same com- munity and find points of collaboration be- tween the corporate clients and the com- munity groups. This strategic framework is the bridge that makes possible the collabo- ration between disparate partners.

The focus on a shared strategic framework ensures that local partners are not co-opted by corporate agendas. Rather, the partnerships are structured in ways that help the community groups ful- fill their own missions:

e Through the schools, banks help parents create matched savings ac- counts to save for their children’s higher education.

e Through local chambers and business assistance centers, banks administer microloans, graduating clients over time to mainstream loan products.

e Homeowner associations can revital- ize residential districts by negotiating favorable home improvement financ- ing for their members.

e Nonprofits that provide job place- ment or free tax preparation services can help clients protect their new in- come or refunds by opening a sav- ings account at the local bank.

e Church groups promote financial ed-

ucation through home-based prayer meetings as a way of promoting fam- ily stability.

Banks have begun to understand that these collections of local organizations and associations comprise a delivery sys- tem for educating potential customers and a trusted referral network for driving more consumers to their branches. And as banks learn to honor the spending power and market intelligence of low-income families, those households discover a new kind of empowerment—one derived

not from organized political force but from organized consumer power—that gives them a voice in corporate practice.

The approach was first tested in Paco- ima, a neighborhood in the northeast San Fernando Valley of Los Angeles. Through a combination of community-based finan- cial education programs and profit-ori- ented consulting services to Wells Fargo, a bank branch finally opened in the com- munity in 2003. It quickly proved itself to be among the most profitable in the trade area. Since that time, we have worked with other financial institutions, such as Bank of America, Union Bank, Washington Mutual, JP Morgan Chase, and Wachovia, and the work has expanded to more than a dozen neighborhoods throughout the Southern California region.

As this work expands to cities in other parts of the country, a new set of industry standards has quietly begun to emerge in the banking world. Paralleling the work of Emerging Markets and the Center for Place-Based Initiatives, the community development and profit sides of financial institutions are now collaborating to grow markets in low-income neighborhoods. In a real sense, we are seeing greater align- ment within the financial institutions themselves.e

Evaluating and Learning from