This post was originally produced for Forbes.
Jennifer Williams, a school teacher in Mississippi, has now paid off all nine of her payday loans and hasn’t had one outstanding now for two years. She’s a success story for Southern Bancorp.
Modeled on Shore Bank, which failed during the Great Recession, Southern Bancorp was organized by a collection of Arkansas’s most prominent people, including then Governor Bill Clinton and Rob Walton, a member of the Walton family. Unlike Shore Bank, Southern Bancorp is profitable and growing today.
“Governor Clinton wanted to create economic opportunities and stimulate the economy in Arkansas’s delta region, one of the most persistently poor communities in all of America,” says today’s CEO Darrin Williams. He notes that Hillary Clinton served on the founding board of directors for the bank.
When launched more than 30 years ago, the biggest worry was that what worked for Shore Bank in the urban environs of Chicago and later Detroit and Cleveland might not work in rural Arkansas and Mississippi. The acid test of the past decade suggests the model works just fine in the rural communities it serves.
The bank operates 46 branches in Arkansas and Mississippi, 37% of those branches are in “bank deserts” where the Southern Bancorp branch is either the only bank operating in the zip code or just one of two. What’s more, 28 percent of the population in the bank’s market lives below the federal poverty line.
The CEO Williams explains the market and the bank’s strategy, “Often our competition is not another bank; often our competition is a payday lender or pawn shop or someone who provides alternative forms of capital or credit that really strip wealth. So, we really do a lot of outreach. We don’t wait for people to come to the bank. We take the bank to them.”
The market Southern Bancorp serves is vast, when considered at a global scale. According to the World Bank, about 2 billion people around the world are unbanked or underbanked. In the U.S., an FDIC report in 2015 showed 9 million households were unbanked and another 24.5 million households were underbanked.
Mr. Williams notes, “It’s expensive being poor.” Unbanked customers are forced to routinely pay for services that banked customers receive a low or no charge, from check cashing to check-writing privileges. Check cashing services charge up to 10 percent of the face value of a check and buying a money order costs several dollars.
To be an asset to the communities it serves, the $1.2 billion asset bank operates three related Community Development Finance Institutions or CDFIs. The bank holding company and the bank are the first two; the third is a nonprofit called Southern Bancorp Community Partners.
Mike Myers, vice president, CFO and Treasurer for the nonprofit Winrock International, which partners with Southern Bancorp on some efforts, says, “By providing financial capital in geographic areas too small for the big banks to be profitable, Southern protects the economically disadvantaged from predatory lenders (pawn shops, payday lenders, etc.) Additionally, Southern provides hands on financial counseling teaching people how to use credit rather than credit using them.”
Mr. Williams explains that the bank focuses on measures of net worth as that helps to break inter-generational poverty. For many, the difference is as simple as home ownership. The bank, he says, has three “big hairy audacious goals:”
He was quick to point out that helping people save money will come primarily as a result of the bank’s advocacy work rather than from providing savings accounts to 1 million people.
Mr. Williams has his work cut out for him. “We know that so many people just distrust banks.”
He explains that a typical overdraft fee of $25 or $30 throws customers for a loop. They don’t always appreciate that the bank provided a short-term credit facility and that the service should come with a fee. The effective interest rate on such overdrafts can, in fact, be every bit as penurious as the payday lenders Ms. Williams, no relation to the CEO, has learned to avoid.
One way that Southern Bancorp is working to address unanticipated fees is to create a checkless checking account. Customers get access to their money via a debit card. If the funds in the account are inadequate for the transaction, it is declined and no fees are charged. In this way, the customer picks up right where she left off after the next deposit. The bank offers several accounts with no minimum balance and no or low monthly fees.
The 380-employee bank makes a point to bank customers who have had trouble with banks in the past to help them get back on better financial footing. Banks customarily use ChexSystems to identify customers who’ve had accounts closed by other banks, typically refusing to open new accounts for them. Southern Bancorp uses the system only to screen for fraud. Everyone else is welcome, Mr. Williams says.
One key to the bank’s success is financial education. That’s how Ms. Williams first connected with Southern Bancorp. “My friend and I were looking through the newspaper one day and saw an advertisement for a credit counseling class offered by Southern Bancorp. We called and enquired about the class and began the class immediately,” she reports.
“By combining traditional banking and lending services with financial development tools ranging from credit counseling to public policy advocacy, Southern Bancorp helps underserved families and communities grow financially stronger – regardless of zip code,” Mr. Williams notes.
Mr. Williams, who was a litigator and also served in the Arkansas House of Representatives before joining Southern Bancorp as CEO, likes to ask, “Do you know where your money spends the night?”
He points out that every deposit in the bank is a simple form of impact investment. Not only does the bank use the money to make traditional loans to people in the communities it serves but also makes investments in school bonds, water bonds and other community infrastructure. “I would submit your bank account really is a primary way that you can live your values.”
The bank takes deposits from all around the country from people who want to support the bank’s mission. Mr. Williams points out that the bank is working on a new platform to make it easier for customers outside of the bank’s service area to make deposits there.
The bank is presently raising additional capital to support its growth and impact.
“We believe that wealth building isn’t just for the wealthy. So, we are wealth builders for everyone,” Mr. Williams says.
Myers praises Southern’s work: “Look at the impact…the number of loans less than $10,000, the EIC amounts recovered through free tax preparation, the jobs created and supported, home ownership leading to wealth generation. No other organization in the region has the mission, the tools, the approach, the passion…or the impact. If Southern does not do it, who will?”
Ms. Williams is a fan, too. “I feel that Southern Bancorp really cares about their customers. I feel that they put so much work into getting the word out about credit counselling and helping people build their credit. They make you feel comfortable and willing to share your information with them. Even after the classes, on many occasions, Mrs. Harris has called to check on my progress, and encouraged me to keep going and working on my credit. I feel that Southern Bancorp goes well beyond the basic duties of the typical services provided by banks.
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