What The Young Bucks Have To Say About Social Change

I started Capital Good Fund (CGF) when I was 24.  At 29, I am proud to say that I run a tremendously successful, innovative and rapidly growing social change organization, one that has garnered local, state and national attention.  After five years in this role, I’ve seen a lot about what is right and wrong with the social sector: old ways of thinking about philanthropy and inchoate changes to that thinking. 

This clash, this tension in philosophy and practice, had informed much of what I do.  For instance, consider the way we price our products and services.  In the past, the prevailing belief was that nonprofits should stamp everything they do “free of charge” or, at best, charge a nominal fee.  I’ve encountered this attitude in many meetings with other nonprofit and philanthropic leaders, an attitude which seems to say “we are here to protect these poor people; they cannot, and should not, have to pay for what you offer.”

 Not only is this viewpoint condescending to the poor—they can make decisions for themselves—but it is also highly impractical.  As a case-in-point, take our loans: we charge 30% APR + a 4% closing fee on our payday loan alternative product, which ranges from $300 - $500 and has a one-year term.  Sounds high, right?  But let’s put it in context: payday lenders charge 260% APR, and on average our borrowers save ~$400 of interest over the life of the loan.  What’s more, were we to charge no interest, or a “token APR,” we would lose money—money that would have to be raised from donors and foundations.

Well guess what: it’s hard enough to raise funds.  How are we to scale when we handcuff ourselves?  Most interestingly, our clients never complain about our rates, for they understand that they are equitable and appreciate the other benefits, such as credit building.  But when funders back away from us for this reason, we are forced to make a choice: sacrifice long-term sustainability and impact for short-term cash flow, or seek out new approaches.

These new approaches are where we, as an organization consisting of enthusiastic and passionate young people (the median age of our staff is 26), are hoping to drive change in the sector. Specifically, we are looking to upend the traditional fundraising approach by financing our growth through debt.  You see, I’ve come to the conclusion that charitable giving is simply not going to get us the millions of dollars we need up-front so as to build the requisite infrastructure to scale our operations to the point that we can cover all of our costs through earned-income (interest, fees for financial coaching, etc.).  How tragic would it be not to fulfill our potential to reach tens and then hundreds of thousands of families living in poverty, simply because of the limits of our sector?

Instead, we want to do what a high-growth for-profit would do: write a business plan and prospectus, pitch it to investors and then utilize that capital to build infrastructure. It turns out that nonprofits, while we can’t give away equity (a nonprofit is technically owned by the public and therefore cannot be owned by individual investors), we can take on debt, and we can structure that debt as we see fit; that is, it can be secured or unsecured, subordinated or unsubordinated, etc.  Even better, we can choose the terms and conditions; you may have heard of social investing and “patient capital,” but the truth is that there are very few “shovel ready” social enterprises.  We are ready, and we plan to pay our investors—those who lend us money—roughly 5% APR with terms of 7-10 years. Not a bad deal given the impact we have on the lives of the poor, no?

What has amazed me is the opposition to this plan, even though we have a proven track record of social impact, sound financial practices and a business model that can scale. No, what it comes down to is that the thought, the mere concept, of a nonprofit taking on the risk of borrowing millions of dollars simply seems beyond the pale—it just isn’t what nonprofits do!  But if ever there were a sector where risk taking was worth it, it’s the social sector.  After all, the worst that happens is we do everything we can to serve the poor and, at the end of the day, it doesn’t quite work out.  Seems like a good trade-off to me!

So I  find myself in a position where I must rely on the old ways of doing things (I have to keep the lights on) while I fight to forge a new path.  This leaves me “dangling in the wind,” as it were, in the sense that I am finding more skepticism than support, especially among those “in the know”—those who have “seen it all” and “are certain what works and what doesn’t.”  At the end of the day, however, someone has to take a new and bold approach.  50 years after President Johnson launched the War on Poverty (and the War on Vietnam, of course), the poverty rate has barely budged, income inequality is surging and racial disparities remain troubling (according to the Brandeis Institute on Assets and Social Policy, median white wealth is nearly 10 times greater than that of blacks).

Something clearly isn’t working, and if the height of folly is doing the same thing and expecting a different result, then so much of what we do must be written off as folly.  At age 29, I’m just young enough to discard what has failed and just old enough to carry my experience with me as we at Capital Good Fund try audacious new tactics in the fight against poverty.