MATRIX OF PLAYERS

Hispanic Business assesses the complexities of the issue of access to capital with a matrix of factors and potential solutions. The Access to Capital Matrix highlights "contributors" such as investment bankers, institutional investors, media, and Hispanic entrepreneurs. It also reviews potential actions each can initiate to open financing opportunities to Hispanic companies. In coming months, Hispanic Business will address many of the factors and possible outcomes of the matrix through interviews, research, feature articles, and online interactive forums.

USA (By Paul A. Eisenstein, Hispanic Business) September 2007 — Building momentum in an effort to break the investment barriers faced by the U.S. Hispanic economy, several high-level proposals are taking aim at carving new capital channels to companies.

"The Isabella Project: Closing the Latino Capital Parity and Procurement Gap," by the Milken Institute and the Latino Community Foundation, proposes a pilot project in a Hispanic region of the San Francisco Bay area that would, among other things, securitize loans for targeted businesses.

Commissioned by the San Francisco Hispanic Chamber of Commerce and the foundation, a project report released in July says such efforts are needed because "financing channels to Latino business remain mired within the control of incumbent market players."

So far, discussions by the chamber show the market viability of the pooling and purchase of individual small business loans from multiple lenders and packaging them into securities to be sold to third parties. Such a move would reduce lenders' credit risk by providing liquidity, thereby freeing them to make additional loans and further expand capital channels for companies.

 

Partners in the project would include the Latino Community Foundation, the chamber, the Milken Institute, targeted banks, and the Minnesota-based Community Reinvestment Fund. Under the proposal, targeted banks in the region would sell existing loans to the Community Reinvestment Fund – a nonprofit financial services organization that buys economic development and affordable housing loans from community development lenders – to provide a pool of assets to securitize.

Efforts to boost capital channels also came out of Washington, D.C., as the New America Alliance testified before a House Committee on Financial Services panel. Among key recommendations, the alliance urged the committee to examine the selection of fund managers for retirement plans to ensure Hispanic-owned firms are allowed full participation and suggested expanding the Community Reinvestment Act to include insurance companies and private-sector pension funds.

The act, passed in 1977 by Congress to outlaw redlining, requires financial institutions to invest in low-income urban centers. The alliance says figures show that from 1997 to 2001, banks pledged more than $1.5 trillion in loans, investments, and services to minority and low- and moderate-income communities in agreements and voluntary commitments under the act.

"While the CRA could be improved, it has served as a significant economic locomotive to disadvantaged areas of our country and for the most part has proven profitable for banks," Ana Maria Fernandez Haar, the alliance's board chair, told the panel. "[The alliance believes] similar programs sponsored by insurance companies and pension funds would be equally profitable and provide additional billions of dollars in capital to our domestic emerging markets."

The alliance and Milken proposals are among a growing number emerging across the country as the accelerating growth of the U.S. Hispanic economy puts pressure on the limited financing options for mid-size Hispanic-owned companies.

Ultimately, the Milken report says, "Resolving the [Hispanic] business capital gap is critical to national economic health. … Closing this gap requires innovation in the creation of new sources of capital investment … and new channels of equity and debt financing capital from investors and banks to entrepreneurs and existing businesses."