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A few months ago, I visited some rural communities that are struggling. Deep among the rolling hills stood neglected fields, fallen barns, and empty houses. A once thriving farm economy lay fallow, leaving many people out of work. Nearly one in five individuals lives below the poverty line.
This wasn’t the highlands of Guatemala or the patchworked hillsides of Rwanda, where my work usually takes me. This was rural Kentucky—and not even Appalachia, its eastern pocket of poverty, but rather Henry County, just a 45-minute drive from Louisville. Like Appalachia, this area had long relied on an industry that drastically declined in recent decades. Here, it’s not coal mining, but tobacco farming. From 1941 until 2004, tobacco farmers benefited from a federal government program that maintained an equilibrium between supply and demand, guaranteeing parity prices. But when that program died, so did the industry—and the community, like much of Kentucky’s countryside, was left at a standstill.
One in six Americans lives in what’s euphemistically titled a “distressed community,” meaning a place with higher poverty rates and lower incomes than the national average. Some, like Henry County, are rural; but these communities are everywhere. They’re the places that have been left behind in spite of our nation’s general economic prosperity. And it’s not just geographic: There are also demographic communities—African Americans, American Indians, single mothers, among others—that are statistically more likely to be impoverished. In both types of communities, disadvantage is compounded by the lack of access to capital. In a calamitous cycle, those most in need of financing also have the least entry points, which leads to even more need.
There are countless ways that distressed communities in the US differ from the remote areas where my organization, Root Capital, operates. But they have at least this in common: They have an acute need for investment. And we need more gatekeepers of capital to take up that challenge.
Why Does It Matter?
Overlooked communities are fountains of untapped entrepreneurial potential. From a business perspective, ignoring them means leaving money on the table. Consider just a few numbers:
- According to the Center for Global Policy Solutions, the million-plus businesses not started by people of color because of discrimination translates to 9 million jobs and $300 billion in lost income in the US alone.
- The McKinsey Global Institute projected $28 trillion could be added to the global economy if women were able to participate equally (including in access to finance).
- Immigrants are around 13 percent of the US population but account for half of all founders of startup companies valued at more than $1 billion.
Fortunately, some impact investors are paying attention. ImpactAlpha and Village Capital have recently been running an outstanding series on what they’ve termed the “New Revivalists”—entrepreneurs who are rebuilding shared prosperity in America, from the ground up. They make a convincing case that “inclusion adds value.”
This rings true to me. And I’ll add this: We have to choose to invest in people and places that are harder to reach. We have to invest affirmatively; make the conscious and conscientious effort to connect with those at the margins of traditional finance. It’s harder and riskier. So much in investing and social entrepreneurship depends on who you know—who is in your network. We have to choose to forge connections outside our typical sphere, and build proximity in and with communities that have been chronically overlooked.
The good news is that, when investors do this, magic happens. Root Capital was born of another trip to a struggling rural community—in the Chimalapas jungle of southern Mexico. In the late 1990s, I visited an association of vanilla farmers who were toiling to improve livelihoods for dozens of indigenous families, all while drug traffickers operated under cover of the forest around them. In the end, this cooperative failed; not because of the volatile surroundings or a lack of skill, but because they didn’t have access to the capital that they needed to succeed.
From that visit sprung Root Capital, which has since loaned $1.2 billion to agricultural businesses that have improved the livelihoods of almost 6 million people across Latin America, Africa, and Southeast Asia. Along the way, I’ve seen how entrepreneurs in these areas—and here in the US—leverage financial investment to transform individuals, communities, and entire regions. Here’s what it looks like:
At the Individual Level
We’re often told that people should “pull themselves up by their bootstraps.” But this phrase places an unfair burden on individuals, especially those who start out with no boots.
I was recently in Chiapas, Mexico with Elin Vazquez Salas, who literally grew up without shoes until the age of 12. As a young man, he crossed the Rio Grande into Texas, working in a jeans factory until he saved enough money to buy a small coffee farm near the mountain hamlet where he was born. When an outbreak of coffee leaf rust destroyed 80 percent of his crop in 2015, he stumbled but did not fall. Thanks to the support of CESMACH—a small farmer cooperative that Root Capital has financed since 2005—he was able to replace the bulk of his dead coffee plants with new disease-resistant trees. Elin is a hardworking farm-based entrepreneur, but there’s no guarantee he could have weathered such a catastrophic event without financial assistance. Now, not only is he growing organic coffee and helping to preserve one of the last remaining cloud forests in Mesoamerica, he’s paying for his daughter to attend college.
Here in the US, there are thousands of entrepreneurs just like Elin whose lives can be transformed for the better through affirmative investment. For instance, nonprofit community lender ACCION seeks out small business owners who've been unable to obtain loans from traditional banks. ACCION offers customized support aimed at overcoming the unique barriers faced by entrepreneurs from particular communities, from veterans to minorities to people with disabilities. In the process, the organization has changed thousands of lives—not just business owners, but those they employ. There’s also promising initiatives like Project ReMADE, which trains formerly incarcerated individuals—who are often stigmatized when they seek formal employment—to build their own businesses. The project pairs former inmates with mentors from Silicon Valley and beyond, helping them build the professional network most of us take for granted. These are just a few examples of how targeted investment can position previously disadvantaged individuals for success.
At the Community Level
When you invest in entrepreneurship at the margins, you can also help renew entire communities. The key is to tap into local leadership. No one understands the problems and potential solutions better than the community members themselves.
I’ve seen this globally among many Root Capital clients. The Village Nut Company in Kenya, for instance, is figuring out how to provide meaningful economic opportunities for local young people. Agriculture accounts for three-quarters of the country’s GDP, but due to high risks and low incomes associated with smallholder farming, many youth don’t see it as a viable career path. The Village Nut approaches this problem with creativity: they offer training that incentivizes young people to take on other productive jobs in the agricultural sector, from machine operators to quality control specialists. In the process of building up their workforce, they’re also protecting the community’s youth from un- or under-employment.
Back in Kentucky, the Berry Center—a nonprofit founded by the family of famed chronicler of rural life Wendell Berry—is similarly pioneering creative solutions to renew prospects for the surrounding area. Their Home Place Meats program draws on lessons from the region’s earlier tobacco farming initiative, but instead centers on beef cattle. Members of this program are required to raise the cows on grass and without antibiotics or hormones, in return for access to parity pricing. In this way, the Berry Center hopes to revive sustainable incomes for local farmers, while also caring for the community’s natural resources.
At the Regional Level
As if transforming individuals and localities wasn’t enough, investing in distressed communities can also have even larger-scale impacts. After a horrific genocide in the mid-1990s, Rwanda’s economic and social fabrics seemed almost beyond repair. One of the many factors that turned the country into a success story over the last decades was an investment in rural coffee farmers. Before 2000, Rwanda exported no fully-washed Arabica coffee, which earns a premium on the global market. Knowing that it couldn’t compete with coffee-producing juggernauts like Brazil and Colombia on quantity, Rwanda chose instead to focus on quality. With increased donor and private sector support and a wave of economic liberalization, the country became one of the world’s leading producers of specialty coffee. In the process, it also transformed from post-conflict catastrophe into one of the world’s fastest growing economies.
Here in the US, my friend and fellow entrepreneur, Bill Bynum, leads the HOPE Credit Union on a similar mission to revitalize an entire region. Since 1994, the organization’s goal has been to employ credit to improve the livelihoods of poor people in economically-distressed areas of Arkansas, Louisiana, Mississippi, and Tennessee. HOPE works with a regional population that has traditionally not had the opportunity to participate in the formal banking system. To date, it has generated more than $2 billion in financing—particularly for women- and minority-owned businesses—that has benefitted more than a million people. HOPE Credit Union proves that targeted investment can produce opportunity for neglected communities on a large scale, across a swath of the country.
How to Move Forward
Investing in marginalized communities is very clearly the right and the smart thing to do. Given the impact it generates on multiple levels—economic, social, environmental—we can’t afford to continue overlooking the potential right in front of us. As we embark on this challenge, we must center the communities themselves, ensuring they aren’t just beneficiaries of investment, but are leading the way. We also have to measure impact, in order to facilitate accountability and make the case for investing at the margins strong over time.
But let’s not kid ourselves: Chronic underrepresentation has cumulative effects and will take years of sustained effort to correct. Rodney Foxworth, Executive Director of the BALLE Network, recently wrote: “If mainstream impact investing continues to operate within the culture of the “free market” and prioritize capital returns, by definition it will promulgate economic injustice.” Investors can stop this cycle in the places left behind—from the backroads of Henry County, Kentucky to sprawling slums of Nairobi, Kenya—but only if they think a little less about financial margins and a lot more about impact at the margins.
