As a state made up primarily of rural communities, Arkansas should be concerned about the declining number of bank branches, says Southern Bancorp CEO Darrin Williams.
“At Southern, a rural-focused, mission-driven financial institution, we’ve actually been focused on this issue for more than three decades,” Williams tells Arkansas Money & Politics. “As many banks have left rural communities, Southern has actively sought opportunities to move into these places. In fact, it’s a large part of why we were founded.”
Southern was founded in the mid-80’s when then Gov. Bill Clinton brought leading business, political and philanthropic leaders together to launch a financial institution that would specifically exist to serve the financially-underserved Arkansas Delta.
“The result was Southern Bancorp, and today we have 48 locations, primarily in rural towns in Arkansas and Mississippi,” Williams says. “When Gov. Clinton became President Clinton, he took his experience with Southern Bancorp to Congress, which in turn created the Community Development Financial Institutions (CDFI) fund to support other similar financial institutions focused on underserved communities, both rural and urban, across America.”
In November, Clinton and Southern invited CDFI leaders from across the country to Little Rock to celebrate the 25th anniversary of the creation of this fund, but more importantly to strategize on how to further scale this industry over the next 25 years to address challenges like bank deserts in rural communities.
“As Southern has worked to fulfill this original mission of creating economic opportunity for people and places that needed it the most, we’ve learned some truths that directly relate to the threat of declining rural bank branches,” Williams says. “First, the issue is not simply about one’s ability to cash checks or make deposits. The real threat to rural communities is a lack of access to capital — the fuel needed to drive economic growth. When a bank branch closes and the lenders leave, there’s no lender left who understands the challenges facing individuals within these communities. A roaming lender doesn’t live, work, and worship in these rural communities, and therefore doesn’t understand that someone trying to start a small business there might need a $5,000 loan to get started.”
Williams believes that to truly understand a community and partner with them in growth, a presence and connection is key. That’s something you just can’t get from an app or a website. You’ve got to be there.
“And when those places disappear, the entire rural community is threatened,” he says. “So, yes, Arkansas should be very concerned. The needs of rural America are different from those in our urban centers. Without being there and understanding the challenges facing folks living there, it can be difficult to make the type of lending decisions needed to help them thrive.”
This past year, Southern made more than 7,000 loans, almost half for less than $10,000. Williams says this statistic often surprises many of his colleagues in larger, more urban-focused banks, but it speaks to the needs of the rural communities.
“In many larger financial institutions, if someone were to ask for a loan of $10,000 or less, they’d be handed a credit card application,” Williams said. “But this is often what is needed in rural communities, smaller loans and more time devoted to making them and understanding our customers. It’s something that many of the largest banks simply are not set up to do. That said, serving these communities is more than just a business strategy for Southern. It’s why we exist.”
Presidential candidate Sen. Elizabeth Warren has announced plans to introduce federal legislation that would discourage bank mergers. But Williams doesn’t think that would necessarily ensure that rural communities have access to banks.
“Rural communities, particularly those that have high populations of low- and moderate-income citizens, do not need just any bank,” he says. “These communities need a financial institution designed to offer products and services to address the needs of families and businesses residing there. These communities need CDFI banks. So, instead of discouraging bank mergers and acquisitions, I would advocate for expanding access to CDFIs.”
Southern works hand-in-hand with its development partner, Southern Bancorp Community Partners (SBPC), a 501(c)(3) financial development services organization and loan fund that provides full-service financial development services such as HUD-certified housing counseling, credit counseling and repair services, general financial education, free tax preparation and more to help individuals get on the path to economic opportunity. SBCP provides loans that often provide more flexibility for borrowers.
“This partnership is key because it provides a deep tool box of support services to help folks wherever they are on their financial journey,” Williams says. “As an example, when someone comes to Southern for a loan but is missing some key elements such as an adequate down payment, good credit scores, etc., we can often say, ‘Not yet,’ where many other banks simply say, ‘No.’ In those cases, we’re often able to refer them to our SBCP colleagues who can provide the support services and coaching needed to get them to the point of ‘Yes.’ But that takes time.
“And for many financial institutions, that amount of time simply doesn’t make sense in their corporate strategy. We believe that our mission is our competitive advantage, and we take pride in taking the time to get folks on the right path.”