While the coronavirus pandemic has touched just about everyone on earth, it has also exposed the deep inequalities that communities of color have been experiencing since long before COVID-19 became a household name. The investor response must address immediate needs while building a more just infrastructure for the post-pandemic world.
“The collateral damage shows just how underserved Black, Brown, and Native communities were: the rates of the disease, and, when you look at the economic impact of it, the businesses most vulnerable,” says Erika Seth Davies, a Fair Finance Fellow at Georgetown University’s Beeck Center for Social Impact and Innovation. “We knew who was going to get hit hardest, and that is playing out.”
COVID-19 and Communities of Color
In the United States, the health and economic impacts of the coronavirus have disproportionately affected Black, Latino, and Native American communities. For instance, African Americans make up nearly 60% of reported COVID-19 deaths despite comprising just 13.4% of the population.
Other health impacts of COVID-19 on communities of color show how far these disparities reach. Lower rates of insurance among communities of color can be traced in part to limited access to affordable insurance options. According to the Kaiser Family Foundation (KFF), uninsured Black Americans in particular are more likely than White Americans to experience a gap in coverage because they are more likely to live in states that have not implemented the Medicaid expansion offered by the Affordable Care Act. KFF notes that younger uninsured Latino and Asian populations are also less likely to qualify for insurance coverage because they include larger shares of noncitizen immigrants, who face coverage eligibility restrictions.
The economic impacts are just as damning. People of color are more likely than White people to be employed in uniquely demanding essential services like healthcare and hard-hit industries like hospitality and transportation. Business owners in communities of color did not fare much better. Given the urgency of the unfolding economic disaster, the Paycheck Protection Program (PPP) relied on preapproved lenders to disburse funds to struggling business owners. Unfortunately, most of those preapproved lenders did not serve a significant number of people of color—a long-standing issue often tied to creditworthiness and, at a deeper level, the racial wealth gap that has existed in the United States for centuries.
“People of color who do not have friends or family to invest bootstrap their businesses, which leads to strained credit,” explains Seth Davies. Bad credit can then be the reason for denying the loan, leading to “redlining by another name.” Meanwhile, larger businesses with access to lawyers and accountants could navigate the confusing process, which also used a first-come-first-served approach that disadvantaged business owners without those resources. As a result, up to 90% of businesses owned by women and people of color may have been locked out of PPP’s first round of funding. Some experts have called for federal funding targeted specifically to communities of color.
“It was all avoidable, but it was a perfect storm,” says Seth Davies.
Disparities have also been amplified in other marginalized communities. Asian Americans have experienced a startling increase in racially motivated verbal and physical harassment. Disabled people are uniquely at risk for COVID-19 if their disability includes an underlying health condition and/or they live in a facility. Even among those who live independently, delivery or courier services may now be overwhelmed by able-bodied users, and virtual work or learning tools may not be accessible.
Using Investments to Advance Racial Equity
The devastating links between COVID-19 and communities of color demonstrate why we need to utilize investments to advance racial equity. One way investors can do this is by investing toward financial inclusion.
Funding for community development financial institutions is an immediate need, especially in the form of unrestricted grants. The partnership between the Local Initiatives Support Coalition and Verizon to support communities of color is the sort of model that other investors can adopt. The Ford Foundation’s Disability Inclusion Fund launched a rapid response fund to quickly get capital to groups run by and for the disabled community.
Moving forward, the gaps that appeared in communities of color during COVID-19 will need a sustained response if they are to be solved, including a more inclusive world of finance.
“African Americans, Latinos, and Asian Americans are facing increased risks in areas such as healthcare, education, and the increased police presence and surveillance of communities,” says Daryn Dodson, founder and managing director of Illumen Capital. “So those are macro trends; in the levels at which we think about change, those are some important features.”
“We need to invest across systems, reduce bias, and create best-in-class execution,” he adds, “so that the investors can go back to their teams and inform entire portfolios about this massive suboptimal gap.”