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On April 9, more than 60 lenders, community development professionals and small business owners gathered in St. Paul to discuss lessons learned from the Federal Reserve's recent study of credit access in the Twin Cities Hmong community.
The occasion was the first Twin Cities Community/Lender Luncheon of 2003, sponsored by the Federal Reserve Bank of Minneapolis. The quarterly luncheon series was created in 1999 to foster debate about community development issues. Past luncheon topics include affordable housing, demographic changes, commercial corridor revitalization and workforce development.
Creating a bridge
The theme on April 9 was "Successful Strategies for Reaching Urban Markets: Lessons Learned from the Hmong Business Community," and the program featured a panel of community bankers and Hmong small business owners who shared their perspectives on credit access in urban minority and immigrant communities.
Following opening remarks from Minneapolis Fed Community Affairs Manager Jacqueline Nicholas, Community Affairs Officer Dick Todd provided an overview of "Credit Availability in the Minneapolis-St. Paul Hmong Community," a recent study commissioned by the Federal Reserve Banks of Chicago and Minneapolis. (For more information on the study, see our cover story.) Todd summarized the study's history, methodology and major findings. In conclusion, he commented that the study depicts the Hmong community's overall experience with credit as a success story, but some challenges and unanswered questions remain.
Moderator Rick Bonlender, a Wells Fargo business banking officer, introduced the panelists, who spoke in turn about their impressions of the Fed study and their experiences with credit access in the Hmong small business community.
Heuky Chu-Yang-Hue, assistant vice president of Liberty State Bank in St. Paul, commented that although the study found few major differences between the Hmong business owners and members of the white control group, a number of barriers still prevent Hmong individuals from accessing small business credit. They include language differences, a lack of formal credit histories on the part of potential borrowers and a cultural aversion to debt. According to Chu-Yang-Hue, the best way for banks to overcome these barriers and reach a minority group is to hire a lender from that group.
Xiong Thao, owner of 7th and Hope Laundromat in St. Paul, pointed out the Catch-22 of small business lending: risk-taking is necessary to build business experience and credit histories, but lenders are reluctant to lend to business owners who take risks. Thao commented that risk-taking is the only way to create jobs and opportunities within a community, adding, "You have to do something different from what you did in the past in order to create a new frontier."
Western Bank President Steve Erdall described the strategies his bank has used to attract and retain Hmong customers. Two of Western Bank's six offices are located in St. Paul neighborhoods with large Hmong populations, and several years ago the bank's market share of Hmong customers declined. "We needed to do more," recalled Erdall.
The bank hired more Hmong employees, including a commercial banker, and offered printed materials and ATM screens in English and Hmong. It also modified its consumer-loan policies, allowing many more consumers—inside and outside the Hmong community—to obtain credit. Hmong customers returned to Western Bank, and the local Hmong Chamber of Commerce recently recognized the institution for creating a bridge between the Hmong and white communities.
Lessons learned
Dan Vang, operations supervisor for Asia Supermarket in Brooklyn Center, Minnesota, echoed Chu-Yang-Hue's concerns about the barriers that Hmong entrepreneurs face. He also noted that Hmong business owners who wish to expand their retail establishments or create manufacturing companies are hampered by a relative lack of experience. "A more experienced businessperson can get a $200,000 line of credit, no problem. For the Hmong community, $20,000 is a challenge," Vang commented. He expressed the belief that many Hmong entrepreneurs are on the verge of tremendous business growth, but need financing and support to make it happen. Lenders can do more to attract Hmong customers, according to Vang, but Hmong people can do their part, too, by establishing relationships with bank managers.
The final panelist, David Reiling, described his experience as president of University Bank in St. Paul. When Reiling and his father purchased the bank in 1995, it was a small, troubled institution serving an economically depressed area. Today, the bank is thriving, much of the area is bustling, and Reiling credits the Hmong community for the growth and revitalization. Some 40 percent of the bank's customers and 30 percent of its employees are Hmong. According to Reiling, University Bank has learned important lessons from its experience with the Hmong community: emphasize respect for individuals, offer flexible products and recognize that, for some borrowers, accessto credit—not the priceof credit—is the central issue.
Taking the chance
In a question-and-answer session that followed the panelists' remarks, a luncheon participant asked about the use of credit scoring in relation to immigrant or minority customers. In response, several of the panelists stressed the importance of flexibility in dealing with customers who have unconventional credit histories. The lenders on the panel indicated that they do not rely solely on credit scores during the loan-approval process, and sometimes use alternative credit histories such as utility-payment records to evaluate potential borrowers.
At the close of the event, panelist Vang commented that the Twin Cities Hmong community has prospered in the last decade, and most likely will prosper even more in the next. According to Vang, the challenge for lenders and the Hmong community is to "take the chance"—to take the necessary risks that can raise the community to the next level of economic success.
Twin Cities Community/Lender Luncheons are held quarterly in the Minneapolis-St. Paul area. For more information, visit our events calendar at minneapolisfed.org/community/events.
