Updated: Aug 26, 2020
When was the last time that you thought about the Order of Operations (PEMDAS) to solve for a complex equation? You know, Please Excuse My Dear Auntie Shawn? Okay, so it was Dear Aunt Sally, but I don’t have any aunts, just Aunties, and none of them are named Sally.
In math, you calculate what’s in Parentheses before you can solve for Exponents, Multiply, Divide, Add and Subtract. If I subtract before I multiply, the answer will more than likely be incorrect. However, that's only because we've all decided to adhere to the rule, without asking why. In building affordable access to capital for Black-owned businesses at Denkyem Coop, we challenge the order of traditional financial operations. Like with PEMDAS, there seems to be a right way to evaluate creditworthiness.
This traditional approach assesses risk, using the 5 C’s of Credit: Character (credit score); Capacity (debt-to-income ratio); Capital, (amount of money someone has); Collateral, (assets one has been able to acquire); and Conditions (the economic conditions). History has proven repeatedly that this method of assessing “risk” has excluded Black communities and other marginalized groups who have had limited opportunities to build credit, acquire assets and create generational wealth.
Per the Federal Reserve, “In 2016, white families had the highest level of both median and mean family wealth: $171,000 and $933,700, respectively.” Black families are at $17,600 and $138,200, respectively. In Seattle, for example, median net worth for White and Black families is $456,000 and $23,000, respectively. In researching the topic, I’ve seen this difference increase over time. We’ve got to keep in mind that mean (average) family wealth is always drastically higher than the median (middle value) because, well, apples... If one person has ten apples, and nine have none, the average person has one apple, and the middle value is zero. Nine out of ten people do not eat. Furthermore, those nine probably cultivated and harvested the fruit. If we continue to believe that this pattern can sustainably continue, then our straight-line thinking will continue to place us in situations like our current pandemic.
Straight-line thinking, “ignores the inevitability of unintended consequences, ignores our often less-than-logical reactions to them, and says simply, ‘In the future, we will have more and more of whatever’s holding our attention right now.’,” as explained by Octavia Butler in her essay: A Few Rules for Predicting the Future. She goes on to remind us that there is never the solution to problems of present, and future. There are as many remedies as there are people in the world. In my role as CEO of Denkyem, we address credit disparities by providing flexible, affordable, and relational loans to Black-owned businesses.
At Denkyem, our goal is to step away from traditional lending and underwriting models that have left out Black entrepreneurs from accessing affordable credit. Instead, we hope to design products that operate from a place of support – working with them on a path forward. Using different tools like an underwriting process based on metrics other than credit score, standard transparent interest rate for all clients and revenue-based repayments - we’ve created a solution that our current clients find fair. To re-iterate, this is not the solution, it is one approach; we are continually looking to add to our offerings. Given the historical red-lining of assets and equity in Black communities, this is the least that we can do.
It is critical that we learn from our past. We can’t keep doing the same thing when it comes to assisting and supporting Black communities because there is very little precedence of success. Butler asks, and answers, “How many combinations of unintended consequences and human reactions to them does it take to detour us into a future that seems to defy any obvious trend? Not many.” We’ve got to embrace the reality that things cannot be predicted. Prosperity will not continue forever; neither will despair. But for the most vulnerable, the latter has been lasting for a long time. We must respond now.
Loren Harris (Kenneth Rainin Foundation) recently published: How Philanthropy Can Support Black Workers. He urges that, “Philanthropy and government must act quickly and bring all our best resources to bear, especially for those in low-wage jobs who were living on the margins before the crisis hit.” One of his proposed solutions is direct investments in local small business development. Done responsively, this can revitalize communities, create jobs, and strengthen the local economy. He continues, “Low- or no-interest debt (Shout out to Community Credit Lab!)—to seed, sustain, or help scale local businesses that hire Black and other workers of color—is another deliberate approach to expand opportunity.” It’s essential that we continue to adapt our funding strategies to tailor them to the needs of business owners and the people we seek to support – the urgency of which has increased in our new shifting context during COVID-19. Expanding opportunity in our communities will lead to direct and indirect social returns.
Of course, there are logical reasons for PEMDAS, as is. For example, we solve for the most complex operations first. Are shareholder returns the most complex operation in lending? From conversations, so far, social returns are a priority for investors. Even if there weren’t any logical reasons for the pre-existing order, one could argue, “It’s the rule. That’s why,” dismissing any rebuttals. It has been decided and established. Therefore, it can be a struggle to deviate.
When trying something new, we tend to leverage what has been done before. So, if we were to flip PEMDAS and, say, try SADMEP, we’re simply experimenting with the norm. That’s where innovation is born. Could we subtract punitive fees, alleviating financial burdens for clients? Should we provide more incentives to enable people to payback early so they can start building equity in their businesses? These are some of our approaches at Denkyem. Do we continue to re-arrange the letters, or do we create something entirely new? Our normal of past more than likely won’t return, so why not create something new?
New solutions need to be tested over time for viability, not just for pandemics. While the whole world is impacted by COVID-19, there are specific communities that have been, and still are, impacted by a medley of obstacles. It is just as important, as it was before our current situation, that access to affordable financing is as effective as possible. If you have the capacity, skills and/or resources available, now is the time to contribute! Donate to organizations like Community Credit Lab, that are providing 0% loans to the community. Contact Denkyem to see how you can support Black-owned businesses. Look for groups like The People’s Economy Lab that are working to build a more equitable economy. The ideas are here, but theory takes resources to be converted to action.
Bio: Dion Cook is the CEO of Denkyem Co-op, a private lender focused on providing financial and technical support to black-owned businesses in South Seattle and South of Seattle. Dion is currently a Board Member of Community Credit Lab, a Member of the Leadership Tomorrow program in the Puget Sound, and a Participant in Boston Impact Initiative's Fund-Building Cohort. He also has prior experience founding a small business in the education sector and working as an educator at the elementary-level.
 https://www.federalreserve.gov/econres/notes/feds-notes/recent-trends-in-wealth-holding-by-race-and-ethnicity-evidence-from-the-survey-of-consumer-finances-20170927.htm  https://www.seattletimes.com/seattle-news/data/seattle-household-net-worth-ranks-among-top-in-nation-but-wealth-doesnt-reach-everyone/  https://happyandhapa.wordpress.com/2013/07/15/octavia-butler-a-few-rules-for-predicting-the-future/  https://nonprofitquarterly.org/how-philanthropy-can-support-black-workers/