Economic Investment & Violence Reduction

Gloria Nauden (DCCDC) & Chris White (CREDE)

The W8CIF is an initiative of the DCCDC. The W8CIF is a black led place-based funding opportunity offering “grant-secured loans” to Ward 8 resident-entrepreneurs, and small businesses. 

Grant secured loans are a new generation of funding tools functioning as an anti-racist financial product developed by and for black entrepreneurs in partnership with elected officials, DC Department of Small & Local Business Development (DSLBD), and a small business focused CDFI.

In short, there are two pools of money that make the project possible: $175,000 to be dispersed as loans to small business owners, and $175,000 in grants. When money is loaned out to business owners, an equal amount of grant money is set aside in escrow. This grant money backs, or “secures”, the loans and serves as an incentive for repayment. This is because, when loan recipients pay back their loans in full, they receive the full grant amount being held in escrow, with no obligation to repay the grant portion of the money they receive. The project has outlined three tiers of loans: up to $2,500 for entrepreneurs in the “exploration” phase, up to $5,000 for startups, and up to $10,000 for owners of existing businesses.

Research the connection between economic investment, or lack thereof, and violence. Develop a policy case, in the form of a white paper, for how increased economic investment (i.e. microfinance, small business support, etc.) can be a violence reduction strategy.

1. What contributes to the lack of investment in economic opportunities in low income communities? 
2. Is there a connection between violence and inadequate economic opportunities?
3. Do increased investments in small businesses reduce violence and thereby improve public safety?
4. How is W8CIF working to invest in Ward 8 through microfinancing?

The team spent an extensive period of time reviewing existing literature, analyzing available data/statistics, and creating an annotated bibliography of a variety of sources. The team also developed a methodology for evaluating qualitative research and conducted qualitative interviews to expand the scope of the research.

As the result of historical inequities, and structural ones that still persist today, there are stark disparities between black-owned and white-owned businesses. Some of these inequities are exacerbated by predatory lending processes, lending discrimination, access to credit, and different legislation.

Violent crime has been an issue over the last few years in the District, but it is continuing to increase in Ward 8 specifically. In 2021, about 62% of homicides in the District occurred in Ward 8.

Although Ward 8 experiences higher levels of violence, it has also experienced higher levels of disinvestment, discrimination, and a lack of economic infrastructure and other resources enjoyed by other, more affluent wards in the District.

"It’s going to have to be policies that reverse engineer these conditions. But we cannot expect the same people that created those policies to then create the solutions to alleviate those conditions."

“In 2013, when I first moved to Ward 8, I became a victim of gun violence. I wasn’t targeted or physically hit with a bullet but my vehicle was and my vehicle is an asset to me, my business, and my family. That put a huge dent in me being able to travel back and forth to the grocery store, dropping my daughter off, me going to school as well, I was a full-time college student at the time.”

"You can't really develop strategies without the people who are going to be impacted by those strategies being engaged."

"It is the American way, you really cannot participate in the mainstream in this country if you don’t own your property or own real estate that will allow you to build wealth. Structural racism, we’ve been denied that for 400 years. A large part of the discrepancy between black people and white people wealth wise comes from that."

"You know, I teach my kids that if you can run a business selling weed, selling cocaine, selling all these things, then you could definitely build a business in the legal sense. And they don't even understand what I said, y’all you're managing people, you're managing your money, you're doing all these things in a [il]legal sense. Because you don't believe that you can do it in a literal sense."

DC is the most resource-rich place on the East Coast. And I would argue that the problem in which they don't understand is that DC is also the most educationally poor place when it comes to understanding how to obtain those resources, right? So even though the resources are there, no one knows they're there because … They're not promoted too. There's no simple way to get to one and three. We always know that there's fine print.

*These names are aliases for participants who have wished to remain anonymous.

• As expected, small business outcomes are positively associated with the amount of required start-up capital. There are many factors that influence a business’ access to start-up capital that could explain the discrepancies between Black and White business owners’ access to varying levels of start-up capital. Black businesses have less start-up capital on average because of racial wealth gaps that have led to less personal wealth that can be directly invested in their businesses or used as collateral for a business loan. Less start-up capital is a result of centuries of lending discrimination. Research has also shown that Black individuals may have less access to family wealth through inheritance, loans, and equity investments (Bates  1997 ).
• Many banks report relying almost entirely on the credit history and credit score of the principal owner or business when making commercial lending decisions. Considering what we know regarding discrimination in credit scoring, this poses a significant barrier to minority individuals looking to own businesses.
• Predatory lending capitalizes on “lack of financial alternatives, consumer vulnerability, and mainstream financial services deregulation”.
• Some disparities in accessing credit are due to "perceived denials." Further research has found Black individuals to be 53% more likely to have avoided applying for a loan due to fear of denial than white male business owners. Over 65% of Black-owned businesses that did not apply for pandemic relief funding believed that they would not qualify (Chiarenza 2022). This theme appears in other research which indicates that Black entrepreneurs often expect to be denied when applying for loans, therefore, they apply less often than their White counterparts (Fairlie, Robb, Robinson 2020). 

• Merton's (1938) strain theory explains that there are expectations of success and societal pressure to gain wealth and economic development.
• Although there is pressure to succeed, the reality is not everyone has the same opportunities to do it. In this regard, people with economic disadvantages who lack opportunities to succeed, have a "strain" on them to achieve their goals by other means, including committing crimes.

• Most increases in violence were concentrated in disinvested and disadvantaged neighborhoods. Studies have also shown that historically redlined areas are more likely to be economically disadvantaged and have higher rates of violent crime, even decades later (Love 2021).
• Basken argues that we should concentrate resources in areas where the potential gains are most promising, such as those in neighborhoods that have faced historic disinvestment.
• Published by the Inter-American Development Bank (2016), one of the main factors that explain violence is inequality. In the same vein, in a report published by the United Nations  Development Programme  the authors conclude that income inequality has a significant positive association with crime.
• In the United States, an analysis between 1987 and 1994, obtained from 50 states, demonstrated that income inequality was strongly correlated with firearm violent crime (Kennedy et al., 1998)
• Much of this link was shown in our qualitative interviews, many residents described crime as a symptom of system issues such as poverty, family structure, lack of resources, lack of a support system, and more.

Next year's team can take the research from the annotated bibliography, literature review, and white paper and find other modes of communicating it. This can look like a brief policy memo, comments/letters to D.C. elected officials, one-pagers, or even social media graphics. It is important to take this information and make it as accessible as possible.

In the same vein, next year's team can translate a lot of this research into a slideshow proposal for future funders and advocates.

We learned so much from the amazing Ward 8 residents and business owners who took the time to speak with us. Next year's team should talk to more individuals or spend time in Ward 8 to further link the research with lived experience.

The team should work on drafting recommendations for ways, beyond the W8CIF, for policymakers to use economic investment as a long-term violence interruption strategy. These recommendations should consider an equitable development approach, ensuring that community voices are prioritized and that residents are not displaced as a result of the economic investment like gentrification.

The team should work with partners to host a community event or gathering. One Ward 8 resident and business owner, Kymone, told us in one of his interviews, "Community, you make a presentation and get some feedback, and then that helps them buy in and take ownership to what's coming down, because usually they've been told what's about to happen as opposed to having them apart of the process." Ideas for this event could be a panel discussion with W8CIF recipients with our partner ora creative gathering where everyone can exchange ideas and art.