ShoreBank’s Evolution from Community-Based Banking to the Microfinancing Arena

In the midst of the radical social atmosphere of the 1960s, a group of Chicagoans, Ron Grzywinski, Milton Davis, James Fletcher, and Mary Houghton, came together to found South Shore Bank in the 1973 with a goal to provide loans to minority owned small businesses.

Ron Grzywinski had banking experience with Hyde Park Bank. Milton Davis was a University of Chicago employee and the Chicago leader of the Congress of Radical Equality (CORE).  James Fletcher had previously worked in President Johnson’s administration as part of the internal transition team and with the Citizen’s Action Program in the Office of Economic Opportunity.  Mary Houghton, at that time, was running a daycare program for low income families.

These four individuals had often met to discuss ways in which they could help the needs of urban society by becoming a financial intermediary for social development and community actions. These discussions led to the creation of a minority lending program at Hyde Park Bank. With the influence of Al Raby, a Chicago black rights leader, they looked for the next step to continue their goals of providing loans to small businesses in neighborhood development. Grzywinski stated, ” community-based organizations appeared to be the only organizations in society that cared about the broad range of needs that exist in urban communities”.

In 1969, Grzywinski left Hyde Bank to pursue this goal while the other three individuals continued working with the Hyde Bank initiative.   In the early 1970s, the South Shore National Bank on the South Side of Chicago was disinvested. In the 1960s, the primarily white South Shore neighborhood had transformed  into a 70% black neighborhood as whites left for the suburbs. Along with this racial transformation, banks left the area, leaving only 3 banks to serve 78,000 people.  South Shore Bank was one of these banks and appealed to be moved, but their request was denied.  Grzywinski formed the Illinois Neighborhood Development Corporation (INDC), and he and fellow investors began to raise the needed capital to purchase the South Shore National Bank in August of 1973. INDC purchased the bank, with its $38 million in deposits, for $3.2 million. It later became known as Shorebank Corporation in 1986. Davis and Houghton left the Hyde Park Bank to work with the new bank while Fletcher stayed a few more years at Hyde Park Bank to run the minority lending program.  Stanley Hallet was also instrumental in laying the ground work for the early stages of the banks. Hallet was very active in community organizing and urban planning, working with both Saul Alinsky and Martin Luther King, Jr.

First Decade (1973-1983)

The bank’s first few years were largely seen as a failure. The holding company, INDC, lost money in the first 10 years of operation, and the bank itself lost money in its first year. The bank began earning a profit in 1975, and in the 1970s, the founders began to feel that the bank was not sufficient to create community development. Two other organizations were created to facilitate community development in 1977: The Neighborhood Institute (Shorebank Neighborhood Institute), a non-profit entity providing education, job training and tenant services and City Lands (Shorebank Development), a real estate development business. Fletcher left Hyde Bank to head up the Neighborhood Institute.  During this time, founder Grzysinski spoke before Congress advocating for the Community Reinvestment Act, aimed at preventing discriminatory practices of banks and encouraging them to lend to low and moderate income individuals.  President Carter nominated Grzysinski to his National Consumer Bank Board of Directors in 1979.

The 1980s brought increased success for the bank. It expanded to other Chicago neighborhoods and provided consulting work for the Southern Development Bancorporation in Arkansas with the financial backing of Winthrop Rockefeller Corp. and the political support of then Governor Bill Clinton. The Arkansas project established rural development banks in Arkansas and another set of two-pronged non-profit and profit entities aimed at economic and real estate development. The 1980s also brought about a time of vast expansion for the bank.  It established a commercial banking center, and their Neighborhood Institute and development business completed housing projects in 1981-1982. In the 1980s, the bank became part of the Small Business Association’s list of Preferred Lending Programs and a Certified Lender.

Second Decade (1983-1993)

In 1983, Shorebank extended its influence overseas with INDC providing consult to Grameen Bank, a bank providing microfinancing to the rural poor in Bangladesh.  The corporation also began administering funds to small businesses in Poland in 1990, which then became the launch pad for further international work under Shorebank Advisory Services.

The corporation also continued to provide consultation services in America with the Southern Development Corporation in Arkansas and opened other branches in different Chicago neighborhoods.  In 1991, the bank began to partner with Northern Michigan University to create Northern Economic Initiatives Corporation as well as a for profit arm, Shorebank BIDC, to provide assistance to local businesses.  In 1993, Shorebank began to work with Ecotrust, a Pacific Northwest environmental organization.

Third Decade (1993-2003)

With an increased emphasis of the Community Reinvestment Act under President Clinton, the bank raised $7-9 million in equity capital. Founder Grzywinski, who was instrumental in assisting then-Governor Clinton with the development of rural development banks in Arkansas during the 1980s, was present when Clinton signed the Community Development Financial Institutions Act in 1994. The bank expanded its influence throughout the country with Shorebank Cleveland and its nonprofit counterpart founded in 1994-1995. This bank began to achieve profitability in 2001. Shorebank Detroit was formed in 1998 following initial work done by the Detroit Development Bancorporation and the two non bank contributing affiliates: Shorebank Development and Shorebank Enterprise.  Following their work with Ecotrust in 1993, Shorebank and Ecotrust founded Shorebank Pacific in 1997 to provide services for businesses in the Pacific Northwest rain forests.  In 1995, Shorebank merged with Indecorp, a large, minority-owned bank holding company.

Abroad, the bank’s influence spread via its work through Shorebank Advisory Services (SAS). To date, SAS has provided services to Russia, Bulgaria, Armenia, Azerbaijan, Georgia, India, Jordan, Kenya, Mexico, Nicaragua, and Northern Ireland. Shorebank worked with the European Bank for Reconstruction and Development to provide small business loans in Russia and the Bulgarian-American Enterprise Fund to provide loans in Bulgaria. In 1997, the bank was awarded a $15 million contract from the United States Agency for International Development (USAID) to provide loans in Armenia, Azerbaijan, and Georgia.

In 2001, Bob Nash, who later worked as Hillary Clinton’s deputy campaign manager during her 2008 presidential run, became Vice Chairman of the bank.  In the early 2000s, the bank began to re-brand itself, changing its mission statement to “let’s change the world” and calling all non-profit entities ShoreBank Enterprise (with the exception of Northern Enterprise).

The Most Recent Years (2004-Present)

In 2004, ShoreCap Exchange was launched, which provides overseas technical services to areas that receive financial services from ShoreBank. ShoreCap exchange has client banks in India, Afghanistan, Bangladesh, Rwanda, Uganda, Tajikistan, Pakistan, Kenya, Nigeria, the Philippines, Gambia, Cambodia, and Mongolia. In 2008, its international influence expanded to Belarus, acting as a partner in opening the Belarusian Bank for Small Businesses. Also, the International arm of its operation raised $26.2 million in debt capital to provide microfinance loans in Tanzania, Uganda, and Southern Sudan.

This most recent era also brought the mergers of the Detroit, Cleveland, and Chicago branches. In 2006, Shorebank Advisory Services was renamed Shorebank International, Ltd. The Center for Financial Services Innovation, a non-profit entity, began offering services for underbanked consumers and loans to promising businesses. In 2007, Shorebank Enterprise Pacific merged with Cascadia Loan Fund, becoming Shorebank Enterprise Cascadia. This enterprise was awarded $40 million in tax credits from the stimulus bill for low income and developing communities in 2009. This allocation was one of three such awards between 2004 and 2009.

The Midwest bank acquired the Greater Chicago bank, spreading its influence to the Latino community in 2006. The next year, the bank began to refinance subprime mortgages through its Rescue and Foreclosure Prevention Loans and increased the number of branches throughout the Chicago area. The MacArthur Foundation provided funds to support the risk of its loan funds.  In 2008, even amongst the failing of many banks, ShoreBank increased capital by more than $30 million.

In May 2009, Shorebank received $35 million in New Market Tax Credits for green building projects. In July of 2009, Shorebank was slapped with a cease and desist order from the FDIC and Illinois Department of Banking because of delinquent loans. In August, the bank was given more than half a million dollars to help provide microloans to nonprofit community businesses.  In November, CEO Joseph Hasten resigned, and George Surgeon took his place.

As recently as February 2010, Shorebank had reported more than $50 million dollars in losses. Such losses have prompted Congressional representatives to ask the state to essentially bail out the flailing bank, which possesses only a one star rating on bankrate.com.

For more information on the history of Shorebank, see here and here.