A fund that started out as an experimental bet on minority-owned small businesses in Detroit is about to get almost three times as big. The backers of the city’s Entrepreneurs of Color Fund—including JPMorgan Chase and the W.K. Kellogg Foundation—announced today that the fund would expand from $6.5 million to $18 million, thanks in part to an influx of new nonprofit and for-profit investors.
The news is an encouraging milestone in an ongoing effort by JPMorgan Chase, the country’s biggest bank, to steer more of its corporate philanthropy toward revitalizing inner cities—particularly in Detroit, where the Entrepreneurs of Color Fund is part of a $150 million, five-year commitment by the bank. (Fortunewrote about the Detroit project in a feature in its Sept. 15 issue.)
“We view [the fund] as one of the big successes so far,” Peter Scher, the bank’s head of corporate responsibility, tells Fortune. “When we first started, we didn’t anticipate how big a part of the recovery small business would play.” JPMorgan Chase plans to seed similar funds to support minority entrepreneurship in the South Bronx and San Francisco in 2018.
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The EOC Fund is designed to address a Catch 22 that renders many urban small businesses “unbankable.” That stalemate partly reflects bank regulations that make it hard for borrowers to amass collateral in neighborhoods where incomes or property values are depressed. It’s also a legacy of “redlining” by banks—the past practice, now illegal, of classifying minority-dominated neighborhoods as too dangerous for lending.
To pump capital into such businesses, JPMorgan Chase has teamed up with community-based development groups that aren’t bound by the same lending restrictions. The Entrepreneurs of Color Fund is managed by one such group, the Detroit Development Fund, a nonprofit founded in 1996. To date, the entrepreneur fund has channeled $4.5 million to 43 minority-owned small businesses, of which 53% are owned by women. According to Scher, the fund has had only one default to date.
JPMorgan Chase contributed $3.5 million to the original Entrepreneurs of Color fund, in 2015; both it and the Kellogg Foundation will contribute another $2 million to the expanded fund. New investors include Fifth Third Bank, the Ralph C. Wilson Foundation and the Kresge Foundation.
Scher says JPMorgan Chase’s original decision to focus on small businesses was partly data-driven. In-house research by the bank showed that Detroit residents, on average, channeled a significantly higher percentage of their spending through small businesses than city dwellers nationwide. Detroit also has the fourth-largest number of minority-owned small businesses among American cities, though it ranks only 23rd by population.