Tucker Bartlett, Executive Vice President, Self-Help Credit Union

Invest: spoke with Tucker Bartlett, executive vice president at Self-Help Credit Union, about balancing financial strength with community impact, lending through economic cycles, and expanding access to capital. “We cannot leave the market during more challenging times. That is when we have to step forward,” Bartlett said.

How does Self-Help evaluate investments through both a financial risk lens and an impact lens?

We use a bicycle analogy at Self-Help. The front wheel is our mission, or the impact we are trying to have, and the back wheel is our financial strength. You want your bicycle to be balanced. The front wheel steers the organization, but you cannot ignore the back wheel because the stronger it is, the more mission impact you can have.

Almost every investment opportunity has both components. We cannot do every front-wheel project because we are a credit union, and the financial mechanism has to work. We bring in deposits and lend those out to generate interest and pay our members. Unlike a bank, we do not have shareholders who want us to maximize profits, so we can lend to borrowers and serve members that banks may not otherwise serve.

That tension exists all the time. Projects have to work, but they can be less profitable than what another bank might look at, while having more mission impact. Affordable housing is a good example. The income generated from affordable housing is lower, so you cannot afford as much debt service. The interest rates need to stay down, or the project might be riskier. We also focus heavily on homeownership, especially lending to first-time, lower-income, and/or first-generation homebuyers. That is seen by the market as riskier, but it is probably our largest single line of business.

How has Self-Help adapted its investment and risk strategies to continue serving borrowers that conventional lenders might overlook?

As economic cycles change, traditional lenders come in and out of the market. We see the most demand during down cycles because other lenders are pulling back. To serve our mission, we cannot leave the market during challenging times. That is when we have to step forward.

We manage our balance sheet more conservatively and carry higher reserves. If you are going to take more risks, you need more risk reserves. As a nonprofit, we reinvest profits back into reserves rather than paying them out to shareholders. That builds our balance sheet and our ability to take more risk.

We also partner with foundations, the federal government, state government, and local government on lending programs that have social benefits. It is common for us to partner with a foundation or government entity that provides risk reserves, which we combine with deposits and other capital to lend out.

The two reasons we can step into the market when others pull back are deeper reserves and expertise. Affordable housing, climate finance, first-time homebuyers, and small-business lending are not side projects for us. It is our reason for being. We strive to be better at underwriting and understanding affordable housing and other mission-rich programs. We try to understand the real risk, while banks often see the perceived risk.

How do you decide where to deploy capital when so many sectors have significant needs?

We start with mission impact, not only for the borrower but also for those the borrower serves. Think of childcare centers, nonprofits, or charter schools. We are supporting the borrower, but also the children going to the school or childcare center.

The second question is whether the sector has a business model that can benefit from lending. We are a credit union; we make loans. Credit unions do not make grants. Some work provides a huge social benefit, but it might not have a financial model that can work with a loan.

The third factor is scalability. Can you have impact over and over again and serve more people? Some ideas are excellent but one-off. You cannot replicate them or become an expert in that sector.

Childcare is a good example. It is important in every community. It has a business model, and there is a need for capital to build childcare centers. It is also scalable because childcare exists across North Carolina and the country. We look for mission impact, the ability to use debt and pay it back, and the ability to replicate the model.

The demand is infinite, but our resources are finite. Self-Help started in 1980 with a $77 bake sale. When I started about 25 years ago, there were 80 of us. Now there are about 1,000 of us. We were only in North Carolina, and now we lend nationally and are physically in 10 states. We have about $6 billion in assets. Part of our mission is to continue growing so that our resources are less finite.

How does Self-Help use partnerships to scale its impact?

The central thing Self-Help does is work in communities to understand the issues they want to address and the solutions they see. On the other end, we talk to the world of capital and figure out how to mobilize that capital. We are an intermediary between the world of capital and the communities that know how to use it.

Our central theory of change is that to stop intergenerational poverty, you need to create more wealth for families. If a family has wealth, it helps the next generation by supporting education, business creation, and opportunity. If a family has no wealth, it is harder to break intergenerational poverty.

The No. 1 way people start creating wealth in the United States is through homeownership. Our biggest program is homeownership. We bring in deposits and lend them to low-income families to buy homes. Through homeownership, families pay down their mortgage, ideally the home appreciates, and that becomes a nest egg to send children to school, start a business, or support the next generation.

We have learned that low-income families can be successful homeowners. People will do what they can to keep a roof over their family, and families are resourceful. They may get behind if a car breaks down or something happens, but if the lender is patient, they often catch up.

We were making around 100 home loans a year and wanted to understand why banks were not doing the same. We found that the capital markets did not support those mortgages because they were seen as too risky. We went to Fannie Mae and Freddie Mac and eventually used a $50 million grant from the Ford Foundation as reserves to back $5 billion in loans. That allowed us to guarantee loans, partner with banks and credit unions across the country, and move from making 100 loans a year to helping support 10,000 loans a year.

That kind of partnership changes systems. Fannie Mae and Freddie Mac learned from those loans and changed the rules over time, including expanding access to higher loan-to-value mortgages. We often describe our model as innovate, replicate, and advocate. We innovate by working directly with communities, replicate by mobilizing scaled capital, and advocate by using what we learn to influence policy and change systems.

What has Self-Help learned about measuring risk in communities that conventional underwriting models may underestimate?

People are resourceful and resilient. Not everyone speaks the language of the capital markets, but if you take the time to sit with and listen to people, they can come up with solutions that work. Sometimes our job is to translate solutions from communities in a way capital markets can understand.

I came out of business school and traditional finance, but I also spent time in the Peace Corps and in communities. That taught me the resourcefulness and intelligence of people who may not speak the same business language. There are a lot of good ideas out there.

More specifically, if you get the right partners together and they have shared values, trust, and honesty about their strengths and weaknesses, you can develop solutions. If the vision is compelling enough, there is enough money and enough will to do good in this country to put together programs that serve people.

You need trust, honesty, and the ability to communicate a vision for how something might work. It may not be the most profitable thing someone ever does, but it may be the most important thing they ever do. It is about pitching to the capital markets that there is a solution they can be part of.