The following is a conversation between Michael T. Pugh, President & CEO of Local Initiatives Support Corporation (LISC), and Denver Frederick, the Host of The Business of Giving.

Denver: Local Initiatives Support Corporation, or LISC, is a national nonprofit organization dedicated to revitalizing distressed communities and fostering economic opportunity. Since its founding in 1979, LISC has invested some $30 billion to catalyze community development across the United States.

Leading LISC is Michael T. Pugh, who became the President and CEO in October of 2023. Pugh brings over 30 years of banking experience focused on expanding access to capital in underserved communities. Prior to LISC, he spent over a decade as CEO of Carver Federal Savings Bank, a major African American-operated bank in Harlem.

Welcome to The Business of Giving, Michael.

Michael T. Pugh, President & CEO of Local Initiatives Support Corporation (LISC)

Michael: Thank you, Denver. It’s a pleasure to be here with you.

Denver: Share with listeners the mission of the organization and a little bit of the history of LISC.

Michael: Sure. So LISC was founded and created back in 1979, and the Ford Foundation played a critical role in terms of the formation of LISC. When you think about the organization itself, we’re one of the largest nonprofit Community Development Financial Institutions in the country.

Our core responsibilities focus heavily on housing, but when you think about housing and LISC, there’s really three pillars, if you will. One being housing to build and create access to affordable housing across our country. We’re very passionate about this work and understand the importance of it.

The second pillar is to think about economic development and capacity building. And so that economic development involves a broad range of things– over 13 national programs that include helping small businesses, healthy foods, transportation, and so on– all of the critical things that are needed in order to help create a healthy community.

And then our third pillar has really been funds management, where we work very closely with the public and private sector to raise capital and oversee the use of that capital for building affordable housing and supporting the stimulation of small businesses within communities across the country.

Denver: What are some of the communities you operate in, Michael?

Michael: Well, we have 37 offices today. But because of our rural program, it also allows us to pretty much cover about 49 of the states here.

Denver: Mm-Hmm. I talk to a lot of organizations, and many of them are sort of single-dimensional, sometimes two-dimensional. You’re like a six-dimensional organization, you know?

And I want you to see if you can maybe explain to listeners exactly what you do because you are, I guess I could say, a backbone organization; and as you say, you really tackle critical issues like affordable housing and access to health facilities, and you do this in partnership with local communities.

Give us an idea as to how… I mean, there are so many hats that are spinning. Give us a sense of how that all works together that allows you to really amplify your own investments in those communities for great results.

Michael: Sure. Absolutely. Well, so the economic development in building healthy communities across our country is very important to LISC. And so in many ways, we are the conduit for public and private sector in terms of raising funding and overseeing critical programs in order to support healthy communities.

When we think about things like childcare… and we know that many Americans today are faced with the challenge of affordable childcare and whether or not everyday working Americans can afford childcare or simply just have to stay home because the price or the cost of childcare is going to outweigh their income.

We work very closely with state and federal agencies. And then we’ll collaborate closely with the private sector to come up with a programmatic approach to support funding for childcare in order to then help stimulate communities and be able to create this opportunity for people to get out there, find great jobs.

When we think about things like workforce development and the importance of working closely with the public and private sector to create programs for skill building… second chance workforce for formerly incarcerated people that are now getting back into the workforce, how we help them get skilled up.  And, again, the ability to be able to do that in a responsible way so that it ultimately helps create opportunities for them; address the ability for communities and neighborhoods to then have a stronger ecosystem, if you will.

So those are examples. As you heard me mention earlier, there’s really 13 national programs that include our direct lending and our small business work. But those programs, the epicenter of all of them is housing. And then beyond housing, how we build healthy communities in order for you to have a great place to live, work, and visit.

Denver: Yeah. Well, let’s pick up on housing. I know, as you say, it’s a core focus of yours, but boy, it is a crisis in this country, and it is a crisis that persists. What innovative financing models or non-traditional partnerships have LISC been exploring to accelerate the development of affordable units?

Michael: Sure. Well, I’ll tell you that since being founded in 1979, LISC has invested more than $32 billion…

Denver: Wow.

Michael: …to create more than 500,000 affordable homes and apartments across the country. We know that every day, Americans continue to be challenged with affordability of housing. And what we’re continuing to hear is that this issue is being exacerbated by the lack of housing stock and the increased effect of investors that are purchasing large blocks of real estate stock.

And so we think about it in a couple ways. One is to provide the direct lending focused on low-income housing tax credits through our wholly-owned partner national equity fund, and/or direct lending to multifamily owners in order to provide affordable pricing in terms of borrowing capability, that we then hope and expect them to pass through to many of their tenants by giving them a quality place to live.

And then when we think about other critical things, we are a watchdog and an advocate at the policy level, the federal level, to help ensure that affordability in housing remains on the radar. And so we continue to work very closely with elected officials to raise this issue, elevate it, and ensure that we can play a role in the solution.

Denver: Another issue you focus on is economic mobility, and that remains a challenge, and the ability for individuals to move up the income ladder, especially for those born in lower income households.

And boy, it seems limited today compared to earlier decades and even some other developed nations. What are some of the initiatives that you’re pushing on in that regard?

Michael: Yeah. Well, there’s certainly no question there in terms of seeing that the wealth gap across our country remains an issue and, in some cases, has been somewhat exacerbated by economic volatility.

And so we think one of many ways to be able to help play a critical role and be a catalyst in addressing this important issue is our support of small businesses. We work to build financial inclusion through a number of different programs and initiatives; one of which we have is Entrepreneurs of Color Fund. We also have a fund that’s a Black Economic Development Fund.

And so these funds collaborate with some of our most valued partners like J.P. Morgan and the Kellogg Foundation. And what we ultimately do is we work across the country with 32 CDFIs, these community development financial institutions, in 10 markets across our country.

We help to be able to deploy capital… so loans to small businesses. These micro loans are typically up to about $50,000. And then there’s some larger commercial real estate loans that may go up to $500,000 or so. Last year, just as an example, we were able to deploy approximately $185 million of capital lending.

So when you think about what I’ve just described, our ability to help small businesses get access to capital, something in the ballpark of $50,000 for an entrepreneur can be extremely meaningful and can change the trajectory of their business because they then have the opportunity to be able to hire additional staff or support the general operations. And what we certainly know from the pandemic is that many small businesses were impacted because they didn’t have capital or access to capital resulting in their closure.

So our ability to work with large partners, foundations and financial institutions to be able to create these capital vehicles, if you will, we think are extremely meaningful, especially as you also consider, Denver, that small businesses are really the stimulus for our economy when you think about their GDP impact and the ability for them to stimulate neighborhoods block by block.

Denver: Yeah. It’s still underappreciated how small business is the heartbeat of this nation. And I think during the pandemic, I was walking down some town streets in local communities, and you see all the storefronts closed… or a lot of them, and you just realize this is not healthy. We need to support those businesses and give a sense of energy and a sense of vibrancy to communities.

Aside from doing all these individual verticals on housing and economic mobility, LISC has always been great at integrating it all together in a holistic community development perspective. Tell us a little bit about how you just don’t tackle these things one at a time, but you make sure that they work together in a healthy fashion.

Michael: Yeah, so I think it’s at least two things. One, it’s about the partnerships and the relationships that we have. Our funders have been extraordinary partners for us. In many cases, what we find is that our funders and partners aren’t looking to just write a check. They’re looking for a collaborative effort in order to address a real problem.

And then the talent that we have on our team has just been extraordinary across the country. When you heard me talk earlier about these 37 local offices, the executive directors for these local offices across the country are in many ways like deputy mayors for communities because they are listening to what’s going on out there in their local markets, and they’re working very closely with the public and private sector to come up with creative solutions.

They have a level of autonomy that allows them to be able to develop those solutions, bring them to a much broader review committee, and then we figure out how to deploy resources, time and talent to ultimately get the work done. And so the synergy between our funders and partners and, of course, our talented team, I think really is the secret sauce.

“Well, what I would say is that there’s a reason we have two ears and one mouth. Listen twice as much as talk…So my advice would be: participate in a listening tour within your communities, and make sure that you actually follow through on what you hear.”

Denver: Michael, if you had a piece of advice or wisdom about collaboration that you could share with listeners, what would that be?

Michael: Well, what I would say is that there’s a reason we have two ears and one mouth. Listen twice as much as talk. And what I’ve learned is that over the first 90 days… I’ve been with the organization for seven months now… time has truly flown by. The first 90 days, I committed to being on a listening tour.

And throughout that listening tour, I didn’t offer any recommendations about the business, things that we should be thinking about as a nonprofit organization, how we might adjust them. I wanted to learn; I wanted to hear from our funders, from our colleagues, our community leaders, about the things that we’re doing really well and the areas where we can continue to calibrate so that we’re much more effective in the months and years ahead.

It afforded me an incredible opportunity to learn and then participate in strategies that I think will really make a difference for the communities that we serve. So my advice would be: participate in a listening tour within your communities, and make sure that you actually follow through on what you hear.

Denver: Yeah. So I’ll summarize that a little bit. Shut up for a while…That always works.

Tell me something that you learned on that listening tour over those 90 days that you think will inform the future of the organization.

Michael: Sure. Well, I think one of the big things that I learned is that many of our funders and partners love the work that we do. They are looking forward to hearing more about what’s next for us.

And especially when you think about things like the ongoing support of small businesses, I think there’s an incredible opportunity for us to spend some time there. More than 40 million Americans today either have thin credit or no credit. And so the result of it is that for those that fall within that spectrum, they can’t get access to capital.

Small businesses, they fall within that spectrum in many cases. And so we think there’s an incredible opportunity collaborating with some of our funders to use alternative credit scoring ways to make a decision and get the capital out there. We’re looking at ways that we can explore AI as a solution for credit determinants.

And through our funders and communities’ leaders, we’re hearing that the ability to continue supporting small businesses will be tremendous if we can strike this right balance of managing risk and pulling alternative data sources to help us make that decision.

The other thing that we’re continuing to hear, and we’re doing something about it, is playing a role in climate resiliency. And we understand that this is a real issue in many cases. I was just in Boston a few days ago and hearing about some of the work that they’re doing in the green energy space and thinking about a broad range of things– from solar panels to energy efficiency and going in and inspecting homes.

When I was in Charlotte, we were hearing that within aging communities and seniors, the ability to help create better energy efficiency within their homes can change their financial position dramatically because you’re now talking about less energy being used, the opportunity to have that pass through in terms of additional savings that can be used for other critical things like groceries or just everyday living.

And so we think it’s our responsibility. We must continue to be great stewards supporting, not only housing, which of course is, again, the most important part is you’ve got to have quality housing, but we’ve got to be great stewards in playing a role in thinking about things like climate resiliency and how we support small businesses. And those were clearly messages that I heard from our community as well as our colleagues out there.

Denver: Ninety days well spent. So if you’re doing affordable housing, you might as well be doing green housing and sustainable development at the same time. It makes long-term sense. You mentioned a second ago, Michael, about artificial intelligence, and I’ve read where you’ve highlighted data and technology as priorities of yours.

What specific technologies are you looking at, in addition to AI or exactly what you’re looking at with AI, that will enhance your impact measurement as well as your decision making?

Michael: Sure. Well, so when we think about AI, we know that there are ways out there to extrapolate data and be able to then use that data to make a decision. So, for example, across the country, there’s a very traditional credit scoring paradigm that exists. And you either fall within a range that’s based on some risk determinants that’s acceptable, or you don’t.

If you don’t fall within that range, you’re often then left to go to alternative sources that are in many cases you’re borrowing from at a very high pricing, and you’re borrowing from places that may not be ultimately the safest places, or sustainable places.

Denver: Yeah.

Michael: And so when we consider the fact that there are a ton of things that never make it to the traditional credit model such as your utility payments, if you are leasing a property, your lease payments, and cell phone payments, there’s a sundry of them that never make it to that model.

I was in a meeting, Denver, with a group of small businesses, over a hundred entrepreneurs, and one of the entrepreneurs stood up and said that she had borrowed as much as $500,000 over the course of her business operations and paid it back from a hard money lender, but it never made it to her credit report or scoring. So as she continued to go to a bank and seek capital, the bank was still saying: you don’t have a credit history.

So if we can use this other data out there and then build a credit model that says the risk and propensity for the borrower to pay back is strong, as evidenced by how the borrower has behaved with these other things that have happened, I believe that then we can start to disrupt this traditional paradigm a bit and help get more capital out there to support small businesses, which will ultimately stimulate communities across the country.

Denver: Now that’s just a great example. We do have so many outmoded systems that lend themselves to these decisions, which are just not reflective of what’s going on, and that does need to be disrupted.

LISC fundraising funding model blends public and private and philanthropic sources. Tell us a little bit about that and how you plan on diversifying and expanding LISC’s resource base to meet these growing community needs.

Michael: Well, for now, I think the biggest area that we will be spending some time on is going to be in the climate resiliency space. I see us spending a significant amount of time working very closely with our funders to address this important topic.

You may have seen that LISC was one of the awardees as part of a coalition– the Power Forward Communities. And we were honored to receive a $2 billion EPA award to invest in green housing and jobs to support economic opportunities and climate resiliency here in our country.

The $2 billion… now it’s important to note, LISC isn’t going to receive all of that $2 billion, but the portion that will be allocated for us, the real value comes in by working with our partners in terms of financial institutions and other large companies across the country to leverage our award and be able to multiply that in a meaningful way, so that housing and all of these things that we’ve been talking about here for this meeting, from an economic development standpoint, can really be tackled.

And I would say that while we are extremely grateful as a coalition to have received $2 billion, we know that it’s going to take the collective efforts of our partnerships across the country to ultimately leverage that in a much more meaningful way, and a bigger dollar to get the work done.

“We are the largest nonprofit CDFI in the country. The work that we do is catalytic for community development and growth, and I think there’s more of that work. The best is frankly yet to come.”

Denver: Yeah. I did see that, and congratulations, that is something else.

Michael, let me ask you a little bit about your vision for your organizational culture. I mean, you have a complex organization, as we have indicated, with a central organization, 37 offices, rural operations as well, a lot to put together.

What’s your thinking about the culture, that tension between local and central, and how you hope to attract, develop, and retain a diverse team aligned with the mission?

Michael: Yeah. So I think the tension is a healthy tension that we want to continue to foster. We want transparency and voices to be heard across our footprint within our local offices.

Our executive directors are extremely important to the overall organization, these EDs, again, running local offices across our country. And we would not be able to do the work that we do every day if those teams leading those offices didn’t exist. And so we’re going to continue to foster a level of transparency and communication and collaboration there.

I think as we look ahead in our future, I’d love to see us continue to look at markets where we can make greater inroads and support those offices. I’d love to see new offices, frankly, opened, and we’re already having, I think, some great conversations about ways that we can do that.

And then, where I think LISC can play an important role is being a real catalyst for economic development in communities, which includes how we talk about and measure our impact, such as jobs being added or preserved within communities. And, again, affordable housing being a critical component there.

And so I will continue over the next months to come participating across the country– listening, meeting with community leaders. The work isn’t going to stop I say over the next few months to come, but I think, frankly, we’re talking about a long runway here.

However, it’s very important as we think about things like green energy and this work with supporting housing and small businesses… I’ve got some roadshows to do to get out there and make sure that I continue to listen and hear from our executive directors and our community leaders because we built something that is unique.

We are the largest nonprofit CDFI in the country. The work that we do is catalytic for community development and growth, and I think there’s more of that work. The best is frankly yet to come.

“That ability to be vulnerable as a leader and willing to receive feedback is perhaps one of the tougher things that we as human beings, and certainly as adults, are reluctant to do, but it’s necessary.”

Denver: Yeah, sounds like you’re going to be sitting on a lot of runways to tell you the truth, Michael. But you do, you touch so many people. The description of deputy mayor in terms of these 37 executive directors is just perfect. You’re almost like the second mayor in town in terms of what’s going on.

Michael, what leadership lessons from your career have you found or do you believe you will find to be most valuable in leading LISC?

Michael: Well, perhaps there’s two that I’ll share with you. One is the willingness to be vulnerable, and that vulnerability requires a level of listening, being able to receive feedback even when it is tough, and committed to doing something about it.

And so joining this organization, there have been colleagues that have said, Hey, we would like you as our new CEO to really help us tackle certain issues that will create greater efficiency or streamline the workflow.

And I’ve heard that message. I’ve come in, and I’ve worked very closely with our leadership team to figure out how we address those issues. And we continue to have nationwide town hall meetings with our colleagues and report updates on the great things that we’re doing, but also the things that we’re calibrating based on their feedback.

That ability to be vulnerable as a leader and willing to receive feedback is perhaps one of the tougher things that we as human beings, and certainly as adults, are reluctant to do, but it’s necessary.

Denver: Did that come naturally to you, Michael, or was that a hard-earned, you know…

Michael: It’s been hard-earned and something that frankly has required quite a bit of practice over the years.

Denver: Got it.

Michael: And then, the other thing I would say because I told you there’s two, and the second one is: consistently demonstrate a level of tenacity where you’re willing to get in and do the work side-by-side with your colleagues every day.

So when modeling the behaviors that you want your colleagues to be able to demonstrate, when I’m out in the market and I’m saying to our colleagues, “I want to meet with community leaders, I want to hear what they have to say and what they need from us,” in my opinion that’s modeling much of the behavior because we’re not talking about being out somewhere for ceremonial purposes.

Denver: Yeah.

Michael: We’re talking about listening and learning and executing on the critical work that must be done.

Denver: Yeah. Yeah. And I hear you also saying, because I’ve seen this with some other leaders as well, that you have to bring a sense of urgency to what you’re doing because if you don’t have that urgency, it will just die, you know?

But at the same time, you also have to bring that experience of patience because you know that systems take a long time. And just holding those two together really is a critical facet, I think, of leading an organization.

Michael: Absolutely, absolutely.

Denver: Finally, Michael, looking 10, 15 years out, you probably got about 3 million more miles on you by then, how might this community development landscape evolve? And how can LISC position itself at the forefront of these emerging models and innovations?

Michael: I think 10, 15 years out, LISC will continue to be a role model for what community development and overall economic development looks like.

The work in the affordable housing space will remain important. I suspect that as populations continue to grow, the issue of affordability and housing isn’t going away. And so there will have to be thought leaders like LISC out there continuing to champion and developing innovative solutions that ultimately create vehicles for affordable housing.

So we’re excited about the opportunity for us to participate in solving issues that will matter. It would be ideal if 10 to 15 years from now, there was no need for community development financial institutions because we’ve solved all of the challenges that our world is facing, but that’s a big aspiration. For now, it’s about getting the work done and continuing to be great stewards out there in the community.

Denver: Well, you got a great job. There’s no question about it. A complex one, but a fantastic one.

For listeners who would like to learn more about LISC, tell us about your website, Michael, and the kind of information they can find on it.

Michael: Yeah. So I think you can certainly, through, find a lot of great information… You can find a lot of great information about us.

You’ll have an opportunity to understand more about our mission and you can see real people, real experiences in terms of the work that we’re doing and the impact. We just recently released our annual report for 2023. You’ll be able to see the impact across the country– over $2.4 billion of capital that was deployed in 2023 to support communities. And since inception, more than $30, almost $32 billion in capital there.

So again, more to come, but there’s lots of great stories that we will continue to put out there to share the work we’re doing and why it matters.

Denver: More to come. Thanks so much for being here today, Michael. It was a great pleasure to have you on the program.

Michael: Thank you, Denver. It was great talking to you.

Denver Frederick, Host of The Business of Giving serves as a Trusted Advisor and Executive Coach to Nonprofit Leaders. His Book, The Business of Giving: New Best Practices for Nonprofit and Philanthropic Leaders in an Uncertain World, is available now on Amazon and Barnes & Noble.

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