Near the corner of 71st and Euclid, in the south-side lakefront neighborhood of South Shore, sits an ordinary reddish brown brick apartment building that’s a small part of an extraordinary tale. Four years ago, when James Trice decided he wanted to buy it, the ten-unit building was by his account “dilapidated and half-occupied. Some areas had not been lived in for four to five years.”

Such neglect is hardly unusual in a Chicago neighborhood like this–largely African American, with household incomes right at the city’s modest average of $20,000 a year. But it’s all too unusual that there’s a James Trice to come to the rescue.

Chicago-born Trice, now 30 years old, went to college and worked in Atlanta before returning to his hometown with dreams of starting his own business. For several years he worked for small-scale housing renovators, including Len Hoyles, a former drug-company sales rep turned rehabber. While working for Hoyles, who owns and manages seven buildings in South Shore, Trice picked up building-management tips, such as how to screen out tenants likely to make trouble and reduce maintenance costs.

Two years ago Trice started his own construction company. Then he took the plunge into real estate development, buying and rehabbing the neglected building at 71st and Euclid. It rented quickly, and now Trice is renovating two more properties–of two and nine units–and considering his biggest challenge yet, a 27-unit building. He has also moved into South Shore and lives in one of his own buildings.

Without rehabbers like Trice, these once-solid, moderate rent buildings might well have been abandoned, then become eyesores and centers of crime and community collapse. Eventually they would probably be destroyed and lost to the city. Over the past decade the number of such chronically vacant housing units in Chicago increased by 71 percent to roughly 20,000 units, according to a study by the Housing Policy Center.

But it takes more than entrepreneurs like Trice to turn back the tide of housing neglect and abandonment in low-income areas. It takes both capital and hope for the future of the neighborhood. In South Shore both have been provided by an unusual financial institution, South Shore Bank. “I knew South Shore was coming back,” Trice explains. “A lot of people were investing, and South Shore Bank was doing a lot of financing.”

Several years before, South Shore Bank had been willing to back Trice’s mentor Hoyles, who says other banks refused him on the grounds that he had no management experience and, besides, “they weren’t doing loans on the south side.” South Shore Bank provided not only loans, but an opportunity for Hoyles, and later Trice, to draw on the knowledge of a network of housing entrepreneurs nurtured by the bank over the years. The bank also gave both men useful financial advice and carefully monitored their progress with visits to their buildings, the kind of personal attention few banks provide.

South Shore Bank officers in turn could rely on the renovators’ network for personal recommendations about new prospects like Trice. Like old-fashioned bankers, they could loan not just by the numbers, but also out of intimate knowledge of the character of the borrower and the neighborhood. Senior vice president James Bringley, who oversees the Bank’s real estate lending, has cultivated about 60 renovation entrepreneurs over the years. He’s looking for 40 more.

The people in the deal are as important as the building, Bringley argues: “There’s no inherent value in a building. With the right owner it will be successful. With the wrong owner it will collapse overnight. The key is the fit of the building and the owner.” Rookie building developers get rookie buildings, says Bringley, “but if you get big, we’re aggressive.” He even lets individuals buy buildings with no money down.

From the time it opened in 1973 through the end of 1993 the bank had loaned money to renovate 9,079 units of rental housing in South Shore, accounting for some 35 percent of that market. The results are easily observed in the fixed-up facades and strengthened security of many buildings (although abandoned buildings are still sprinkled throughout the neighborhood). Through its lending, the bank not only preserved and improved the neighborhood’s housing stock, but created a new group of African American entrepreneurs and local jobs in the renovation business.

All this was possible because 20 years ago four idealists, inspired by the 60s movements for civil rights and against urban poverty, bought South Shore Bank as part of a new bank holding company, called Shorebank, that set community development as its explicit mission. Money was draining out of the neighborhood as the population rapidly changed from middle-class white to working-class black. Judging from what had happened in nearby Woodlawn, the prospects for South Shore were bleak: business flight, housing neglect and abandonment, physical and social decay.

The four new bankers believed they could make loans in such a neighborhood and make a profit, even if no other bank was willing to try. They were convinced they could save the neighborhood and, by their example, transform the banking industry itself.

Now is an appropriate time to ask just how well they’ve succeeded in those first 20 years. Shorebank just opened a new development bank in Cleveland, Shore Bank & Trust Company, and it’s considering expanding into other cities, as either owner of or consultant to new banks with similar missions. And Congress recently passed legislation that will provide federal assistance to community-development financial institutions such as Shorebank. This legislation is a partial fulfillment of President Clinton’s campaign pledge to create 100 banks across the country modeled on South Shore Bank. Clinton became an enthusiast after Shorebank acted as a consultant in the creation of a development bank for poor rural communities in Arkansas.

In the wake of the Los Angeles riots there has been renewed attention to the economic problems of the inner city. Last year Congress passed legislation to establish up to six urban “empowerment zones,” which would target federal dollars, services, and employment incentives for development of depressed urban neighborhoods. Shorebank’s activities here could boost Chicago’s chances of being designated a zone, and its strategy could be relevant to the success of these zones elsewhere.

At the same time, there’s growing skepticism about the possibility of community development in poor urban neighborhoods. Journalist Nicholas Lemann recently argued in a controversial New York Times Magazine article that economic revitalization of poor inner-city neighborhoods hasn’t worked, won’t work, and diverts attention from what might work, like more police and better schools. Shorebank, which seems to controvert this argument, is glibly dismissed by Lemann as irrelevant because it deals only with a blue-collar residential neighborhood. In any case, the relative success–or failure–of Shorebank is grist for a renewed debate over poverty and public policy.

So what lessons have been learned in Shorebank’s 20 years? Here’s a quick assessment: It has worked remarkably well in saving an economically endangered neighborhood, but not as quickly and not in quite the way its founders had hoped. It has demonstrated that at least some kind of economic revitalization is possible in inner-city areas, even if it doesn’t satisfy the ambitious criteria for full-fledged “community development” that are advanced by many community activists, including some actors in the Shorebank saga. It has shown that many of the factors affecting neighborhood economies are regional and national in character, and that there are limits to the improvements a for-profit bank can make without the help of government and committed investors. And it stands as an indictment of the banking industry and public policymakers at all levels, who didn’t recognize its lessons much earlier.

Shorebank’s leaders now acknowledge that it has taken far longer for them to reach their modest level of success than they ever imagined. “If you’d asked me in August 1973 how long it would take to clean up South Shore, I’d have said, “Give us three years,”‘ says Milton Davis, one of the founders and now chairman of South Shore Bank. “It is now 20 years, and we’re still at it.”

Mary Houghton, another founder, president of the Shorebank holding company, had similar high hopes. “I remember clearly being most motivated by the fact that we would be a model for the banking industry, that we would get the bank turned around and the neighborhood turned around. Then bankers would come and see what a good business idea this was and take up the idea.

“I remember having the idea that all these things would happen in a couple of years,” she continues, smiling at her naivete. “In six months the bank would be turned around, and in another six months we’d have successes, and in two or three years the banking industry would be interested. Maybe we would then do it in other places, but other banks would also do it in other places. I had no concept it would take this long.”

Shorebank chairman Ronald Grzywinski, the primary strategist of the enterprise, says, “If I were to go back 20 years [and reconstruct the initial dreams for the bank], we would have had more outputs on the noneconomic side by now.” Grzywinski, an avuncular, thoughtful man with a relaxed air about him despite the earnestness with which he pursues his work, would like the bank not only to have generated more jobs and retail business, but also to have had more effect on crime, education, social services, and the organization and spirit of the community.

This is hardly the typical business of a bank, but then Shorebank was always meant to be more. The holding company also owns a for-profit real estate division (City Lands), a not-for-profit community developer (the Neighborhood Institute), a small-business investment corporation, and Shorebank Advisory Services, dubbed by some insiders “the Vatican,” charged with propagation of the faith in other communities. Its nonbank arms permit Shorebank to be more aggressive and comprehensive in tackling neighborhood problems. They also allow it to pull in funds from the government, foundations, and other for-profit investors.

The idea of using a bank holding company as a vehicle for community development grew out of the experience of Shorebank founders Grzywinski, Houghton, Davis, and James Fletcher, all of whom worked with an innovative minority-business lending program at Hyde Park Bank, where Grzywinski had quickly risen to become president in the late 60s.

As the foursome, none of whom was originally trained as a banker, gathered at night to chat at the old Eagle bar on South Blackstone, they concluded that “community-based organizations appeared to be the only organizations in society that cared about the broad range of needs that exist in urban communities,” Grzywinski says. “But because they didn’t have an endowment like a university or hospital and weren’t privately capitalized like a business, they never assembled the resources commensurate with the problem. We’d spend a lot of time in community-based organizations worrying about how to meet last week’s or last month’s payroll. That was no way to build the kind of expertise, permanent staff, competency, and capital that was necessary to deal with a complex set of issues.”

Yet as bankers, Grzywinski recalls, “we realized what the limitations of a bank are in dealing with the total array of needs. We were interested in creating a permanent, self-sustaining institution that could deal with that broad range of needs.”

Shorebank has financed single-family homes and apartment housing, retail and small businesses, and industries. It has provided job training, aid to the arts, and family support networks. Increasingly the company views its investments as incomplete if it doesn’t develop the human potential of communities where it invests. Without its other arms the bank itself couldn’t have accomplished half what the whole enterprise has done. And with the bank at their side, the other ventures are stronger.

Though some Shorebank subsidiaries are nonprofit, the bank aims to behave like any other business. It pays virtually all of its depositors the same interest rates they would get from any other bank. It charges higher rates for its loans than do many other banks (though it cuts red tape and offers useful advice). It typically has lower losses than other banks its size, despite the perception that it’s making risky loans. (Texas oil wells, Arizona condos, and third-world governments turn out to be riskier than African American apartment rehabbers.) Though its 13 percent return on investment in recent years isn’t high by industry standards, the bank has made a profit every year since 1976. “Here at the bank we say we’ve got Democrats doing the talking,” quips James Bringley, “but Republicans making the loans.”

This is not to say that the operation runs strictly according to free-market principles. For one thing, Shorebank relies on the goodwill of depositors who are sympathetic to its mission. At the outset Grzywinski and company hoped their main source of capital would be deposits of neighborhood residents, who held about $90 million in other banks. But many residents apparently preferred the convenience or prestige of their downtown banks or failed to identify with South Shore Bank’s community goals. “The bank has always been disappointed that it didn’t garner more local deposits than it did,” says Houghton. So in 1974 they came up with the idea of “Development Deposits,” certificates of deposit and checking accounts they sold to individuals, religious organizations, nonprofit groups, and socially conscious corporations across the country. Now 60 percent of the bank’s $261 million in deposits comes from depositors motivated by the idea of helping a poor city neighborhood.

Shorebank also deviates from the free-market model in that much of the development work done by its subsidiaries City Lands and the Neighborhood Institute relies on government subsidies, especially for renovation of some of the biggest, baddest apartment complexes.

City Lands takes on buildings “that are so deteriorated that private enterprise can’t touch them,” explains chairman Sara Lindholm, a former University of Chicago graduate student who was drawn into the bank’s work through a research project. “What makes us part of the overall Shorebank strategy is that we’re viewed as a catalytic developer. We do the big, hard projects.” These projects are essential to encourage the private entrepreneurs, who have renovated four and a half units of unsubsidized housing for every unit renovated with subsidies.

South Shore Bank’s efforts have convinced several other banks to make single-family mortgage loans in the neighborhood. For several years, until it decided it needed to stabilize the single-family-home market, South Shore Bank even dropped such lending and concentrated on apartment buildings and on expanding its services to adjacent neighborhoods. The recent development of new branch banks nearby and competition in home lending indicates that the neighborhood housing market is slowly improving.

That’s precisely what the bank hoped to see happen. “A big part of what we do is to make markets work again,” Grzywinski says.

Though Shorebank has succeeded in saving and improving housing in South Shore–and in the far-west-side community of Austin, where it began making loans in 1986–its founders started with a more comprehensive vision of what community development involved. It included generating jobs and local businesses and creating a thriving, vital social life for the neighborhood–“outputs on the noneconomic side,” as Grzywinski puts it. Those have been much more difficult to produce.

In the 50s and 60s South Shore was a prosperous middle-class community that supported a rich assortment of retail and service jobs. As the neighborhood changed, the once-lively shopping strips collapsed, especially along 71st Street. South Shore Bank fought for years to bring back the small retail shops, but had little success.

It wasn’t just that many of South Shore’s new residents were poorer. Suburban malls and downtown stores siphoned off shoppers. Parking was tight in a shopping area built around public transportation and walking. Local residents feared spending time on the street, where clumps of young men often hung out. Some local retailers supported by the bank lacked experience, and efforts to attract businesses from outside the neighborhood met with little success. After the bank cleared one prominent corner in the late 70s, a big grocer changed its plans, leaving the neighborhood with a vacant lot that remains an eyesore.

The bank did make a difference for many small businesses, for example Vivian Wilson’s Star Detective Agency. Wilson won a big security-services contract with the city in 1988, but her longtime banker refused to loan her money to cover her expanded payroll. South Shore Bank quickly gave her a line of credit. “I couldn’t have done it without the bank,” she said.

But such individual successes weren’t creating a critical mass of thriving retail business in the late 70s. Eventually Shorebank, acting through City Lands, decided it had to join the march to the mall. In 1980 it began plans for Jeffery Plaza, a medium-sized shopping development built around a parking lot catercorner from the bank. Dominick’s agreed to anchor the $10 million project, which it shares with about two dozen other stores. Most are national chains like Radio Shack, Foot Locker, and Payless shoe stores; the remainder are independent, mainly black-owned businesses. Security is effective, and sales have been a bit slow but acceptable for most tenants.

“We believed initially that the bank would be able to do more small-business and enterprise development,” Mary Houghton recalls. “We learned the bank could make a large number of loans, but only within a narrower band of business than we had previously imagined.”

If retail business has been tough, manufacturing and services for wider markets has been even tougher. “All the nonhousing stuff is much harder,” Grzywinski says. “Markets are increasingly competitive and global. So you can no longer just bend pipe for the general contractor down the street.”

The Neighborhood Institute tried to develop two business “incubators,” buildings offering low rent and common support services for fledgling businesses. One is for small manufacturers, the other for arts and crafts enterprises. Neither has been a rousing success. One tenant, Midway Labs, has a wonderful product–efficient solar collectors designed for underdeveloped countries–but Shorebank has been able to offer little help other than some contacts from its consulting work in Bangladesh.

Manufacturing is a much more important part of the bank’s initiative in Austin, a community bounded by declining manufacturing districts that previously employed few Austin residents. Since the bank began business lending there in the fall of 1992, it has loaned or committed $5.6 million to local companies for new equipment, building refinancing, computers, and other needs.

The bank is also finding it necessary to supply business advice and training. “When it comes to housing and real estate, credit is often the only missing ingredient,” says Cliff Kellogg, a 32-year-old assistant vice president of the bank with a law degree from Yale and a business degree from Stanford. “The world of manufacturing is more complicated. Frequently credit is only one of the things they need. They often need help with job training, sales and marketing, or technology.” This stretches the abilities of even an ambitious enterprise like Shorebank.

Creating jobs with good incomes, however, is essential if the rest of Shorebank’s efforts are to succeed. The loss of jobs in the southeast-side steel plants and the recent recession have made it tough for South Shore landlords to collect rents, maintain full occupancy, and avoid problem tenants like drug dealers. Obviously the jobs don’t need to be in the neighborhood, but the local economy can be an important source of jobs, especially when manufacturing zones already exist, as in Austin.

Along with the economic wealth of South Shore and (later) Austin, the principals of Shorebank also hoped to develop their social wealth–to provide a variety of resources in education, arts, health, and community expression, as well as acceptable levels of public civility and safety from crime, that would make people likely to invest in the neighborhoods’ housing and businesses. This has been one of the bank’s most unusual and problematic ventures. The Neighborhood Institute functions as a surrogate community organization. Under the energetic direction of Dorris Pickens, who moved into South Shore in 1970, when it was momentarily racially diverse, TNI organizes area councils to fight crime, promotes school improvement, provides occupational training, and operates a city-funded summer arts and writing program for adolescents at its Gallery 71 studio. In Austin TNI is organizing a Family Support Network and an Employment Network that, according to organizer Robert Wordlaw, will hark “back to the African village concept, where everyone here is responsible for everyone else–like a lot of old neighborhoods used to be.” Working through the schools, churches, and other local institutions, TNI will organize families into chapters with “coaches” who will help them make plans and cope with the problems of work and family.

Some of Shorebank’s social initiatives have scored successes, especially in encouraging community arts, but overall they’ve been less successful than either housing or job development. They have also prompted criticism from community groups and organizers who believe that the residents of a neighborhood ultimately must have the power to determine their future if community economic development in a comprehensive sense is to succeed.

Unlike South Shore, which has long been underorganized, Austin had many thriving community organizations when Shorebank moved in. The South Austin Coalition Community Council (SACCC) had fought for many years against the flight of investment from the neighborhood, and in 1981, with assistance from the Aetna insurance company, it established a housing renovation and development offshoot, PRIDE (People’s Re-Investment and Development Effort).

Shorebank has both clashed and cooperated with SACCC and PRIDE: the community groups wanted to tear down an apartment complex that Shorebank decided to rehab, but they all worked together to create a scaled-down version of the single-family-home development SACCC had promoted.

“I don’t know of anything they’ve done I dislike,” says Juanita Rutues, the president of PRIDE and a SACCC board member. But she objects to Shorebank attempting to be “the umbrella in Austin” under which everything else would fit. She thinks the bank reaps credit for a community revival that other groups had already started. She also slightly resents the ease with which Shorebank can get money for projects compared to her groups and the influence it tries to wield. “You don’t want anybody coming in your house and telling you how to run your business or bringing something in you don’t want,” she says. “It’s that way with your community.”

For all its community service, Shorebank ultimately is not controlled by or formally accountable to community residents. Stanley Hallett, a longtime Shorebank director who’s also on the faculty of Northwestern University’s Center for Urban Affairs and Research Policy, thinks that inherently “development banking is not a broad-based community organization and can’t play the role a community organization plays, nor is it the proper locus for a general neighborhood development plan. Development banking is necessary but not sufficient.”

A bank must respond to deals that come in the door, Hallett says; the nature of the business permits little planning. Yet when Shorebank does plan development through subsidiaries like City Lands, the bank is “subject to the same suspicion that other developers face,” says Fifth Ward alderman Larry Bloom, who’s generally enthusiastic about Shorebank’s role in his ward. “They’ve had to resort to some of the same tactics as other developers, such as delay and incomplete disclosure.” There were community protests about the bank’s destruction of Aquinas High School for Jeffery Plaza, for example, and Bloom recently objected to the bank’s sale of land for a Burger King without consulting him or the neighborhood; even the Neighborhood Institute had recommended against more fast-food outlets in the community.

Bank officials say they try to listen to the residents, but they disbanded an early community advisory board, and there’s no systematic way for the neighborhood to resolve conflicts and develop plans. The few independent neighborhood groups aren’t strong, and the Reverend Gilbert Leigh, past president of the South Shore Commission, accuses the bank of trying to monopolize power and resources within the neighborhood. “From my perspective, they don’t empower people,” he complains. “They swallow you up.”

Steve Perkins, a former Shorebank official now with the Center for Neighborhood Technology, argues that full community development requires political development of the community along with economic development, but that the bank has actually made it more difficult for other groups to form and to raise money.

“I don’t think we see political empowerment as our job,” Grzywinski says. “If you had a bank trying to do economic empowerment, which we are doing, and it was also trying to do political empowerment, Stan [Hallett] and others might get nervous about that. . . . We don’t see organizing the community as our job. We try to be a professional bank organization–bank writ large–that behaves professionally and delivers money and talent to the neighborhood and helps the neighborhood compete.”

Banks, if they’re to succeed, need to be able to say no–to be, in Hallett’s phrase, a “necessary bastard.” But University of Chicago sociologist Richard Taub says the bank distanced itself from community groups early on because most groups were then protest organizations, which seemed incompatible with banking. Now neighborhood groups are more likely to enage in community building, a style more compatible with banking. “There can and should be ways to relate to groups in the community that so far South Shore Bank has not done very well,” Taub says. “But they have done it better than other banks.”

Indeed, compared to most banks Shorebank is a populist dream as well as a business success. So after 20 years, why aren’t there 100 similar banks? Why hasn’t Shorebank been the model that Mary Houghton and, years later, Bill Clinton hoped it would be?

There are three other full-fledged community-development banks in the country, and one of those was started by the people from South Shore, who still consult on its operation. There are also about 500 community-development credit unions, loan funds, and microbusiness development programs, and about 2,000 not-for-profit community-development corporations. Taken together these community-development financial institutions have amassed about $700 million in capital and have about $2 billion in outstanding loans. South Shore Bank’s founders believed that compared to these institutions, banks would have not only greater powers but also more prestige, which could be important in developing investor and resident confidence in troubled communities. They hoped capital would flow from community institutions into banks like theirs.

Why hasn’t the model caught on? First and most obvious, there’s a basic conflict between the goals of community development and the narrow, profit-focused goals of the American banking industry. Banking graduates of business schools are trained in international lending, trading in financial derivatives, and similar big-bank obsessions that mark the route to power and big bucks. Conventional bankers always believe that they’re “already making all the good loans that can be made,” as Richard Taub puts it, and that helping poor neighborhoods is incompatible with their fiduciary responsibilities. Meanwhile the people with the motivation to help communities develop often don’t have the skills or temperament to run a bank.

“The anticapitalist baggage of more socially conscious and left-wing people prevents them from going into this business,” says economist Joe Cobb of the conservative Heritage Foundation, “and the training of people in business school doesn’t lead them to have a community interest.” Shorebank has had to recruit most of its bankers from other fields and train them.

Another problem is that it takes a lot of capital to buy a bank. There are foundations, religious orders, pension funds, and individuals who make investments with clear social goals, such as avoiding military industries or major polluters. That social-investment pool is now worth about $700 billion. But it isn’t easy to tap.

For those who do have capital and experience in the banking business, Shorebank’s strategy doesn’t maximize profits even if it’s solidly profitable. Grzywinski puts it gently: “There are not adequate incentives for traditional owners of capital and traditional managers.” One reason for the lower rate of profit is that, compared to conventional banking, making development loans at Shorebank requires more work and more staff. (South Shore Bank’s staff is about 50 percent larger than the average for banks with similar assets.) Increasingly banks shun small- and medium-size loans because they figure the paperwork for all loans is roughly equal. So the bigger the loan, the fatter the profit margin. “This isn’t easy work,” Milton Davis says. “Many bankers found it easier to go off around the Pacific Rim–and that’s come back to haunt them.”

Liberals may have long neglected South Shore Bank as a model because they didn’t see a role for government in what looked like a private-sector venture. Meanwhile, argues Paul Pryde, a development consultant who’s worked closely with conservative presidential aspirant and former secretary of Housing and Urban Development Jack Kemp, conservatives on the whole have ignored Shorebank because “conservatives are less interested in the problems of poverty and race than liberals are.” Instead of seeing the banking industry’s failure to undertake the kind of work Shorebank has done successfully as a shortcoming of the private market, conservatives like to attribute Shorebank’s success to the unique entrepreneurial talent of its officers and staff. Shorebank officers agree that most bankers are not well-trained for development banking, but they deny that they have some rare and inimitable skill.

There may also be a problem of lingering racism in the banking industry. Recent studies by various federal agencies show that blacks are still twice as likely as their white counterparts (with equivalent income, jobs, and credit ratings) to be turned down for a home mortgage, and Latinos 1.4 times as likely to be turned down. According to one study, banks tend to have twice as much money invested per capita in white neighborhoods as in minority communities.

Lately, all these problems have been exacerbated by merger fever in the finance industry; small banks are being consolidated into large regional corporations that are less likely to concern themselves with the welfare of any particular community.

Ironically, after community-development financial institutions have demonstrated the security and profitability of underserved markets, some conventional banks have extended credit, often at more competitive rates (for example, the several banks now making home loans in South Shore). As Julia Ann Parzen and Michael Kieschnick observe in their recent book Credit Where It’s Due: Development Banking for Communities, that means a development institution often can’t profit from the market it has nurtured. Others skim the easy money off the top, profiting from the hard work of their predecessors like South Shore Bank.

Despite all these obstacles, the tide may finally be turning in favor of community-development financial institutions. Once the House and Senate work out differences in the legislation supporting such institutions, Congress will have to act on Clinton’s proposal to spend $500 million on them over the next four years. A new Community Development Banking and Financial Institutions Fund could make investments–equity, grants, loans, or other aid–of up to $5 million in any institution. Rather than directly create many Shorebanks, as Clinton originally pledged, the legislation would gradually strengthen many existing, more limited community-development institutions.

And even if the rest of the industry hasn’t rushed to follow its lead, Shorebank has been active expanding its own reach. Besides the Arkansas bank holding company that so impressed President Clinton, Shorebank has consulted with a microloan bank in Bangladesh, helped start small-business loan funds in Poland and Bulgaria, begun cooperating with an institution seeking environmentally sensitive ways to generate jobs in the northwest, and started a business and industrial-development corporation and business consulting service in northern Michigan.

Back home in Chicago Shorebank has expanded its bank-loan target areas in recent years to include more neighborhoods near South Shore. With a recent infusion of capital from downtown banks, it can expand lending and possibly buy other banks. Shorebank discussed acquiring Indecorp, the black-owned holding company that owns Independence and Drexel banks, but the talks stopped because the two holding companies didn’t “fit,” Davis says. There had also been protests about black-owned banks being taken over by a nonblack bank, even though much of Shorebank’s leadership and staff is African American and its lending record in black neighborhoods surpasses that of most black-owned banks.

In late 1987 Shorebank initiated its Shorebank Advisory Services (SAS), which has been consulting with individuals and institutions in more than 15 cities interested in community-development banking. Robert Weissbourd, managing director of SAS, cautions these potential development bankers that the Shorebank model is not a “magic seed” to be dropped in fallow urban soil. The nature of the community dictates the form a new bank should take. Yet in every case, Weissbourd says, SAS preaches the need to “be comprehensive about community development and not just about credit.”

The new Cleveland bank was the first fruit of its consulting operation, but Shorebank has prospects for expansion–on its own or with partners–in Milwaukee, Louisville, Kansas City, Baltimore, San Diego, Portland, and Detroit. In some cities business elites or government officials became interested in promoting development banks, Weissbourd says, as they watched the flames of Los Angeles and worried about the future of their own cities.

Some observers sympathetic to Shorebank worry that it might be overextending itself, dabbling in too many things too far afield. South Shore Bank vice president James Bringley skeptically observes, “It would be nice if you could figure out what the bank has done that is good and to hook it up all over. I’m not sure you can. It’s like coaching basketball: you’ve got to be there. It’s situational. You can’t get things done and leave.” Weissbourd hopes that people elsewhere will learn from Shorebank’s experience and then stay in their own communities for the long haul.

One clear lesson from South Shore is that community development is more than providing credit and banking; along with these things poor neighborhoods usually lack jobs, services, and social organization. Though a sensitive, comprehensive development institution can do much with private financing and market-oriented business practices, its ultimate success also depends on government support and community organization.

“Shorebank transcended the old-fashioned dichotomy of charity and business,” Weissbourd argues. “It has shown you can lend money to a mixed-income black community and make money doing it.” Yet it has also relied on the “charitable” or socially responsible impulses of its founders, institutional investors, staff, and others.

By the conventional business dictates of profit maximization, Shorebank is still not a success. However, it does demonstrate the need for society to support a whole range of institutions–quasi-ublic, not-for-profit, and socially responsible profit-making ventures like Shorebank–to complement the strengths and make up for the weaknesses of the free market on one hand and government on the other. It also serves as a reminder that private profit and public-spiritedness are not necessarily contradictory.

“I really believe,” says Ronald Grzywinski, “that what we do is what banking ought to be–that banks have public licenses and public charters and get other public benefits, and if they’re working at their best they’re working for a more productive, more equitable society. That’s all I think I’m doing, to use these tools to demonstrate that it can be done–not to be kept as a precious onetime example, but to show that private resources can be used for this goal.”

Art accompanying story in printed newspaper (not available in this archive): photos/Marc PoKempner.