Abstract
Nonprofit organizations are vital contributors to public welfare, yet they are systematically excluded from conventional banking systems, creating a liquidity crisis that undermines their capacity to deliver essential services. This paper discusses the structural issues of the banking sector that hinder nonprofits in acquiring credit and explains how this problem can be solved. Specifically, it aims at investigating liquidity constraints faced by schools providing mental health services and education programs. With the help of information asymmetry and relationship lending theories, the paper explains why traditional credit approaches cannot work, considering the distinctive features of the financial model of mission-oriented institutions. The problem becomes even more acute among mental health institutions due to the existence of a liquidity limitation created by the reimbursement-oriented federal health financing system that does not allow institutions to connect expenses and income within a certain period. In order to address such challenges, this paper suggests a multi-layered approach including reforming the Community Reinvestment Act, revising federal funding and Title I formulas, and creating innovative funding solutions in line with mission objectives. For this purpose, the seven-step action plan and funding strategy for mission-oriented institutions are suggested.
Recommended Citation
Lee, JinHee, & Martinez, Josefina. (2026). "The Capital Gap: Mitigating Banking Barriers for Nonprofit Providers in Mental Health and Educational Systems." Pepperdine Policy Review, Vol. 18, Article 3. Available at: https://digitalcommons.pepperdine.edu/ppr/vol18/iss1/3
Included in
Education Policy Commons, Health Policy Commons, Nonprofit Studies Commons, Public Policy Commons, Social Policy Commons
