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Cascade: No. 67, Winter 2008

Demand Grows for CDFI Financing

Community development financial institutions (CDFIs) “need to keep pace with the rapidly growing demand for CDFI financing in a way that’s sustainable,” Mark Pinsky, president and CEO of the Opportunity Finance Network (OFN), said. To move to higher levels of lending, CDFIs must raise capital from new sources such as individual philanthropy, increase the liquidity of their loans, and improve their financing models and systems, he explained.

OFN has 164 members, consisting of community development loan funds, banks, credit unions, venture funds, and microloan funds. Virtually all of its members are certified as CDFIs by the CDFI Fund. OFN shares CDFI experience through a national conference, online training classes, a consulting business, and publications; seeks to influence federal policy on access to capital and economic development strategies; and provides financing to CDFIs. Established in 1985, OFN has a staff of 26 people.

One CDFI that has been receiving larger lending requests is the Low Income Investment Fund (LIIF), based in San Francisco. Nori Ramos, chief credit officer at LIIF, said that larger requests have prompted LIIF to invite intermediaries such as the Local Initiatives Support Corporation and Enterprise Community Partners to participate in financing packages. LIIF can provide multilayered financing that is “seamless to the borrower” because of its accounting system, lending software, and loan management structure, she added.

Some CDFIs have increased their lending volume by selling loans to secondary-market entities. Several, including New Jersey Community Capital, have sold their loans to the Minneapolis-based Community Reinvestment Fund USA (www.crfusa.com) External Link and thereby replenished their capital. In addition, The Reinvestment Fund (TRF) has sold loans to the Community Development Trust Inc. (www.cdt.biz), External Link a community development real estate investment trust.

CDFIs have expanded the boundaries of viable markets, as they’ve done in child care lending, and corrected market information flaws, as they’ve done in charter school lending, Pinsky said. CDFIs also make assets market-ready, he said.

OFN is currently in the midst of a public education effort to bring CDFI accomplishments and challenges to the attention of U.S. presidential candidates and congressional representatives.

Pinsky identified the following CDFI innovations:

  • The New Hampshire Community Loan Fund (NHCLF) has provided extensive technical assistance and financing to help homeowners buy and manage their manufactured-housing parks as cooperatives. NHCLF has no defaults on nearly $40 million of loans, consisting primarily of subordinated acquisition debt, in 85 resident-owned communities. Its success led to a national initiative, ROC USA. (Paul Bradley at pbradley@rocusa.org; www.nhclf.org; www.rocusa.org) External Link
  • Coastal Enterprises in Maine and ShoreBank Enterprise Cascadia in the state of Washington have led exploration into greater CDFI use of a triple bottom line, which includes environmental concerns as well as financial and social goals. In this approach, CDFIs make lending and investment decisions that have positive effects on the environment, such as preserving water quality, and reduce negative effects, like energy consumption and greenhouse gas emissions.
  • The Minnesota Community Capital Fund, formed in 2003, is designed to increase the availability of gap-financing capital for affordable housing and economic development projects in the rural areas of Minnesota. The Northland Institute, a Minneapolis-based nonprofit, pools funds from participating organizations, originates loans on behalf of its participants, and sells the loans on the secondary market. (www.mncommunitycapitalfund.org) External Link
  • The Latino Community Credit Union (LCCU) in Durham, N.C., was formed in 2000 in response to violence against Spanish-speaking residents in the state. LCCU has more than 50,000 members and branches in five locations and plans to expand to three new markets. It works closely with the State Employees Federal Credit Union, which provides backoffice processing of transactions. (www.cooperativalatina.org) External Link
  • ACCION Texas, based in San Antonio, uses an automated underwriting system and business model for microloans and has made over 8,100 loans totaling over $58 million to customers in Texas. (www.acciontexas.org) External Link

OFN has begun producing reports on CDFI innovations. For information on the innovation guides, contact lpage@opportunityfinance.net.

One of OFN’s initiatives is the CDFI Data Project, in which OFN surveyed 496 CDFIs representing approximately half of the existing CDFIs. OFN found that in 2005 CDFIs provided $4.3 billion in loans and investments, financed and assisted 9,074 businesses, and facilitated the construction or renovation of 55,242 affordable housing units and 613 community facilities.

In a new venture launched in June 2007, OFN started a national mortgage platform as a local, marketbased response to predatory lending for first-time homebuyers, minorities, immigrants, and lowand moderate-income communities and residents. Products are being offered for home mortgage purchase and refinance.

To facilitate investment in CDFIs, OFN developed the CDFI Assessment and Ratings System (CARS), which provides in-depth evaluations of a CDFI’s impact and financial strength. OFN has completed CARS evaluations on 32 CDFIs.

Bank investment opportunities in OFN include debt, equity, or equityequivalent investments of at least $100,000 for seven years at interest rates ranging from 0 to 4 percent. Investments go into a revolving loan fund and enable OFN to provide flexible financing to high-performing CDFIs. Investors can also subscribe to OFN’s CARS ratings of CDFIs.

For general information, contact Mark Pinsky at mpinsky@opportunityfinance.net. For information on the mortgage platform, contact Howard Banker at hbanker@opportunityfinance.net.

Background: CDFI Fund

Community development financial institutions (CDFIs) serve low-income people or work in economically distressed communities, often occupying market niches that may be underserved by traditional financial institutions.

A total of 784 CDFIs were certified by the CDFI Fund as of February 1, 2008. They consisted of loan funds (532), credit unions (139), banks or thrifts (64), venture capital funds (28), and depository institution holding companies (21). Of the 784, 33 had headquarters in Pennsylvania, 12 in New Jersey, and three in Delaware.

The CDFI Fund, which is located within the U.S. Department of the Treasury, was created in 1994 to promote economic revitalization and community development through investment in and assistance to CDFIs. The fund invests in and trains CDFIs, allocates new markets tax credits to community development entities, encourages banks to invest in their communities and CDFIs through Bank Enterprise Awards, and provides financial assistance and training to CDFIs that serve Native Americans.

The CDFI Fund is seeking public comments until March 8, 2008, on the fund’s parameters and process for certifying organizations as CDFIs. For details, see www.cdfifund.gov. External Link