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) and thereby replenished their capital. In addition, The Reinvestment Fund (TRF) has sold loans to the Community Development Trust Inc. (www.cdt.biz), 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:
OFN has begun producing reports on CDFI innovations. For information on the innovation guides, contact email@example.com.
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.
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.