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Cascade: No. 96, Summer 2017

New CDFI Community Investment Fund*

The Opportunity Finance Network (OFN) and Woodforest National Bank (NB), based near Houston, TX, created a new fund in early 2017 to provide equity-equivalent investments1 to community development financial institutions (CDFIs) in Woodforest NB’s 17-state region,2 which includes Pennsylvania.

The CDFI Community Investment Fund, LLC, has an initial funding commitment of $5.5 million with an option to increase the commitment to up to $22 million over the next four years. Robin Odland, executive vice president for financial services at OFN, said that “the fund will provide much needed flexible capital, which can be leveraged with conventional senior debt capital.”

Woodforest NB is the primary capital provider to the fund, while OFN is the managing partner that identifies viable investment opportunities and manages the underwriting, closing, and investment follow-up. The investment committee has three members from Woodforest NB and two from OFN.

The fund provides investments of $250,000 to $750,000 for 10 years. According to Odland, the return on the investment is fixed for the life of the investment and is based on market conditions. Currently, OFN is targeting a 3 percent yield on the investment, Odland said, adding that the investments are subordinated to other debt and do not have standard loan covenants.

According to Odland, “Equity equivalent investments are critical for CDFIs because most of them are nonprofits that have limited opportunities to raise equity. At the same time, a nonprofit CDFI’s ability to attract additional debt capital depends on increasing its level of equity and/or net assets.”

To be eligible for a fund investment, an applicant must be certified as a CDFI by the CDFI Fund but need not be an OFN member, Odland explained. Interested CDFIs must initially send an expression of interest to OFN. OFN seeks to provide capital to CDFIs that provide excellent coverage in an area that is part of the 17-state target region. OFN ultimately invites suitable CDFIs to submit a detailed application for a fund investment.

The fund’s first investment was for $400,000 to Justine PETERSEN,  a CDFI based in St. Louis, MO, that provides microbusiness and small business loans, homeownership financing, and credit building in Missouri and Illinois. OFN is currently underwriting eight more transactions for the fund.

Nina FieldsNina Fields, of Cahokia, IL, prepares packages for shipping after she received a $14,000 microloan from a subsidiary of Justine PETERSEN, a CDFI that received financing as part of a partnership between the Opportunity Finance Network and Woodforest National Bank. Her business, Nina the Helper, has grown rapidly by providing door-to-door service for a variety of household and commercial tasks such as shipping parcels, housekeeping, and lawn care. Her microloan enabled her to purchase additional equipment and make improvements to her workspace.
Photo Credit: Foveal Media.

Odland explained that the fund was developed after Woodforest NB approached OFN with a desire to efficiently deploy investment dollars into CDFIs. He said that the fund was “an off-balance sheet way” for OFN to generate more capital for CDFIs.

Doug Schaeffer, executive vice president and Community Reinvestment Act executive director for Woodforest NB, said that the bank has a substantial focus on small business and that one part of this focus is increasing investment in CDFIs that serve entrepreneurs. The bank makes unsecured and secured small business loans, commercial loans, small dollar unsecured consumer loans, and unsecured home improvement loans.

Woodforest NB, formed in 1980, has assets of about $5 billion and nearly 800 branches in its 17-state region. Most of the branches are in Walmart stores. From July 2015 to March 2017, the bank made over $131 million in community development investments and loans, and the bank’s employees volunteered nearly 40,000 hours in financial literacy education, according to Schaeffer.

Odland said that OFN plans to invite other community and regional banks to become investment partners on additional equity funds in states outside Woodforest NB’s 17-state region.

For information, contact Robin Odland at 215-320-4328 or rodland@ofn.org  (http://ofn.org/cdfi-community-investment-fund)  or Doug Schaeffer at 212-203-1428 or dschaeffer@woodforest.com  (www.woodforest.com)

OFN Publications

The Opportunity Finance Network, a national membership organization for the community development financial institution (CDFI) industry, has released several publications of interest to community development organizations and financial institutions. The publications  involve small business lending, employer-based loan products, quality jobs, and best standards in financial management.

  • “Small Business Underwriting Innovations”

    Published June 2017
    Three CDFIs document innovative underwriting approaches and processes to overcome insufficient owner equity, simplify and accelerate underwriting, and expand the credit box without compromising asset quality. One case study documents how a CDFI cut the length of its loan policies from 100 pages to three pages; another case study examines a new risk rating matrix that reflects historical factors correlated to asset quality.

  • “Employer-Based Loan Products as a New Benefit”

    Published January 2017
    This white paper documents loan products offered by employers in partnership with nine CDFIs. The loans enable employers to offer a new benefit to employees and provide individuals with a simple and affordable alternative to predatory and payday loans. The paper provides background for employers on marketing and outreach, customer experience, technology, financial counseling, measuring impact and outcomes, and creating partnerships.

  • Reducing Income Inequality Through Quality Jobs 

    Published September 2016
    Five CDFIs and their borrowers explain the approaches and tools that CDFIs and financial institutions can use to promote the creation of quality jobs and, thereby, reduce income inequality.

  • Performance Counts

    Published 2014 to 2016
    Performance Counts seeks to develop CDFI best practices on financial management and financial statements for the benefit of CDFIs and bank investors. Three publications address the following topics:

    • Presentation and classification of grants and net assets in CDFI financial statements
    • CDFI portfolio reporting, including definitions, accounting treatment, and reporting guidance
    • CDFI liquidity and cash management, including definitions, practices, and examples
  • Pam Porter, Opportunity Finance Network
    • * The views expressed here do not necessarily represent the views of the Federal Reserve Bank of Philadelphia or the Federal Reserve System.
    • 1 For an explanation of equity equivalent investments, see www.cdfifund.gov/Documents/(22)%20Equity%20Equivalent%20Investments.pdf
    • 2 The region consists of Alabama, Florida, Georgia, Illinois, Indiana, Kentucky, Louisiana, Maryland, Mississippi, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Texas, Virginia, and West Virginia.