community development financial institutions · 2014-02-28 · community development financial...

COMMUNITY DEVELOPMENT

FINANCIAL INSTITUTIONS

Community Economic Development Manual

Disclaimer

This fact sheet was produced by the California Community Economic Development Association, in

partnership with the Community Action Partnership National Office, as part of the U.S. Department of Health

and Human Services, Office of Community Services. The “Community Economic Development” publication

series is designed to increase the knowledge of processes for community economic development projects

nationwide. The contents of this manual are presented as a matter of information only. Nothing herein should

be construed as providing legal, tax, or financial advice. The materials referenced and the opinions expressed

in this product do not necessarily reflect the position of the U.S. Department of Health and Human Services,

Office of Community Services, and no official endorsements by that agency should be inferred.

Support for the Community Economic Development project and this toolkit is provided by the

Department of Health and Human Services Administration for Children and Families,

Office of Community Services (OCS), grant award number: 90ET0426/01.

Entire contents copyright © 2011 Community Action Partnership. All rights reserved.

CommunityDevelopmentFinancialInstitutions 1

COMMUNITYACTIONPARTNERSHIP

COMMUNITYDEVELOPMENTFINANCIALINSTITUTIONS

TOOLKIT


COMMUNITYDEVELOPMENTFININCIALINSTITUTIONS

TABLEOFCONTENTS

Introduction…………………………………………………………………………………………………….……….……………….3CommunityEconomicDevelopmentandintegration………………………………………………………………..5Background……………………………………………………………………………………………………………………………….6WhatisaCDFI?………………………………………………………………………………………………………………………...7CDFIProgramBenefits………………………………………………………………………………………………………………7CDFIFinancialAssistanceandTechnicalAssistance………………………………………………………………..…9CDFIDesignationRequirements………………………………………………………………………………………………11BecomingaCDFI……………………………………………………………………………………………………………………..11CDFIEligibility……………………………………………………………………………………………………………………….…11CDFIAwardCategories……………………………………………………………………………………………………………11CDFIApplicationforTechnicalAssistanceAwards………………………………………………………………..…11CDFIApplicationforFinancialAssistanceAwards…………………………………………………………………...12ComprehensiveRatingsforCDFIInvestments(CARS)……………………………………………………………..13BusinessPlanandGrowthStrategy………………………………………………………………………………………...13ProgramFeasibilityConcepts………………………………………………………………………………………………….14StartUporExpansion/BecomingaCDFI………………………………………………………………………………….15StartUpCDFI…………………………………………………………………………………………………………………………..15SlightlyExperiencedLoanFund……………………………………………………………………………………………….17ExistingorExperiencedLoanFund……………………………………………………………………………………….…17SummaryStepstoBecomingaCDFI………………………………………………………………………………………..17DevelopmentTips……………………………………………………………………………………………………………………18OtherNotes…………………………………………………………………………………………………………………………….19FinalNote………………………………………………………………………………………………………………………………..19AppendixA–ForMoreinformation………………………………………………………………………………………..21OpportunityFinanceNetwork………………………………………………………………………………………………...21CoalitionofCommunityDevelopmentFinancialInstitutions(CDFICoalition)………………………….21CommunityDevelopmentFinancialInstitutionsFund……………………………………………………………..21CaliforniaAssociationforMicroEnterpriseOpportunity(CAMEO)……………………………………….…21NationalCommunityReinvestmentFund(CRF,USA)………………………………………………………………22ForMoreinformation:Websites,OrganizationalExamples…………………………………………………….22NCBCapitalImpact………………………………………………………………………………………………………………….22RegionalCDFIs…………………………………………………………………………………………………………………………23ClearinghouseCDFI…………………………………………………………………………………………………………………23CoastalEnterprise,Inc.(CEI)…………………………………………………………………………………………………..23CommunityBasedFunds…………………………………………………………………………………………………………23FresnoCommunityDevelopmentFinancialInstitution(FCDFI)………………………………………………..23PeopleIncorporatedFinancialServices…………………………………………………………………………………..23


COMMUNITYDEVELOPMENTFINANCIALINSTITUTIONS

INTRODUCTIONThisCommunityDevelopmentFinancialInstitutions(CDFIs)Guideisintendedforusebycommunitydevelopmentorganizationsforthefollowingpurposes:

1. OrganizationswantingtolearnaboutCDFIs2. OrganizationsconsideringbecomingacertifiedCommunityDevelopmentFinancial

Institutionwhichhaveanexistingloanprogram3. OrganizationsconsideringbecomingacertifiedCommunityDevelopmentFinancial

Institutionandhavenotoperatedaloanprogram4. OrganizationslookingforCDFIservicesfortheirownuseorfortheircommunity

TheCDFIdesignationisacertificationprocessconferredbytheCDFIfundoftheDepartmentofTreasury.Thedesignationisforfinancialinstitutions(andlendingprogramsincludingcommunityloanfunds)andallowsaccesstoTreasuryprogramsandinvestments.Thedesignationhasbecomeakeyidentificationfactorforfoundations,local,stateandotherfederalprogramstoinvestadditionalcapital.ThemissionoftheCommunityDevelopmentFinancialInstitutionsFundisto“expandthecapacityoffinancialinstitutionstoprovidecredit,capitalandfinancialservicestounderservedpopulationsandcommunitiesintheUnitedStates”1TheCDFIFundhasseveralprogramsthatenhancesaccesstocapital.Uponreceivingcertification,CDFI’sareeligibletocompetefortechnicalassistancegrants,capitalgrants,NewMarketsTaxCreditsaswellasothertargetedincentiveprograms.TheCDFIdesignationallowslendingprogramsaccesstocompeteforCDFIresources,buttheseresourcesareinveryhighdemand.Sincethestartoftheprogramin1994,thecompetitivebarhasrisendramaticallyandorganizationsreceivinggrantshavesignificantexperienceinsuccessfullyoperatingaloanfundorconductionlendingactivities.Thereforewehighlyrecommendthatorganizationcloselystudytheapplicationguidelinesfoundatwww.cdfifund.gov.

“CDFIsprovideauniquerangeoffinancialproductsandservicesineconomicallydistressedtargetmarkets,suchasmortgagefinancingforlow‐incomeandfirst‐timehomebuyersandnot‐for‐profitdevelopers,flexibleunderwritingandriskcapitalforneededcommunityfacilities,andtechnicalassistance,commercialloansandinvestmentstosmallstart‐uporexpandingbusinessesinlow‐incomeareas.CDFIsincluderegulatedinstitutionssuchascommunitydevelopmentbanksandcreditunions,andnon‐regulatedinstitutionssuchasloanandventurecapitalfunds”.2

1 Community Development Financial Institutions Fund “CDFI Certification Application”, Department of Treasury, June 2007, pg 4 2 CDFI Fund Summary, www.cdfifund.gov


Forsuccessfulloanfunds,theCDFIdesignationisveryimportantandallowsyourlendingprogramtogrowdramatically.MostfoundationandcorporategrantsandinvestmentsfromfinancialinstitutionslookfortheCDFIdesignationbeforegrantorinvestmentdiscussionsbegin.Overthelastthreeyears,financialinstitutionshavebeenveryactivelyseekingsoundCDFIstoinvestin.CDFIshavebeenaverysuccessfulmechanismforfinancialinstitutionstomeetlendingandinvestmentmeasuresrequiredbytheCommunityReinvestmentAct(CRA)andenforcedbybankingregulators.AhighCRAratingisneededifthefinancialinstitutionhasplanstoexpandinthefuture.Duetorecenteconomicandfinancialturmoil,commerciallendersandinvestorshavesubstantiallytightenedlendingrequirements,resultingina“creditcrunch”wherecreditneedsaregreaterthanresources.ThiseconomiclandscaperesultedincommercialfinancialinstitutionsgreaterrelianceoncommunityloanfundsandCDFIsasthemechanismtobetterservemarketneeds.FinancialinstitutionsbegantoinvestandlendmoreaggressivelytosoundCDFIs.ThisinvestmentandlendingstrategyenablesinstitutionstomeetCRArequirementswhilemakesafeandsoundinvestments.CDFIshavebuiltastrongreputationinunderstandinglocalcreditnuancesandneedsresultinginstrongloanportfolios.Recently,theFederalHomeLoanBank(FHLB)systemhasallowedCDFI’saccesstomembershippreviouslylimitedtocommercialbanks,thriftsandsavingsandloans(determinedonaregionalbankbybankapprovalprocess).ThereareverystringentrequirementshoweveraccessallowsCDFIstoleverageCDFIequityandbelow‐marketfinancingtoservemorecustomersandprovidemorelendingproducts.ThecostoffundsfromtheFHLBistypicallygreaterthantheratesfromgrantsourcesforCDFIs,sotheuseofthisresourceissomewhatlimitedtolargerCDFIinvolvedwithlargerloans.Approvalisheavilyweightedonsuccessfulmanagementexperienceandlendinghistory.AnadditionalveryimportantresourcewascreatedbytheSmallBusinessJobsActof2010whichincludetheCDFIBondGuaranteeProgramwhichwillbeadministeredbytheCDFIFund.Withcurrentlowinterestrates,CDFIswillbeabletolockincurrentextremelylowinterestratesofupto30yeardebt.ThiswouldresultinacapitalinfusionforCDFIsof$3billiondollars(by2014),atratesinthecurrentmarketatabout3%.

“Keyfeaturesoftheprograminclude:1. $3Billioninbondguaranteeauthoritythrough2014withminimumbondsizeof

$100million2. CDFIswillbeabletoissuetaxablebondswithtermsupto30years3. TheFederalGovernmentGuaranteeensuresrepaymentofverifiablelossesof

principal,interest,andcallpremium,ifany,onbondsandnotes4. TheFederalFinancingBankwillbuy100percentofbondsandnotesissuedto

simplifyexecutionandminimizecostandpricing5. ParticipatingCDFIswillberequiredtoestablisharisksharepoolofthreepercentof

thebondornoteamount


6. ProceedscanbeusedbyCDFIstofinanceorrefinanceactivitythatmeetsthecommunityandeconomicdevelopmenttdefinitionoftheRiegleAct(enablinglegislationfortheCDFIFund.”3

COMMUNITYECONOMICDEVELOPMENTAPPLICABILITYANDINTEGRATIONCDFIsplayanintegralroleinacommunityeconomicdevelopmentstrategy.CDFIsbringcapitaltounderservedmarketsthatincludebusinessfinance(startup,micro,non‐profit,smallandbusinessexpansion),realestatedevelopmentfinance(affordablehousing,commercialandoffice,communityfacilitiesandindustrial)andpersonalfinance(auto,homeorpersonal).Thiscapitalcreateseconomicstabilitywhilecreatingjobsandopportunitiesforcommunityresidents.CDFIsalsobringcommunitiesahigherleveloftechnicalexpertiseinbusinessandfinanceincreasingthepotentialforsustainedcommunitystabilityandgrowth.CDFI’shavealsoenabledfinancialinstitutionstobecomemoreeffectiveinmeetingcustomerdemandsinlowincomeanddisadvantagedcommunities.ThegrowthofsuccessfulCDFI’sallowsfundstomoreeasilycoveroperatingandoverheadexpensesandgenerateadditionalincometosupportotherorganizationalcommunitydevelopmentactivitiessuchasbusinesstechnicalassistanceprogramsandexpansionoflendingservicestomeetotheraspectsofcommunitycreditneeds(suchasautoloans,microloans,homeorbusinessloans).Astrongerandfinanciallyviablelendingbusinesswillenhancetheoverallsuccessandlongevityofyourcommunitydevelopmentorganization.TheCDFIdesignationincreasesresources(expertiseandcapital)resultingingreaterlendingactivities.Thisexpansionenhancestheorganizationandcommunity.Theeffectsaresubstantialandinclude:FortheOrganization:

1. Allowsforexpansionandstabilityfortheorganizationslendingefforts2. Generatesadditionalincomefortheprogram3. Supportsandallowsforthecreationofadditionalcomplementaryprograms,services

andprojects4. Expandsstaffcapacityacapabilitiesbyattractingandretainingexperienced

professionalsinbusinessfinanceanddevelopmentForthecommunity:

1. Increasesaccesstocapital2. Increasedaccessrelatedresourcessuchastrainingandtechnicalassistanceintheareas

offinanceandbusinessdevelopment3. Enhancesthelocaleconomybysupportingimportantsegmentsoftheeconomic

infrastructureincludingbusiness,residentialandindustrialsectors

3 Dolan, Cathy “CDFI Bond: Opportunity of a Decade, Community Investments” Federal Reserve Bank of San Francisco, Fall 2011, page 28


Successfullendingefforts(andancillaryfinancialprograms)resultsineconomicallystrongercommunities,strongerworkforces,moreinformedandcapablebusinessesandtenants,andultimatelyastrongerandmoreinclusiveeconomy.BecauseCDFIfundresourcesarelimited,highlycompetitiveandrequireastrongtrackrecordandhighlevelofexpertise,alternativesolutionsincludethecreationofpartnershipswithexistingCDFIs.PartnershipscouldbeassimpleashavingandexistingCDFIexpandtheirmarketareatoincludeyourgeographyorbyprovidingalocalsitefortrainingandtechnicalassistanceservices.AnothersolutioncanincludecreationofanewfundtargetedtotheneedsofyourcommunitybutismanagedandoperatedbyasuccessfulCDFI.

CDFI’sareimportantresourcesforlowincomecommunities.“CDFIsareprofitablebutnotprofitmaximizing.Theyputcommunityfirst,nottheshareholder.Theyhavehadgreatsuccessoverthepast30years,andhaveaproventrackrecordofmakinganimpactinthoseareasofAmericathatneeditmost”.4

InaJune2009speech,FederalReserveChairmanBenBernankerecognizedthatCDFIsfacilitateeconomicgrowthanddevelopment:

“Today,nationwide,therearemorethan1,000certifiedCDFIswithacollective$25billioninassets.Theseorganizationshaveloanedandinvestedbillionsofdollarsinournation’smostdistressedcommunitiesandhaveattractedmanyconventionalinvestorsintounderservedareas….Asacomplementtolending,CDFIsoffertrainingandtechnicalassistancetotheircustomers,directlyorthroughpartnerships,thusincreasingborrowercapacityandmitigatingloanrisk.SuccessfulCDFIborrowers’oftengraduatetoconventionalfinancingastheirneedsgrow,therebyattractingtheparticipationofmainstreamlenderswhilefreeingupCDFIresourcestoplantnewseedsinthecommunity”5

ThisguidewillprovideyoubackgroundontheCDFIprogram,discussprogramaspectsandsummarizetheeligibility/applicationprocess.TheguidewillalsodiscussandpresentsuccessfulCDFIstrategiesandidentifyresourcesfororganizationsinterestedinpursuingaCDFIdesignation.WewillalsodiscussvariousstrategiesforpartnershipsthatwillbringthebenefitsCDFI’soffertoyourcommunityororganization.BACKGROUND

TheCDFIprogramwasestablishedin1994aspartoftheCommunityDevelopmentBankingandFinancialInstitutionsAct.TheprogramhaditsearliergenesisfromPresidentBillClintonwhileasacandidatein1992visitedtheSouthShoreBank,aspecializedcommunitydevelopmentbankfocusedonincreasinginvestmentinneglectedneighborhoods.ThePresidentsinterestincreatingsimilareffortsledtothecreationoftheCDFIfundinTreasury.

4 Opportunity Finance Network (OFN), “About CDFIs”, website www.ofn.net 5 Opportunity Finance Network “CARS, Comprehensive Ratings for CDFI Investments”, An Independent Project of Opportunity Finance Network, www.CARSratingsystem.net


The1994lawwasdesignedto“promoteeconomicrevitalizationandcommunitydevelopmentindistressedurban,ruralandNativeAmericancommunitiesacrossthenation.TheCDFIFunddoesthisprimarilybyawardingfinancialassistancetoCDFI’sandinsureddepositoryinstitutions.”6WHATISACDFI?TheCDFICertificationApplication7definesCDFIsasfollows:“ACommunityDevelopmentFinancialInstitution(CDFI)isaspecializedfinancialinstitutionthatworksinmarketnicheswhichareunderservedbytraditionalfinancialinstitutions.CDFIsprovideauniquerangeoffinancialproductsandservices,suchasmortgagefinancingforlow‐incomeandfirst‐timehomebuyersandnot‐for–profitdevelopers,flexibleunderwritingandriskcapitalforneededcommunityfacilities,andtechnicalassistance,commercialloansandinvestmentstosmallstart‐uporexpandingbusinessesinlowincomeareas.ACDFImustprovidedevelopmentservicesthatsupportfinancialtransactionsandshowthatitisdirectlyaccountabletoitscommunityoritscustomers.CDFIsincluderegulatedinstitutionssuchascommunitydevelopmentbouncesandcreditunions,anonregulatedinstitutionsuchasloanfunds,venturecapitalfundsandmicro‐enterpriseloanfunds.”TobecomeaCDFItheentitymustmeetthefollowingsixcertificationcriteria:

1. Haveaprimarymissionofpromotingcommunitydevelopment2. Beafinancingentity3. Primarilyserveoneormoretargetmarkets4. Providedevelopmentservicesinconjunctionwithitsfinancingactivities5. Maintainaccountabilitytoitsdefinedtargetmarket6. Beanon‐governmentalentityandnotbeundercontrolofanygovernmententity

(excludingtribalgovernments).

CDFIPROGRAMBENEFITSTheCDFIcertificationisarequirementthatwillallowyoutoaccessCDFIprogramfunds.Theseprogramsinclude:Note:SourcematerialforthissectionisfromtheCDFIwebsiteat:www.cdfifund.gov.Thewebsiteincludesannualchangesintheprogramorspecialprograms,forexamplethe2011applicationprocessincludedtheHealthyFoodFinancingInitiativethatmade12awardsfor$25million.ThegoalofthisprogramistouseCDFIcapacitytomakeinvestmentsinarangeofhealthfoodprojectsservingfooddesertsincludinggrocerystores,mobilefoodretailers.Farmersmarkets,cooperatives,cornerstores,bodegasorotherfoodrelateditems(includinghealthfoods).

1. BankEnterpriseAward(BEA):CDFIscanpartnerwithaFDICinsuredfinancialinstitutiontoseekaBEAaward.Thisprogramprovidesincentivestoinstitutionsbyproviding

6 Abt Associates Inc., “From Insight to Impact, Assessment of the Community Development Financial Intuitions Fund (CDFI) Program, Training Program & CDFI Certification – Final Report” Executive Summary, August 17, 2007, page iii 7 CDFI Fund Summary, Op Cit


financialincentivestoexpandinvestmentsinCDFIsandtoincreaselending,investment,andserviceactivitieswithineconomicallydistressedcommunitiesoveraspecifictimeperiod.Activitiesinclude:

a. CDFIRelatedActivities:Equityinvestments,equity‐likeloans,grants,loans,deposits/shares,andtechnicalassistancetoqualifiedCDFIpartners

b. DistressedCommunityFinancingActivities:Affordablehomemortgageloans,affordablehousingdevelopmentloans,smallbusinessloans,homeimprovementloans,educationloans,andcommercialrealestateloans

c. ServiceActivities:Deposits,communityservices,andfinancialservices2. CapitalMagnetFund(CMF):providecompetitivelyawardedgrantstoCDFIsand

qualifiednonprofithousingorganizations.CMFawardscanbeusedtofinanceaffordablehousingactivitiesaswellasrelatedeconomicdevelopmentactivitiesandcommunityservicefacilities.Awardeeswillbeabletoutilizefinancingtoolssuchasloanlossreserves,loanfunds,risk‐sharingloans,andloanguaranteestoproduceeligibleactivitieswhoseaggregatecostsareatleasttentimesthesizeoftheawardamount.

3. CDFIPrograms:(SeenextsectionfordetailsontheFinancialAssistanceandTechnicalAssistancePrograms)

4. FinancialEducationandCounseling(FEC):ThroughtheFECPilotProgram,theCDFIFundshallprovidegrantstoeligibleorganizationstoenablethemtoprovidearangeoffinancialeducationandcounselingservicestoprospectivehomebuyers,withthegoalsof:

a. Increasingthefinancialknowledgeanddecision‐makingcapabilitiesofprospectivehomebuyers;

b. Assistingprospectivehomebuyerstodevelopmonthlybudgets,buildpersonalsavings,financeorplanformajorpurchases,reducetheirdebt,improvetheirfinancialstability,andsetandreachtheirfinancialgoals;

c. Helpingprospectivehomebuyerstoimprovetheircreditscoresbyunderstandingtherelationshipbetweentheircredithistoriesandtheircreditscores;and

d. Educatingprospectivehomebuyersabouttheoptionsavailabletobuildsavingsforshort‐andlong‐termgoals

TheultimateprogramgoalsoftheFECPilotProgramaretoidentifysuccessfulmethodsresultinginpositivebehavioralchangeforfinancialempowerment,andtoestablishprogrammodelsfororganizationstocarryouteffectivefinancialeducationandcounselingservicestoprospectivehomebuyers.

5. NewMarketsTaxCredits:CDFIsareeligibletocompeteforNewMarketsTaxCredits(NMTC).ThroughthecreationofaCommunityDevelopmentEntity(CDE),creditsareallocatedtoeligiblenonhousingrealestatedevelopmentprojectsineligiblelocations.Communitybenefitandjobcreationaretheprimarygoalsoftheprogram.TheNewMarketsTaxCreditProgram(NMTCProgram)wasestablishedbyCongressin2000tospurneworincreasedinvestmentsintooperatingbusinessesandrealestateprojectslocatedinlow‐incomecommunities.TheNMTCProgramattractsinvestmentcapitaltolow‐incomecommunitiesbypermittingindividualandcorporateinvestorstoreceiveataxcreditagainsttheirFederalincometaxreturninexchangeformakingequityinvestmentsinspecializedfinancialinstitutionscalledCommunityDevelopmentEntities(CDEs).Thecredittotals39percentoftheoriginalinvestmentamountandisclaimedoveraperiodofsevenyears(fivepercentforeachofthefirstthreeyears,andsix


percentforeachoftheremainingfouryears).TheinvestmentintheCDEcannotberedeemedbeforetheendoftheseven‐yearperiod.NOTE:TheNMTCprogramhasbecomeaveryimportanttoolforCommunityEconomicDevelopment.PleasereviewtheseparateGuideonNewMarketsTaxCreditsformoredetails.

6. NativeAmericanCDFIAssistanceProgram(NACA):FocusedprogramsupportingactivitiesforNativeAmericancommunities:TheCDFIFund'sNativeInitiativesaredesignedtoovercomeidentifiedbarrierstofinancialservicesinNativeCommunities.Theseinitiativesseektoincreasetheaccesstocredit,capitalandfinancialservicesinNativeCommunitiesthroughthecreationandexpansionofCDFIsprimarilyservingNativeCommunities

7. CertificationforCommunityDevelopmentEntities(CDE):ACDEisadomesticcorporationorpartnershipthatisanintermediaryvehiclefortheprovisionofloans,investments,orfinancialcounselinginlow‐incomecommunities.BenefitsofbeingcertifiedasaCDEincludebeingabletoapplytotheCDFIFundtoreceiveaNewMarketsTaxCredit(NMTC)allocationtoofferitsinvestorsinexchangeforequityinvestmentsintheCDEand/oritssubsidiaries;ortoreceiveloansorinvestmentsfromotherCDEsthathavereceivedNMTCallocations

8. CertificationforCDFIs:CDFIcertificationisadesignationconferredbytheCDFIFundandisarequirementforaccessingfinancialandtechnicalawardassistancefromtheCDFIFundthroughtheCDFIProgram,NativeAmericanCDFIAssistance(NACA)Programs,andcertainbenefitsundertheBEAProgramtosupportanorganization'sestablishedcommunitydevelopmentfinancingprograms

CDFIFinancialAssistanceandTechnicalAssistance:TobeeligibleforanFAaward,aCDFImustbecertifiedbytheCDFIFundbeforeitappliesfortheaward.ProspectiveapplicantsthatarenotyetcertifiedmustsubmitaseparatecertificationapplicationtobeconsideredforFAduringafundinground.

Bothcertifiedandnon‐certifiedCDFIsareeligibletoapplyforTAawards.However,non‐certifiedorganizationsmustbeabletobecomecertifiedwithintwoyearsafterreceivingaTAaward.TheTAawardswillcoverexpensesneededtobuildthecapacityoforganizationstobecomeeligibleforCDFIdesignation.

TechnicalAssistance(TA):TAgrantsallowcertifiedCDFIsandestablishedentitiesseekingtobecomecertifiedtobuildtheircapacitytoprovideaffordablefinancialproductsandservicestolow‐incomecommunitiesandfamilies.Grantsmaybeusedforawiderangeofpurposes.Forexample,awardeescanuseTAfundstopurchaseequipment,materials,orsupplies;forconsultingorcontractingservices;topaythesalariesandbenefitsofcertainpersonnel;and/ortotrainstafforboardmembers.TheCDFIFundmakesawardsofupto$100,000undertheTAcomponentoftheCDFIProgram

FinancialAssistance(FA):TheCDFIFundmakesawardsofupto$2milliontocertifiedCDFIsundertheFAcomponentoftheCDFIProgram.ACDFImayusetheawardforfinancingcapital,loanlossreserves,capitalreserves,oroperations.FAawardsaremadeintheformofequityinvestments,loans,deposits,orgrants,andtheCDFIisrequiredtomatchitsFAawarddollar‐for‐dollarwithnon‐federalfundsofthesametypeastheawarditself.Thisrequirementenables


CDFIstoleverageprivatecapitaltomeetthedemandforaffordablefinancialproductsandservicesineconomicallydistressedcommunities.

CDFIProgramActivities:TheCDFIFundpublishesannualreportsonwhoreceivedawards.TheinformationissummarizedandispresentedbyCDFInameandbyStatetheyarelocatedin.Thesummaryshowsthegeographictargetofthefunds(canvaryfromneighborhoods,tocountiestomulti‐stategeographies),andwhattypeoflendingandinvestmenttheCDFItargets(microloans,businessloans,homeloans,realestateloansand/orloanstonon‐profitorganizations).Thefollowingsummarizesactivitiesforthe2011awards.

1. 155organizationsreceived$142million(allgrants)2. 118FAand37TAawardsweremade3. 125loanfunds,25creditunions,threeventurecapitalfunds,andtwodepository

institutions/holdingcompaniesreceivedawards4. 69servedmajormarkets,39servedminorurbanmarketsand47servedruralareas

FinancialAssistanceAwards:1. 267CDFIsappliedrequestingover$448million2. 118received$139million3. 94loanfunds,20creditunionsand4awardswenttoothers4. CoreCDFIs(receivedpreviousFAgrants)received86awardswith32goingtoEmerging

CDFIs(neworpreviouslyreceivedTAgrants)5. Awardeeswereheadquarteredin35differentstates6. Typeofservicesincluded:

a. 32%providedaffordablehousingproductsb. 29%providedsmallbusinessloansc. 21%providedconsumerfinanceloansd. 14%providedmicroenterprisefinancinge. 3%providedcommercialloanproducts

TechnicalAssistanceAwards1. 114applicantsrequestedover10.8million2. 37awardsweremadeforatotalof$3.15million3. 31loanfunds,fivecreditunionsand1otherreceivedgrants4. Awardsrangedfrom$13,456to$100,0005. Useofthefundsincluded:

a. 48%forPersonnelb. 26%ProfessionalServicesc. 9.3%FringeBenefitsd. 4.1%Equipmente. 3.8%Trainingf. 2.7%Materials/Suppliesg. 2.6%Travelh. 2.6%Other


CDFIDESIGNATIONREQUIREMENTS:ThefollowingoutlinesummarizesthekeyelementsintheapplicationtobecomeaCDFI.YoucanlocatethefullCDFIapplicationontheCDFIFundwebsite.BecomingaCDFI:

1. ACDFIisaspecializedfinancialinstitutionthatworksinmarketnichesthatareunderservedbytraditionalfinancialinstitutions.

2. Provideauniquerangeoffinancialproductsandservicesineconomicallydistressedtargetmarketssuchas:

a. Mortgagefinancingforlowincomeandfirsttimehomebuyersandnon‐profitdevelopers

b. Flexibleunderwritingandriskcapitalforneededcommunityfacilitiesandtechnicalassistance

c. Commercialloansandinvestmentstosmallstartuporexpandingbusinessesinlowincomeareas

3. Couldincluderegulatedinstitutionssuchascommunitydevelopmentbanksandcreditunionsandnonregulatedentitiessuchasloanandventurecapitalfunds

CDFIEligibility:ThisisthefirststepyouneedtoestablisheligibilitytoapplyforTechnicalAssistanceorFinancialAssistanceAwards.YoumustsubmitaCDFICertificationApplicationtothefundforreview.Youmust:

1. Bealegalentityatthetimeofcertificationapplication2. Haveaprimarymissionofpromotingcommunitydevelopment3. Beafinancingentity4. Primarilyserveoneormoretargetmarkets5. Providedevelopmentservicesinconjunctionwithfinancingactivities6. Maintainaccountabilitytoitsdefinedtargetmarket7. Beanongovernmententityandnotbeunderthecontrolofanygovernment

2011CDFIAwardCategories:

1. FinancialAssistance:CertifiedCDFIsmayreceiveawardsintheformofgrants,loans,equityinvestments,depositsandinsuredcreditunionshares

2. TechnicalAssistance:NoncertifiedCDFI’smayapplyforTA(notboth)tobuildorganizationalcapacity.Ifyouhavenotbeencertified,TAcouldhelpyougetcertified.Thesefundsdonotrequirematchingfunds.

3. HealthyFoodsFinancingInitiative:AwardstoCDFIstoaddresstheneedforhealthyfoodsintheirmarkets(USDAandHHSsupport)


CDFIApplicationforTechnicalAssistanceAwards:ThisisAwardallowsyoutobuildyourorganizationssystemsandcapacitytoapplyfortheFinancialAssistanceAwards.Requiredinformationincludes:

1. TAProposala. Howwillithelpmeetbusinessplanproposalb. Howwillithelpbuildyourcapacity

2. Usea. Training,travelandsupplies/materialsb. Professionalservices(consultantsforlendingpoliciesandprocedures,market

analysis,evaluateexistingservicesandprogramsanddevelopanddelivertrainingtopotentialborrowers.

3. EconomicDistressPriorityPointsa. Levelofdistress(qualitativeandquantitative)intargetmarketb. Prioritypoints:ID5prioritycounties

4. FinancialProductsandFinancialServicesa. Listproductsandneedsaddressedb. Examplesofpastcustomersandimpactsc. Returnsandleveraging

5. ServicestotheTargetedMarket6. MarketDemand7. OrganizationalCapacity

a. Trackrecord(productsandservices)b. Growth(demand)c. Impactd. Leveraginge. Projectedactivityandresultsf. Managementteam(keystaff)g. Systems,policiesandproceduresforunderwriting,portfolioreview,financial

accountingandMISsystems.h. Financialcapacity(portfoliohealth,viability,capitalizationandperformance)i. Capitalmeasuresandratios

CDFIApplicationforFinancialAssistanceAwards:Thisawardisagrantthatcanbeusedfororganizationalsystemsimprovementasseedcapital(orexpansioncapital)foryourloanfund.Itisagrantandthereforecomestoyoua0%interest.Informationrequiredincludes:

1. TargetMarket:a. Customersb. NationalMarkets:WherehaveyouprovidedFinancialProductsoverthelast5

years2. FinancialAssistancePlan(ForFA)

a. Organizationsimpactstodateinthetargetmarketb. Businessplanonceawardisreceived

3. HighImpactNarrativea. How,timeline,objectivesandimpact

4. EconomicDistressandPriorityPointsa. Levelofeconomicdistress(areaswithinlargergeography)


b. Economicdata;credit,capitalandfinancialneed5. FinancialProductsandFinancialServices

a. Listproductsandneedsaddressedb. Examplesofpastcustomersandimpactsc. Returnsgeneratedbyproductsandservicesd. Howfundingisbeingleveraged

6. ServicetoTargetMarketa. Developmentservicessummaryb. Linkagetoproductsc. Otherservices

7. MarketDemanda. Quantifydemandforproductsandservicesb. Marketstudiesc. Otherresources

8. OrganizationalCapacitya. Trackrecord(productsandservices)b. Growth(demand)c. Impactd. Leveraginge. Projectedactivityandresultsf. Managementteam(keystaff)g. Systems,policiesandproceduresforunderwriting,portfolioreview,financial

accountingandMISsystems.h. Financialcapacity(portfoliohealth,viability,capitalizationandperformance)i. Capitalmeasuresandratios

ComprehensiveRatingsforCDFIInvestments(CARS):CARS,theCDFIAssessmentandRatingsSystem,waslaunchedin2004asanindependentprojectofOpportunityFinanceNetwork.Itis“theonlyratingssystemtoprovideacomprehensive,third‐partyassessmentofbothimpactperformanceandfinancialstrengthandperformance[ofCDFIs]CARShelpsinvestorsconfidentlyassessCDFIsthatmatchtheirsocialobjectivesandriskparameters”8.TheanalysisincludesanassessmentbyanexperiencedprofessionalexpertinunderwritingCDFIs.Theanalysisincludesassessmentoffinancialandprogrammaticperformanceandreviewofloanportfolios,riskmanagementsystems,staffandboard.Theanalysiscreatesasinglestandardizedratingsystemtoassistinvestorsfromsourcessuchasfoundations,corporationsorindividualstouniformlydecidewheretheywillinvesttheirfundsbasedonimpactandrisktolerance.ManyinstitutionssolelyrelyoftheCARSratingandrequireapplicantstoparticipateinCARS.BusinessPlanandGrowthStrategy:TheCDFIapplicationprocessessentiallylaysoutthemajorityofitemsneededforasoundbusinessplan.Keyelementsthatarenotpartoftheapplicationinclude:

8 OFN, CARS, Comprehensive Rating for CDFI Investments, Op Cit


1. MarketAnalysis:Identificationandanalysisofcompetitionanddeterminationofmarketsizeandneeds

Inmostcases,thecompetitionisnonexistent.Thisistheprimaryreasonwhyanorganizationwouldseektocreatealoanfund/CDFI.Thisanalysisisimportantinidentifyingthecreditgapsthatyouaretryingtofill,whileunderstandingwhyotherinstitutionshavenotattemptedtomeetthisneed.Italsoallowsyoutoidentifypotentialpartners,suchasthosethatmayreferbusinesstoyouorwhereyoumightneedtoreferclientswithneedsthatyourfunddoesnotaddress.Thisprocessalsohelpsyouidentifysourcesthatmaybeinterestedinmatchinggrantfunds.

2. FinancingPlan:Financialanalysisoftheexistingandproposedloanportfolioandcashflowforyourbusinessoperations

Youshouldalsoidentifyadditionalsourcesoffinancingthatcouldbeleveragedforyourfund.Ifyouareawardedatechnicalassistancegrantorafinancialassistancegrant,youshouldbereadytoleveragethesefundswithotherpublicandprivatesectorresources.Initiallyaconceptpaperandthelaterbusinessplanarekeyelementsneededtoattractinvestors.

ProgramFeasibilityConcepts:Operatingaloanfundisabusiness.Loanfundscangenerateincomefororganizationsiftheyareoperatedproperlyandhavetherightlevelofactivity.Keytermsandconceptsthatneedtobemanagedinclude:

1. CostofFunds:Yourloanpoolmayincludevarioussourcesofgrantsandinvestmentfunds.Somewillcomeinatdifferentinterestrates.Theblendedrateistheaveragerateforyourloanpool.Ifyoureceivedallgrantstheratewouldbe“0”butifyoureceivedaninvestmentorloan,theratemightbe2‐5%.

2. InterestRateSpread:Thespreadisthedifferentialbetweenyourcostoffundsandwhatrateofreturnis(averageinterestrateyouarecharging)foryourfunds.

3. Breakeven:Thisistheminimumrate(abovethecostoffunds)youneedtochargetocoveryourexpenses.

4. FundExpensesandOverhead:Businessoperations(loanandportfoliomanagement),businessmanagement,marketing,officeandstaffcostsareexpensesthatshouldbepaidfromthe“interestratespread”.Ifyourincomedoesnotcoverexpenses,youwillneedtosecureongoingfundingforoperations.

5. LoanLoss:Thisistheexpectedrateoflossesinbadloans.Allfundshaveprovisionsforloanlossesandthemoreaggressivethefundis(willingtotakemorelendingrisks)thegreaterthelossescouldbe.Successfulfundsestimateloanlosseswellbelow5%(whichatonetimewasastandardcommerciallendinglossexpectation).

6. LoanLossReserve:Loanlossreservesarefundssetasidethatmaybeneededtorepayanyloansorinvestmentsmadetoyourfund.Ifyourfundconsistedofamixofloansinvestmentsandgrants,andaportionofthefundneededtoberepaidtoalenderorinvestoryouwouldsetasidefundsinaloanlossreserve.Ifoneoftheloansyoumadewentbadandyourfundlost$25,000youwouldneedtotapintothereservetorepaythelenderorinvestor.Theriskieryourlendingisorifyouhavehadhistoricallyhighloanlosses,youwouldreflectahigherloanlossreserve.Highloanlossreservesdonotbenefityourfundsinceitissetasideandisnot“working”inthemarketandgeneratinginterestincome.


Infinancialinstitutionsandinlargerfunds,loansinportfolioareratedandloanswithgreaterriskorareindistress(latepayments)willhaveahigherpercentagesetasideforpotentialloanlosses.

7. Feasibility:Incomeneedstoexceedexpenses.Thelargerthelendingpool(andleveloffundingyouhaveouttoborrowers)thegreateryourpotentialreturnsare.Similarly,smallersizedfundshaveamoredifficulttimegeneratingincometocoverexpenses.Smallerloansalsoincreaseoperatingcosts(handlingandprocessingcostsforeachtransactionisrelativelythesamewhethertheloanisfor$500or$5,000,000.

STARTUPOREXPANSION/BECOMINGACDFIThefollowingsectionwilldiscussvariousstrategiesandstepsthatshouldbeconsideredifyouareastartupCDFIorifyouareexpandingtobecomeaCDFI.Wewilllookatthefollowing:

1. StartUpCDFI:TwoStructuresa. Asanewfundb. Throughapartnership

2. Existing,SlightlyExperiencedLoanFund3. Existing,ExperiencedLoanFund

StartUpCDFI:Forthosewhodonothavealoanfundorlendingprogramyoufirstneedtocreatealoanfundtobuildthelendingtrackrecordandorganizationalexperience.ThisinitialloanfundwillsubsequentlyseekCDFIcertification.Oncecertified,youareeligibletoapplyfortheCDFIFund’sprograms.NOTE:Formoreinformationoncreatingloanfunds,pleaseseethe“LoanFundGuide”ThisisthemostdifficultstartingpointbecausemanyCDFIandlendingresourcesrequireexperience.Thefollowingisasuggestedguideforthoseorganizationsthathaveclearlyidentifiedneedwithstrongsupporttocreateafund.Supportfromyourorganizationandboardiscritical.Thefundshouldbetargetedtoaspecificmarketsegment:microbusinesses,smallbusinesses,affordablehousingorconsumerfinancing.TherearetwomethodsofbecomingaCDFI,onestartingfromscratchandonethroughpartnerships.Strategy1:NewFund(Ifyourplanscallforthecreationofanewfundorstartup).Asignificantamountoffundingandpredevelopmentworkisneededfordevelopingthebusinessplan,marketingandmanagementplans.ConsiderapplyingforaCDFITechnicalAssistanceGrant.Youwillalsoneedfundingforoperationsandfortheloanfund.Ifthisisthecase,youwillneedtoconsiderthefollowing3steps:

1. FundInitiation:Secureseedfundstoallowstafforconsultanttoassistinthefollowing:A. ConceptPaper:Creationofaone‐twopagesummarythatincludesasummary

ofyourorganization,need,size,managementandpotentialresourcesavailableforthebusinessandfund.

B. CommunitySupport:Obtainsupportfromentitiesthatrepresentsyourtargetmarket

C. PublicandPrivateSectorSupport:Identifysupportfromentitiesthatrepresentsyourtargetmarket


D. IdentifypotentialsourcesforpredevelopmentfundsE. Seekgrants(orplantoselffinance)

2. GO/NOGO:Theinformationresearchedabovewillallowyoutoupdatetheconceptpaper.Thiswillallowyourorganizationtodecideifthecreationofaloanfundmakessenseandisfeasible.Securingpredevelopmentfundswillbeessential.Theconceptpaperwillbethebasisofthebusinessandmarketingplan.

Determinationofthescope,size,anddirectionofyourloanfundshouldprovideagoodindicationoffeasibility.Sourcesofinitialcapitalaresecuredthroughfoundationandcorporategrantsand,insomeinstances,fromlocalgovernmentprograms,especiallyifthereisatargetedmarketwithtremendousneeds.

Financialinstitutionsoftenprovidecorporategrantsthatallowthemtopenetratemarketsbyeffectivelypartneringwithcommunityorganizationsthatrepresentandservethesecommunities.Asinallprogramproposals,makingthecase,presentingneed,andindicatinghowyourorganization’srolewillenhancetheeffortmustbemade.(SeeDevelopmentTipsattheendoftheGuide)

YourorganizationmustassesshowtheproposedprogramcostswillbenefittheoverallcommunityeconomicdevelopmentstrategyofthecommunityandorganizationwhileassessingimpactstoindividualCEDprojectsandprograms.Thecreationofaloanfundofferssubstantialbenefitstothecommunityanditseconomicwellbeing.

3. Pre‐developmentActivities:A. BusinessPlan/MarketAnalysis:Conductamarketanalysisanddevelopa

businessplanforthefund.B. ManagementPlan:

1.) FundManagement:Includedarethedocumentsthatdefinelendingparameters,lendingguidelines,requirementsandapplicationprocess.

2.) LoanManagement:Includedaretheloanmanagementfunctions(loanapprovalprocess,closing,documentationandloanmanagement(billing/collections)process).

3.) PortfolioManagement:Guidelinesandstandardsonriskmanagement(loanlosstolerance,reservesandriskratingofloans).

4. StartUpLendingActvities5. ApplicationforaCDFIcertification.Onceyoureceivecertificationyouareeligibleto

applyforaTechnicalAssistanceGrant(toconductorupgradeyourbusinessplan)orforaFinancialAssistanceAward(grantforyourloanpool).NOTE:YoucanapplyforaTechnicalAssistanceGranttostartaCDFIandloanpoolfromscratch,buttheseareinveryhighdemandandareverydifficulttoobtain.Themoreexperienceyouhavethegreaterthepossibilityofreceivingagrant.

Strategy2:Partnership:IfthereareotherCDFIsoperatinginyourarea(ornearby),youmaywanttoconsiderpartnershipsthatwillleveragetheirexpertisewithyourunderstandingoflocalneeds.ThisstrategyallowsyoutobuildcapacityandexpertiseandmaintainagoalofcreatingyourownloanfundandobtainCDFIcertificationatalaterdate.Someofthevariousstrategiesinclude:

1. ExpansionofServiceArea:Ifitispossible,anexistingCDFIcouldexpandtheircoverageareatoincludeyourgeography.Youcouldbecomeamarketingarmfortheirproducts


andservicesandpossiblyprovidespace,coordinatemeetingsorprovidelanguageservices.

2. CreationofaDedicatedFund:Ifthereissignificantinterestandresourcesincreatingafund,youmaywanttoconsidercreatingafundandhavingtheCDFIorneighboringloanfundmanagethefund.Therearesignificantongoingexpensesforoperationsandall“back‐room”operations(loanservicingandmanagement).Yourorganizationcouldparticipateindevelopingthelendingguidelinesandstandards,orpossiblybeontheloancommitteeforthefund.Thisintermediarystepallowsyoutogainexperiencethatwillallowyoutocreateyourownfund.

Thepartnershipstructureisimportantifyouareconsideringoperatingasmallloanfundorprovidesmallloans.Remember,themanagementandhandlingcostsforasmallloanisthesameasforlargerloans.Inaddition,thelargertheloanpool(andthegreatertheamountoffundsyouhaveout)generatesthemoreinterestincomeusedforoperationsandmanagement.Forthesesmallerpools,itmayfinanciallywisetohaveanotherinstitutionserviceandmanageyourloanfund.Forsmallerfundsanotherstrategytoloweroperatingcostsistopartnerwithotherorganizationsthatmighthandlemarketing,trainingandtechnicalassistance.SlightlyExperiencedLoanFund:Ifyourorganizationhassomeexperienceinlendingorwantstobuildalendingtrackrecord,youcanimmediatelyapplytobecomeaCertifiedDevelopmentEntity(CDE).AlthoughthedefinitionfocusesonNewMarketsTaxCredits,aCDE’sactivitiesmeetCDFIstandardsandprovideanestablishedcertifiedlendingtrackrecordfororganizations.AsaCDEyouwillbeabletoapplyforCDFIcertificationandaTechnicalAssistanceAward.TheprocesstobecomeaCDEisstraightforwardandrelativelysimple.

AsdefinedontheCDFIwebsite,“aCDEisadomesticcorporationorpartnershipthatisanintermediaryvehiclefortheprovisionofloans,investments,orfinancialcounselinginLow‐IncomeCommunities(LICs).BenefitsofbeingcertifiedasaCDEincludebeingabletoapplytotheCDFIFundtoreceiveaNewMarketsTaxCredit(NMTC)allocationtoofferitsinvestorsinexchangeforequityinvestmentsintheCDEand/oritssubsidiaries;ortoreceiveloansorinvestmentsfromotherCDEsthathavereceivedNMTCallocations.”9

TobecomecertifiedasaCDE,anorganizationmustsubmitaCDECertificationApplicationtotheFundforreview.Theapplicationmustdemonstratethattheapplicantmeetseachofthefollowingrequirementstobecomecertified:

• Bealegalentityatthetimeofapplication;• HaveaprimarymissionofservingLICs;and• MaintainaccountabilitytotheresidentsofistargetedLICs.

ExistingorExperiencedLoanFund:IfyouarecurrentlyoperatingaloanfundyouwillneedtosimplyapplytotheCDFIFundforcertification.Thecertificationprocessisstraightforward(checkatwww.CDFIfund.gov).Onceyoureceivecertification,youareeligibletoapplyforaTechnicalAssistanceAward(toallowyoutocreatethebusiness,marketingandmanagement

9 CDFI Fund Website, Op Cit


plans)foryourCDFI.YoucanalsoapplyforaFinancialAssistanceAwardthatprovidescapitalforyouneworexpandedloanfund.SummaryStepstoBecomingaCDFI:TogainCDFIdesignationthestepsarerelativelysimple.Theworkisintheplanningandapplicationprocess.Process:

1. TechnicalAssistancetodevelopingtheorganizationandprogramstructure2. ObtainCommunityDevelopmentEntity(CDE)designation3. Financingparticipation/partnership(strategytogainexperience)4. ApplicationforTechnicalAssistanceAwards5. DevelopingtheCDFIorganizationalandprogramstructure6. ApplyforCDFIstatus7. RequestforCDFIfunding8. Otherinvestmentsandmatches9. Makeloans10. Manageloans

DEVELOPMENTTIPS:Somekeydevelopmenttipstorememberinclude:1. Ifyouarestartinganewfund,dotheinitialinvestigativeresearchandconceptpaperto

determineiftheprojectisfeasible.Theconceptpaperwillalsobecomeyourbasetoolfortodiscusstheconcepttopotentialfundingandresourcepartnersandbecomesthebasisforyourbusinessplan.Asyougatherdatayourconceptpapershouldbecontinuallyupdatedandwillbecomethebasisofyourbusinessplan.

2. Insteadofstartingyourownfund,considerpartnershipstobringtheresourcetoyourcommunityortocreateaspecializedfundthatcanbemanagedbyanexistingCDFIorloanfund.Thismaybeanintermediarystepforyoutogainexperienceifyoulaterwanttocreateandmanageyourownfund.

3. BecomeaCommunityDevelopmentEntity(CDE)andgetCDFICertification.Thisisespeciallytrueifyourorganizationhasalendingprogram.

4. TheCDFIdesignationonlyallowsyoutoapplyforCDFIFundresourcesandtheyareverycompetitive.Itisimportanttobuildyourcapacityandtrackrecord.

5. Onceyougetadesignationmakesureconventionallendinginstitutionsarepartofyouplanning/developmentprocess.Enlistthemassupporters(onyourboard,advisoryboardorprojectcommittee).Remember,theconventionalfinancialmarketshaverealizedtheimportanceandsuccessesofCDFIsandseekCDFIstoplaceinvestments.

6. ManageExpenses:Managingyourincomeandexpensesisessentialforyourlongtermsurvival.

a. Partnershipswithotherrelatedlendingentitiesallowyoutoexpandyourmarketandcutdownonyourownexpensesintheareasofmarketing,loanprocessingandloanmanagement.

b. Loanlossesdecreasesthesizeofyourloanpoolandlowersyourpotentialincomec. Reservesimpactyourbusinesssuccess.Thesearefundssetasidethatdonot

generateincome.


d. Yourlendingguidelinesandapprovalsalsoimpactyoursuccess…thegreaterrisksyourfundincurs;thegreaterthepotentialisforlosses.

e. Theexpensesformarketing,processingandmanagingasmallloanarethesameasexpensesforalargerloan.

f. Partneringandsharingofloanmanagementandportfoliomanagementfunctionsareanexcellentmeansofmanagingandreducingexpenses.

g. Ifyoualreadyhaveloanprocessingandmanagementexperience,youmaywanttomarketthiscapacityandgenerateadditionalincomebymanagingfundsforpartnerorganizations.

7. AdditionalCapital:TheCDFIFinancialAssistanceAwardisagrantthatcanstartyourlendingprogram,butyoushouldlookatitasanopportunitytolocateadditionalmatchingfundstoexpandyourloanpool.

Itisimportanttodeterminewhointhemarketplacehasinterestinsupportingyourlendingactivities.

Yourboard,advisoryboardorprojectcommitteeshouldhavemembersthatrepresentfinancialinstitutions,localbusinessesandcorporations,andlocalgovernmentandcommunityleaders.Theycanbecomeyourspokesperson(s)andcanconvenemeetingswiththeirpeerstomarketinterestinyourfund.

Engagementanddiscussionswiththebankingregulators;FederalDepositInsuranceCorporation(FDIC),OfficeoftheComptrollerofCurrency(OCC)andFederalReserveBank(FRB)regardingyourfundisaveryimportantstep.Theseinstitutionscanbeanimportantresourceforknowingwhomightbeinterestedinsupportinglendingactivitiesorareinterestedinyourcommunity.Theyarealsoagreatresourceforconveningmeetingswithfinancialleaderstogenerateinterestinyourfund.

OTHERNOTES:ServiceGaps:OnecriticismofCDFIlendingprogramshasbeenthe“unevenlandscape”thatresultsingapsinservice.MosteffectiveCDFIsoperateinsmallgeographies(communities,citiesandcounties)whilelargerentitiesmightservestatesormulti‐stateareas.Afewmightbe“national”suchassomeofthelargerlendinginstitutions;howevertheymaynotserveallcommunitieswiththesamelendingproducts.DespitethenumberofCDFIoperatingacrossthecountry,therearemanyareasnotbeingservedbyanyCDFIormightbeservedbyoneswithouttheneededlendingproduct.ManyCDFIsserveonlyonesegmentoflendingactivitysuchasbusinesses,realestateorpersonal,resultinginnothavinganeededserviceinanygivenarea.ThisdoeshoweverpresentsanopportunityforaCDFItoexpandorforanewCDFItogrow,especiallyifthereissubstantialneedandinterestamongsttheresidentsandconstituencyaffectedbythelackofcapital.

FinalNote:

AlthoughbecomingaCDFIisanaturalstepforloanfunds,becomingaloanfundisnoteasyandrequiresastrongcommitmentfromtheorganizationandthemembersofthedevelopment


team.Thegoalcanbeaccomplishedwiththesupportofthecommunity,localgovernmentandinterestedfinancialinstitutions.Itismostimportanttohavestaffdedicatedtotheprojectandiftheydonothavetheexpertise,locateresourcestosupportandguidetheeffort.Thisdocumentisintendedtobeaguidethatoutlinessomeofthekeyissuesandidentifiespossiblesolutionsandsteps.Itisnotintendedtobeyoursourcesinceeveryprojecthasitsownissues,concernsandpeculiaritiesanditsownuniquesolutions.Thedocumentisnotintendedtoencourageanyorganizationintoprojectdevelopmentbutonlytolayoutsomeofthekeystepsandissuesoncethedecisionismadetoproceed.


APPENDIXA‐FORMOREINFORMATION:ResourcesWebsites:

OpportunityFinanceNetwork:(www.ofn.org)“OpportunityFinanceNetwork(OFN)isanationalnetworkofcommunitydevelopmentfinancialinstitutions(CDFIs)investinginopportunitiesthatbenefitlow‐income,low‐wealth,andotherdisadvantagedcommunitiesacrossAmerica.

OFNMembersareperformance‐oriented,responsibleinvestorsthatfinancecommunitybusinesses,sparkingjobgrowthintheareasthatneeditmost,anddeliveringbothsoundfinancialreturnsandrealchangesforpeopleandcommunities.

OurNetworkhasoriginatedmorethan$23.2billioninfinancinginurban,rural,andNativecommunitiesthrough2009.Withcumulativenetcharge‐offratesoflessthan1.4%,wehavedemonstratedourabilitytolendprudentlyandproductivelyinunconventionalmarketsoftenoverlookedbyconventionalfinancialinstitutions.”

CoalitionofCommunityDevelopmentFinancialInstitutions(CDFICoalition):(www.CDFI.org)“Formedin1992asanad‐hocpolicydevelopmentandadvocacyinitiative,theCoalitionofCommunityDevelopmentFinancialInstitutions(CDFICoalition)istheleadnationalorganizationintheUnitedStatespromotingtheworkofcommunitydevelopmentfinancialinstitutions(CDFIs).Throughitsmemberorganizations,theCoalitionrepresentsCDFIsworkinginall50statesandtheDistrictofColumbia.ThisnationalnetworkofCDFIsincludescommunitydevelopmentloanfunds,communitydevelopmentbanks,communitydevelopmentcreditunions,microenterpriselenders,communitydevelopmentcorporationsandcommunitydevelopmentventurecapitalfunds.TheCDFICoalitioncoordinatesindustrywideinitiativestoincreasetheavailabilityofcapital,creditandfinancialservicestolow‐incomecommunitiesacrossthenation.”

CommunityDevelopmentFinancialInstitutionsFund:(www.cdfifund.gov)“Throughmonetaryawardsandtheallocationoftaxcredits,theCDFIFundhelpspromoteaccesstocapitalandlocaleconomicgrowthinurbanandrurallow‐incomecommunitiesacrossthenation.

Throughitsvariousprograms,theCDFIFundenableslocallybasedorganizationstofurthergoalssuchas:economicdevelopment(jobcreation,businessdevelopment,andcommercialrealestatedevelopment);affordablehousing(housingdevelopmentandhomeownership);andcommunitydevelopmentfinancialservices(provisionofbasicbankingservicestounderservedcommunitiesandfinancialliteracytraining).

CaliforniaAssociationforMicroEnterpriseOpportunity(CAMEO):(www.microbiz.org)“CAMEO’smissionistopromoteeconomicopportunityandcommunitywell‐beingthroughMicroEnterprisedevelopment.

Ourmemberorganizationsprovideentrepreneurswithsmallbusinessfinancingsuchasloansandcredit,technicalassistanceandbusinessmanagementtraining.

AsCalifornia’sstatewideMicroEnterpriseassociation,CAMEOisthevoiceforMicroEnterpriseinCalifornia.Weexpandresourcesandbuildingcapacityforitsmemberorganizations–over


160lenders,trainingprograms,jobcreators,agenciesandindividualsdedicatedtofurtheringMicroEnterprisedevelopmentinCalifornia

NationalCommunityReinvestmentFund(CRF,USA):(www.crfusa.com):“CommunityReinvestmentFund,USA(CRF)helpschangethelivesofpeoplelivingineconomicallydistressedcommunitiesacrossthecountry.Wesupplycapitaltolocalcommunitydevelopmentlenderssotheycanmeetgoalslikethese:

• Growsmallbusinesses• Increaseaffordablehousing• Createandpreservejobs• Buildchildcarecenters• Developcommunityfacilities

Atthesametime,weenablefinancialinstitutions,socially‐motivatedinvestors,andaccreditedindividualstoreachtheirsocialinvestmentgoals.CRFoperatestheleadingnationalsecondarymarketforcommunityandeconomicdevelopmentloans—amarketCRFpioneered.Wepurchaseeconomicdevelopmentandaffordablehousingloansfromcommunitydevelopmentlenders.Wethenpoolthemintoasset‐backeddebtsecuritiesandNewMarketsTaxCredit(NMTC)investmentfunds,whichweprivatelyplacewithinstitutionalinvestors”FORMOREINFORMATION:Websites,OrganizationalExamplesNationalSpecializedFund:

LowIncomeInvestmentFund(LIIF):(www.liif.org):“LIIFisacommunitydevelopmentfinancialinstitution(CDFI)thatprovidesinnovativecapitalsolutionsthatsupporthealthyfamiliesandcommunities.AsaCDFI,LIIFinvestsinprojectsthathavehighsocialvaluebutmaynotbeabletoaccesstheservicesofferedbytraditionalfinancialinstitutions.Inthisway,LIIFconnectslowincomecommunitieswiththecapitalmarkets.LIIFoffersawiderangeofproducts,includingcommunitycapitalloans,NewMarketsTaxCredits,grantsandtechnicalassistance.LIIF’smission‐drivenapproachcombinedwithitsmarketandindustryknowledgehavedistinguisheditasaCDFIthatcreatesflexible,affordablefinancingsolutionsthatworkforcommunityorganizationsandinvestors.In2011,LIIFinvestedover$1.1Billion.”

NCBCapitalImpact(NCB,formerlytheNationalCoopBank):(www.ncbcapitalimpact.org)“AsanationalnonprofitorganizationandacertifiedCommunityDevelopmentFinanceInstitution,NCBCapitalImpactimprovesaccesstohigh‐qualityhealthandeldercare,healthyfoods,housing,andeducationinlow‐incomecommunities.Ourimpactisbuiltonadiverseandextensivenetworkofalliances,ourdepthofexperience,andacooperativeapproach.Wepartnerwithpublicandprivateorganizationsthatarelike‐mindedinmission,anddedicatedtolong‐termsuccess.NCBCapitalImpacthasdeployed$1.6Billioninloans,investmentsandassistance.”


RegionalCDFIs:

ClearinghouseCDFI:(www.clearinghousecdfi.com):“AtClearinghouseCDFIwebelieveinprovidingequalaccesstocreditinneighborhoodsofallincomelevelsandethnicities.Wespendthetimeandenergyrequiredtofindcreditworthyborrowerswhoseprojectscreateassetsinthecommunity.Theseborrowers,becauseoftheiruniquecircumstances,arerejectedornotevenconsideredbytraditionallenders.Communitydevelopmentlendingmustbeprofitableinordertobesustained.Aswithconventionallenders,wecarefullyevaluateeachapplicant’sabilitytorepaytheloan.Unliketraditionallenders,wedonothavepredefinedloanprograms.Weanalyzeeachloanapplicationindividually.Everyloanwemakebenefitsthecommunityinameasurableway.ClearinghouseCDFIisaCommunityDevelopmentFinancialInstitutionservinglow‐incomecommunitiesandfamiliesthroughouttheStateofCalifornia.Throughourtwolinesofbusiness,CoreandNMTClending,wehavefunded$760millioninloansandequityinvestmentsinlow‐incomecommunities.Our1,232loanshaveassistedborrowerssuchasnonprofitsandothercommunitydevelopmentgroupstocreate3,005affordablehousingunits,enable846first‐timehomebuyers,create4,270constructionandpermanentjobs,andserve215,000clientsoflow‐incomecommunitiesannually.”

CoastalEnterprisesInc(CEI):(www.ceimaine.org)“CEIin2012isaMaine‐basedorganizationwithstrategicexpansionsoutsideofMaine,servingmoreruralcommunitiesdirectlyorthroughalliancesandhavinganevergreaterimpactonpoverty,whichisdocumentedwithdata.Theorganizationhasahighfinancialsustainabilityratio,thankstonewandexpandedsourcesoffundsthroughprivategiving,publicfunds,andincomefromfundsandventurecapital.CEIhasametricforlookingatthebalanceofthe3Es—economy,equityandenvironment—throughallinitiatives,andhasagroupinplacemeasuringimpact,scanningforopportunities,anddevelopingpolicy.”

CommunityBasedFunds:

FresnoCommunityDevelopmentFinancialInstitution(FCDFI):(www.fresnocdfi.org)“FresnoCDFIisacomprehensivefinancialservices,training,andassetdevelopmentinstitutionforlow‐andmoderate‐incomeresidentsandbusinesspersons.SinceourinceptioninMay2008,ourprofessional,seasoned,andmulti‐lingualstaff–experiencedinmicro‐finance,creditcounseling,businessplandevelopment,andadvocacyforlow‐incomefamilies–hashelpedhundredsofentrepreneursrealizetheirdreams.Weservea9‐countyregioninCentralCalifornia.”

PeopleIncorporatedFinancialServices:(www.peopleinc.net)“PeopleIncorporatedFinancialServiceswascreatedin2001toaddressbusinessdevelopmentfinancingneedsthroughoutVirginia.ThisPeopleIncorporatedaffiliateadministersthemicroenterprisedevelopmentandsmallbusinessfinancingactivitiesforPeopleIncorporatedAsaCommunityDevelopmentFinancialInstitutioncertifiedbytheU.S.DepartmentofTreasury,PeopleIncorporatedFinancialServicesoffersloans,developmentservicesandfinancialproducts


tosmallandemergingbusinesses.PeopleIncorporatedFinancialServicesworkstostrengthenlocaleconomiesin17‐jurisdictionserviceareas.

PeopleIncorporatedFinancialServiceshasextensiveexperienceprovidingsmallbusinessandmicroenterprisedevelopmentandlendingservicesinlow‐incomecommunities,andistheonlyCDFIheadquarteredinruralVirginia.Sinceitsinceptionin1992,thePeopleIncorporatedFinancialServicesloanportfoliohasgrowntoinclude308microenterpriseandbusinessloans,whichtodatehavecreated475jobsandretained180more.”

community development financial institutions · 2014-02-28 · community development financial...

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