Though diverse, these institutions all attempt to provide the poor with
access to credit and spur social and economic development in disadvantaged
communities. Together, 43 loan funds, 100 community development credit
unions, 5 development banks and 100 micro-loan funds manage approximately $1
billion in private capital. Together they have loaned over $3 billion with
better loan loss rates than bank industry standards. Overall, the Coalition
represents 300 institutions in 45 States. It has sought, successfully, to
expand the Administration's initial focus on community development banks to
incorporate the strength, diversity and experience of this network.
As a result, the CDFI Act of 1994 establishes the CDFI Fund to build strong
financial institutions through equity investments, deposits, credit union
shares, loans, grants and technical assistance in amounts up to $5 million
for any single applicant. CDFIs must match federal monies dollar for dollar
and type for type. Reflecting the diversity of institutions qualifying for
assistance, CDFI lending can support low-income housing, community
facilities, small businesses and financial services. The bill is funded at
$125 million for fiscal year 1995 starting 1 October 1994.
Some of the issues that needed resolution during negotiations on this
legislation highlight what Mark Pinsky, Co-ordinator for the CDFI Coalition,
feels is a very strong bill. One major issue involved the appropriate course
for creating and multiplying CDFIs. Rather than undertake wholesale efforts
to create new development banks, the bill seeks to expand the existing CDFI
industry. Because these financial institutions are rooted in and responsible
to the communities they serve, they can gauge lending to real credit needs
and borrower capacity. Their success has been built over time through
uniquely skilled personnel, detailed market knowledge and local
institutional capacity. The bill does have the franchising of CDFIs but any
institution seeking to do so must target populations outside of any State
and metropolitan area currently served.
Secondly, the bill clearly is intended to support private sector
institutions serving low-income communities. Public agencies do not qualify
for CDFI funding. While some public agencies have similar mandates, the type
of development they support is very different from that of CDFIs. In
addition, Pinsky notes, public agencies have a history of patronage
Perhaps most critical to the long-term success of the CDFI industry is the
relationship between CDFIs and the commercial banks. While the Coalition
opposed efforts by the banks to qualify directly under this legislation,
Pinsky emphatically affirms that "banks are our friends."
Banks do not have direct access to CDFI funding but CDFI-bank partnerships -
where both institutions provide capital and the CDFI offers the connection
with the community, prepares borrowers and takes on the greatest risk - hold
To promote bank equity investments in CDFIs, the bill includes a Depository
Incentives Program (DIP). This program will provide grants on a competitive
basis to financial institutions that lend or invest equity in CDFIs. Banks
can receive cash awards up to 15 percent of the investment they make in
CDFIs; the competitive nature of these grants is intended to stimulate
innovative collaborations between the two types of institutions.
The Coalition argues that neither the CDFI network to be strengthened by
this legislation nor the Depository Incentives Program should substitute for
the Community Reinvestment Act (CRA). This legislation, in effect since the
1970s, requires banks to invest in their communities. Because CDFIs grow
borrowers for banks, it is crucial that the banks be present in low-income
communities when borrowers are ready to approach them. The absence of banks
in low-income areas will mitigate CDFI impact, forcing them to become
according to Pinsky, "bridges to nowhere."
The CDFI Fund will be an independent federal agency, similar to the
Environmental Protection Agency, run by an Administrator appointed by the
President and confirmed by the Senate.
The Coalition is pleased with the legislation. Their success in influencing
the bill's intent and content was rooted in their ability to translate the
diverse experience of members into well-articulated principles of community
The Coalition itself did not engage in lobbying, but Pinsky believes the
integrity and intelligence of its representatives attracted the attention of
Clinton's team. Now, with the CDFI Act so near passage, the CDFI Coalition
will monitor its implementation. But in addition to policy work, it has
another agenda to create an industry-wide training initiative. Focusing on
community development finance, it will work with institutions at all levels
to promote the sustainability of the industry.
Much of the information for this article was excerpted from the CDFI
Coalition paper entitled Principles of Community Development Lending and
Proposals for Key Federal Support.
To obtain a copy or other information about the Coalition or CDFI Act,
contact Mark Pinsky, The CDFI Coalition, 82 North Pennsylvania Avenue, Suite
4, Morrisville, PA 19067, USA. Tel: (215) 736 1644.
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