From an Idea to a Movement, The CDFI Fund is Federal Government Success Story
Post by Bob Rapoza, founder and president of Rapoza Associates in Washington, D.C., and spokesperson for the CDFI Coalition.
While campaigning for President in late summer 1992, then-Governor Bill Clinton made a campaign stop at South Shore Bank in Chicago, Illinois. It was here, at the nation’s first community development bank, that Clinton shared his vision for increasing investment in neglected neighborhoods. He pledged that if elected, he would establish a program to create 100 community development banks modeled on South Shore Bank, as well as 1,000 microenterprise lenders.
Early in the Clinton Administration, a small group of organizations, representing hundreds of CDFIs, convened to organize the industry’s drive to turn President Clinton’s campaign promise into reality. Out of these strategy sessions, the CDFI Coalition was created. The newly formed CDFI Coalition worked closely with the President’s transition team to craft legislation that went beyond his campaign promise to create a network of community development banks.
The legislation called for the creation of a federal agency, the CDFI Fund, with a mission to increase the number and capacity of CDFIs operating in distressed communities across the nation. The legislation also reformed the Community Reinvestment Act of 1977 (CRA) and expanded the concept of CDFIs to also include community development loan funds, venture funds, and credit unions. Most importantly, however, the legislation would help ensure that the lack of adequate credit and financial services for communities outside the economic mainstream would have a place at the federal policymaking table. President Clinton unveiled this legislative proposal on July 15, 1993. Later that day, the Senate Banking Committee, chaired by Senator Donald W. Riegle (D-MI), held the first hearing on the President’s proposals. Treasury Secretary Lloyd Bentsen and Comptroller of the Currency Eugene Ludwig testified before the Committee in support of the legislation.
“We are a bunch of risk-takers…That is what is in our genes…But the one missing ingredient time and again for those folks is not having the capital to implement that risk and bring about that better standard of living. That is what we are talking about, a plan to provide that.”
Treasury Secretary Lloyd Bentsen, Testimony before the House Committee on Banking, Finance and Urban Affairs
“First, we must make every effort to leverage private capital with the assistance we provide from the fund. Second, we must encourage enterprises that show the most promise of becoming self-sustaining, the ones that can go into that marketplace and survive alone. The pressure on public resources rises every day and as a market-based society we ought to encourage market-based solutions. Third, fund managers should have the flexibility to experiment. And, fourth, we must have a new, separate entity with dedicated funding that is focused exclusively on revitalizing distressed areas. Last, let me say that we cannot and will not view community development banks as a substitute for active community lending by institutions presently subject to CRA.”
A week later, Representative Henry B. Gonzalez (D-TX), Chairman of the House Committee on Banking, Finance and Urban Affairs, convened a hearing on the President’s proposal. In his testimony, Treasury Secretary Bentsen spoke about the CDFI Fund as a response to the capital and financial services needs of distressed communities and the potential of CDFIs as flexible, market-based solutions.
On July 21, 1993 the Community Development Banking Act of 1993 was introduced in the House by Chairman Gonzalez (H.R. 2666) and in the Senate by Chairman Riegle (S. 1275). Both bills had strong bipartisan support.
The final bill carried the House by 410 to 12 and was unanimously passed in the Senate. On September 23, 1994, after working its way through a House and Senate conference committee, the Riegle Community Development and Regulatory Improvement Act of 1994 was signed into law by President Clinton. Section 102 of the legislation clearly lays out the critical need for CDFIs, which “have proven their ability to identify and respond to community needs for equity investments, loans, and development services.”
Now, a quarter century later, the CDFI Fund has become the primary federal funding source for CDFIs, enabling them to grow their assets and increase lending, investments, and financial services in low-income communities and to low-income individuals across both rural and urban America.
Today, there are more than 1,000 certified CDFIs, including loan funds, credit unions, bank holding companies, banks and thrifts, and venture capital funds. Moreover, these CDFIs are working in all 50 states, the District of Columbia, and the U.S. territories.
In FY 2018, CDFIs program awardees made over 280,000 loans or investments totaling over $11 billion, including loans to nearly 15,000 small businesses. The average size of each loan or investment was $39,821. CDFIs also financed over 33,613 affordable housing units, provided financial literacy training to 343,471 individuals, made 207,657 consumer loans totaling $3.5 billion, and made 19,050 home improvement and home purchase loans totaling $2.1 billion.
CDFIs are increasingly investing in some of the poorest communities in America – where poverty is over 30 percent or median incomes are under 60 percent of the area median. Further compounding issues of poverty, these areas typically lack access to affordable financial services, especially with the growing trend of community bank closures.
CDFIs are also making a tangible difference in rural communities and areas of persistent poverty that have been left outside the economic mainstream. In the FY 2018 round of CDFI Program awards, 28 percent of the award recipients primarily serve rural target markets.
The great need for this financing for low-income communities continues, as evidenced by the applicant demand in the FY 2019 CDFI Program round. In total, there were 663 applications received for the FY 19 CDFI Fund Program, NACA Program, and BEA rounds, requesting $729.54 in funding. This includes:
- 412 organizations requested $363.49 million in CDFI Program Base-Financial Assistance (Base-FA) awards.
- 81 organizations requested $9.79 million in CDFI Program Technical Assistance (TA) awards.
- 32 organizations requested $25.93 million in NACA Program Base-FA awards.
- 21 organizations requested $3.11 million in NACA Program TA awards.
- 184 organizations requested $53.57 million in Persistent Poverty County-Financial Assistance (PPC-FA) awards (CDFI Program and NACA Program combined).
- 35 organizations requested $114.1 million in Healthy Food Financing Initiative- Financial Assistance (HFFI-FA) awards (CDFI Program and NACA Program combined).
- 24 organizations requested $10.05 million in Disability Funds-Financial Assistance (DF-FA) awards (CDFI Program and NACA Program combined).
- The CDFI Fund received 117 applications requesting over $150 million in FY 2019 BEA Program round funding.
To put that in perspective, Congress provided a total of $250 million in funding for these CDFI Fund Programs in FY 19. While this is a historic level of funding—the overwhelming demand for this funding to serve low-income communities and people makes it clear additional federal investment is needed.
The FY 20 appropriations process is on-going. Last week, the Senate marked up a bill to maintain funding for CDFI Fund Programs at $250 million. The House bill, passed this summer, proposed $304 million, a $54 million increase and a step in the right direction for those struggling communities benefiting from CDFI Fund Programs.