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June 02, 2006
The Numbers--and the Stories Behind Them--on Community Development Financial Institutions
    by Bill Baue

CDFI Data Project recently released the most comprehensive report on the CDFI industry, with statistics documenting CDFI growth and case studies illustrating positive social impacts.

If "quant" (or quantitative data) is the lifeblood of finance, then community development financial institutions (CDFIs) just got a big infusion. Last week the CDFI Data Project, a consortium of eight CDFI associations, released a report entitled CDFIs: Providing Capital, Building Communities, Creating Impact, which provides the most comprehensive statistical portrait of the field to date. The report, which covers fiscal year (FY) 2004, also presents a vivid picture of CDFI history and thumbnail snapshots of current case studies, thus providing a broad overview for neophytes as well as deep insight for CDFI practitioners.

CDFIs, which fill both a market gap and a social need by providing loans and other financial services to people who are underserved by traditional financial outlets such as low- and moderate-income communities and minorities, have been experiencing growth. For the 242 CDFIs with five years of data, financing outstanding (or money doing work out in the marketplace) grew at a compound annual growth rate (CAGR) of 17 percent per year.

"CDFIs in our sample had $12.2 billion in financing outstanding, which is a historic best ever, and this combines with the lowest level of losses in the past five years of 0.55 percent to represent excellent performance overall," said Mark Pinsky, chair of the CDFI Data Project. Mr. Pinsky also chairs Opportunity Finance Network (formerly National Community Capital Association), a member of the CDFI Data Project along with the Aspen Institute, Community Development Venture Capital Alliance, and National Federation of Community Development Credit Unions, among others.

The sample, comprising 517 of the estimated 1,000 CDFIs nationwide, also held $18.3 billion in assets during FY2004. Other statistics document significant financial and social impacts. For example, the CDFIs provided financing (and other assistance) to 6,887 businesses, creating or maintaining 28,330 jobs. CDFI financing helped build or renovate 43,160 units of affordable housing. And CDFIs helped vulnerable borrowers avoid predatory lending by providing 20,653 alternatives to payday loans and helping 122,755 low-income individuals open their first bank accounts.

Taking a breather from the numbers, the report traces the history of CDFIs to the turn of the 20th Century, when credit unions and some banks turned over savings deposits into loans for disadvantaged community members in need of capital. However, the CDFI industry did not really take off until the 1990s, with more than a third (34 percent) of the CDFIs in the sample established post-1990. The 1994 establishment of the CDFI Fund by the Treasury Department threw fuel on the fire, as the fund is now the largest single source of funding and equity capital for CDFIs.

"[The CDFI Fund] plays an important role in attracting and securing private dollars for CDFIs by requiring them to match their award with nonfederal funds; the Fund reports that $1 of its investment leverages $20 of private-sector investments," states the report. "It has made more than $775 million in awards to banks, CDFIs, and emerging CDFIs since 1996."

Growth of new CDFI launches has slowed, with 12 new CDFIs (from the sample) established in 2003 and 2004, compared to the 37 established from 2000 through 2002.

"In addition, the industry is just beginning to experience its first mergers, but we expect that trend to continue during the next couple of years," stated the report. "At least 20 CDFIs in the sample were involved in mergers and/or merger discussions in the last year."

Not all segments of the industry are experiencing these same dynamics. For example, the number of certified Native American CDFIs has grown fourfold since 2001, from nine to 36, with the CDFI Fund infusing more than $15 million into its Native American CDFI Assistance (NACA) Program. The report helps highlight this by providing a case study of Shawnee, Oklahoma-based Citizen Potawatomi Community Development Corporation (CPCDC), which provides its 42 loans totaling $2.79 million (as of May 2005) exclusively to Native Americans.

"CPCDC financed an $86,000 loan for Stephen and Kristie Botkin, owners of K&M Transport located in Shawnee, Oklahoma, to purchase additional trucks for their business, which delivers horse trailers throughout the United States and Canada," stated the report. "With the additional trucks, K&M Transport was able to hire four additional employees."

Appended to the report are five supplemental brochures covering the sectors of the CDFI industry: community development banks, credit unions (CDCUs), loan funds (CDLFs), venture capital (CDVC) funds, and microenterprise funds. The CDLF section contains perhaps the most compelling case study profiling the Low Income Investment Fund (LIIF). It committed $6.3 million in loans to Green Dot Educational Project for the expansion of Animo Inglewood Charter High School in Los Angeles from 279 students in 2002 to 525 students in 2005.

"One of those students, Delbert MacFarlane, was involved in gang activities before he entered Animo," the report states. "However, the teachers and staff at Animo showed him a way to survive beyond the streets."

"I didn't think about college before coming here, but now I want to go," said Delbert. "Animo saved my life. I probably wouldn't be here today if I hadn't enrolled."


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