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August 17, 2011
Community Development Financial Institutions Anticipate Expanding Services
    by Robert Kropp

Mark Pinsky of Opportunity Finance Network talks with SocialFunds.com about the challenges and opportunities of providing financial products and services to low-income communities over the next 15 years.


In a speech made in April, Federal Reserve Chairman Ben Bernanke commended the ongoing efforts of several Community Development Financial Institutions (CDFIs) to provide much-needed financial products and services to low-income communities that are increasingly underserved by mainstream institutions. In citing "just a few examples of work that is making a difference at the grassroots level all around the country," Bernanke stated, "Though the challenges in troubled communities are indeed daunting, we are far from helpless, and much good work is being accomplished."

The Opportunity Finance Network (OFN) is a network of more than 180 CDFIs that through 2009 has provided more than $23 billion in financing to underserved communities, both urban and rural. Reflecting on Chairman Bernanke's speech, Mark Pinsky, President and CEO of OFN, told SocialFunds.com, "That was a major marker of industry progress. We were no longer on the margins, but part of economic stability. Now we have the impact. What are we going to do with it?"

In an effort to provide a framework in which to answer Pinsky's question, OFN recently published a Strategic Plan that looks out from 2011 to 2025. "We're more concerned about the long-term well-being of the economy than we are about the challenges of short-term fiscal policy," Pinsky said.

In fact, the Strategic Plan underscores the fact that OFN expects CDFIs to play an increasingly important role on the national stage, stating, "By 2026, CDFIs will have the standing, resources, and relationships to influence the course of policy, the practices of mainstream financial institutions, and the allocation of resources to and within opportunity communities and markets."

OFN's previous Strategic Plan covered the years 2003-2010, a period of time in which the economic crisis plunged the global economy into recession. The new plan describes the previous document as "directionally right but overly ambitious about what we could achieve in seven years… the most important flaw in the 2003 plan was the short timeframe it gave for success. The plan envisioned that by 2010 the CDFI sector would be 'at scale' as an industry."

Referring to that document, Pinsky said, "It did help the industry understand that we can't lose sight of the fact that we're here to serve a particular community, but we also need to find ways to provide solutions that are commensurate with the challenges we face."

It helps, Pinsky added, that "CDFIs are seen as a good option because of the tightness of current fiscal policy. They do well in a distressed market, and generally are regarded in a bipartisan way as high-value strategies for meeting a range of priorities."

Current federal programs that help CDFIs meet their mission of serving low-income communities include the Small Business Administration (SBA) Surety Bond Guarantee Programs, the programs of the Federal Home Loan Banks, and the Treasury Department's S mall Business Lending Fund, in addition to the CDFI Fund, which is also administered by the Treasury Department.

In January, CDFI Fund Director Donna Gambrell said, "Recovery is occurring much slower in our nation's low-income communities. CDFIs across the nation continue their critical work on the front-lines of bringing economic recovery to all communities."

"Even in a time when there are fewer resources," Pinsky said, "These programs have helped CDFIs build capacity. In the near term, fiscal constraint may affect us, but CDFIs will play an expanded role. Our industry is not dependent on federal money, but we make good use of it."

OFN's new Strategic Plan contains two primary goals, Pinsky told SocialFunds.com.

"The first is the issue of coverage, which is to say CDFIs don't work alone," he said. "We need to place more products in more places, both geographically and demographically. We're going to do that in partnership with mainstream institutions and government."

"The defining challenge for the next 15 years is to ensure that low-income people in communities around the country have access to responsible and affordable products and services," he continued.

The second primary goal consists of anticipating and helping to develop new products and services. As an example, Pinsky described a conversation he recently had with the CEO of a CDFI.

"It is more than just credit we're talking about," Pinsky said. "How do we reach markets that aren't being reached in a responsible way?" If employees of small businesses are without access to responsible financial services, "What is that going to do to the workforce?" he asked. "What risks does that pose to the business?"

Describing a plan in which employers provide emergency loans to their employees, Pinsky said, "Emergency loans to workers prevent payday lending at usurious rates, and allow an employer that is also a borrower of a loan fund to manage a risk in the employment base."

"That is an example of CDFIs helping their clients fund a solution," he continued.

"By 2026," OFN's new Strategic Plan states, "The CDFI industry will comprise diverse institutional types providing a wide range of financial products and services, including debt, equity, savings and asset building products, and financial transaction services—all designed to serve low-income, low-wealth, and other disadvantaged people and communities."

"CDFIs will play a significantly greater role in consumer finance and consumer financial services over the next 15 years than OFN's Members have in the past," it continued.

Pinsky concluded, "It won't be easy, but CDFIs have an exciting future. Part of the excitement is the ability to deliver on the promise, not only to be helpful in communities, but also to be part of long-term national economic health. We think CDFIs will be playing a larger and more central role in economic growth over the next 15 years."

 

 
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