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August 26, 2011
Bond Program Will Increase Funding for CDFIs
    by Robert Kropp

Mark Pinsky of the Opportunity Finance Network talks with SocialFunds.com about the CDFI Bond Guarantee Program, which will allow community development financial institutions to access $3 billion in guaranteed financing.


Described by Mark Pinsky, President and CEO of the Opportunity Finance Network (OFN), as "a transformational thing," the Small Business Jobs Act, passed into law by Congress last September, authorized the creation of a CDFI Bond Guarantee Program.

"This program will allow CDFIs (community development financial institutions) to get access to $3 billion," Pinsky told SocialFunds.com. "We've never had access to money like that, and it changes the way community opportunity finance and community-level finance work. It's that big."

"If we do a good job with it, and if Treasury implements it the way we think it will, it changes the way policy works around how we create opportunities for low-income and disadvantaged people," he continued.

OFN and its members have been preparing for such a program for many years, Pinsky said. In a meeting nearly a decade ago, a government representative pointed out to him a program financed through Treasury's Federal Financing Bank (FFB), which provided financing to rural electric utilities.

OFN and its members and allies spend "many years," Pinsky said, developing a framework for the program that was eventually included in the Small Business Jobs Act. The organization created a CDFI Bond Policy Group, which, Pinsky said, "Put in hundreds of hours on a volunteer basis to think through the issue and learn about the program."

In addition, the CDFI Bond Alliance, a group including CDFIs, banks, investors, foundations, and others, was formed to "help shape the direction and ensure the success of the CDFI Bond Program," according to OFN.

"Along the way," Pinsky said, "We also linked arms with the Financial Innovations Roundtable, which is Michael Swack's work out of New Hampshire. For years it's been thinking about bond programs in a different way, and we worked in collaboration with them."

The Financial Innovations Roundtable has been creating cross-sector partnerships to provide low-income communities with increased access to capital and financial services since 2000.

"Our champion on Capitol Hill was Senator Robert Menendez of New Jersey," Pinsky said, "And when the Jobs Act came along his staff contacted us. It was his initiative that made sure the CDFI Bond Guarantee Program made its way into law."

"Congress understands that it had to do this at a large enough scale to prove itself," Pinsky continued. "CDFIs have an exceptional track record of performance, and we hope the program will exceed the expectations of Congress and the Treasury Department."

Asked to describe the potential benefits of the Program, Pinsky said, "More availability of capital for distressed markets and distressed communities. One of the good things about this law is that it's intended to support CDFIs in doing what they do. Up to ten CDFIs per year will have access to the Fund. Those CDFIs and their partners will have access to capital to do things that in the past would have taken a lot longer to get to, because they would have had to raise the money for it."

"The second thing is it's much longer-term money," he continued. "Up to 30 years, and that means the cost of the money can be spread out over a longer period of time, permanent financing instead of just the early-stage financing. Banks love to do early-stage financing and can get into deals knowing that there is long-term financing behind them."

Financing for the bond issues of CDFIs will be purchased by the Federal Financing Bank. However, Pinsky added, "Our hope is that over three years, CDFIs will be able to demonstrate that CDFI financing in this model works, and create a corollary program that gives private investors and capital market investors the ability to invest in this. That will open to door to even more financing."

"There's an old saying that money goes where it's wanted and stays where it's well-treated," he continued. "Investors are going to look at this program and say, here's a good, steady fixed-income opportunity with a guarantee behind it. Our hope is that investors from Wall Street to Main Street will compete to get access to financing CDFIs to do this kind of work. It's not going to happen tomorrow, but we're thinking about it already."

On July 1, the Treasury Department's CDFI Fund posted a request for comments on the implementation and structure of the CDFI Bond Guarantee Program in the Federal Register. OFN members wrote to the Fund, recommending maximum flexibility in implementation.

The letter also stated, "The Fund must ensure that all issuers have a strong track record of meeting the needs of low income and disadvantaged communities, are mission-based, and can direct bond proceeds to appropriate community and economic development uses."

In addition to the letter submitted by its members, OFN itself contributed reco mmendations.

"Treasury has to come out with some kind of rule by September 30," Pinsky said. "Certainly by the first quarter of next year, they will be awarding bond authority with a guarantee to CDFIs."

"It's been a lot of work, but when an opportunity like this comes along you work twice as hard to make it successful," he added.

 

 
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