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September 05, 2011
Report Surveys Ten-Year Performance of Community Development Banking Institutions
    by Robert Kropp

The National Community Investment Fund reports that community development banking institutions have risks and returns comparable to mainstream banks, while offering far greater social impact.


The National Community Investment Fund (NCIF), a private equity fund with $150 million in assets under management, invests in more community financial development institutions (CDFIs) than any other investor in the US. The Fund's assets includes $128 million from the New Markets Tax Credit Program (NMTC Program) of the US Treasury Department's Community Development Financial Institutions Fund (CDFI Fund).

NCIF has also developed a Social Performance Metrics Database, which evaluates the financial and social performance of community development banking institutions (CDBIs), which include CDFIs. Its recently published report, entitled 2010 CDBI Landscape Document, uses the metrics to provide an overview of the sector over the past ten years.

Eighty-five institutions have been certified by the CDFI Fund; however, the report finds, "The CDBI sector is actually much larger than the currently approved list of certified CDFI banks." NCIF identifies 483 institutions as CDBIs, the mission of which is economic and community development in low- and moderate- income communities. At the end of 2010, the CDBIs had assets of $217 billion, and loans of $143 billion.

Compared to institutions in their peer group of banks with less than $2 billion in assets, CDBIs have "shown reasonable financial performance and risk characteristics" over the ten-year period covered by the report. During that period, CDFIs experienced a compound annual growth rate of 9.45%, while the larger group of CDBIs had a rate of 7.3%. According to the report, "This demonstrates the fact that mission oriented institutions continued to lend monies and grow during the course of the review period and even during the recession."

When social performance is considered, the activities of CDBIs stand in sharp contrast to those of mainstream banks. The percentage of housing loans originated and purchased in low- and moderate-income areas was three times higher for CDBIs than their mainstream counterparts, and the percentage of branch locations in those areas was over 5.3 times higher.

Because of the social performance of CDBIs, the report concluded, "Stakeholders need to consider taking significant action to support these high-impact institutions during the current downturn and beyond. Investing in these institutions, whether it be through equity investments, loans, deposits or operating accounts, will ensure that underserved markets continue to have consistent access to responsibly priced financial services."

 

 
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