CDFI’s – The Magical Map to Success

When it comes to the credit union industry, I never cease to be inspired by the many people I meet who are committed to making their organizations and communities stronger and more sustaining.

Case in point … as part of Filene Research Institute Roadshow series: Activating Consumer and Community Impact, I recently had the pleasure of being on a panel with Christina Cain, Chief Lending Officer for Peoples Advantage Federal Credit Union headquartered in Petersburg, Virginia.

Christina is many things. Among them — in her own words — “an unapologetic advocate for small business, ecosystem builder, coffee addict, idea agitator, book schemer and dreamer.” While these attributes are no doubt true, she is also a passionate and pre-eminent expert in all-things related to CDFI’s. More from Christina in a moment …

It’s all About Community

For those unfamiliar with the acronym, CDFI’s – Community Development Financial Institutions – are non-governmental organizations primarily focused on personal and small business lending in markets typically under-served by the traditional banking sector.

With this focus and certification, CDFI’s are eligible to access capital and support programs through the CDFI Fund, administered at the federal level since 1977 by the U.S. Department of Treasury. (There are state-certified CDFI’s as well). From coast-to-coast, there are hundreds of CDFI’s delivering innovative – and often less stringent – lending programs to individuals and small businesses alike.

Once certified, CDFI’s are eligible to apply for awards through a variety of programs administered by the CDFI Fund. These programs enable CDFI’s to offer and deliver a range of valuable financial vehicles, including:

  • Mortgage lending for first time home buyers
  • Commercial loans for businesses in low-income areas
  • Flexible underwriting for community facilities

Resources and Requirements

In addition to affordable capital, the CDFI Fund also provides CDFI’s with grants to test concepts and pay for resources – re: personnel – to market and manage programs during the early stages. More on that later. To qualify for grants and capital available through the CDFI Fund, 60% of a credit union’s loans need to meet the following criteria:

  1. 80% of all loans need to go to applicants with median incomes or lower;
  2. Loans must be to individuals and/or small businesses located in a currently recognized CDFI Tract.

Some credit unions — like Peoples Advantage — are CDFI certified. Most CUs aren’t. While the reasons for this vary, the main one is simple … money and margins. i.e., CDFI Fund programs typically yield less profit than most “conventional” offerings. In spite of this, Christina is a fierce advocate for credit unions becoming CDFI’s contending that becoming one is an effective long-term growth strategy.

“Becoming a CDFI was a game changer for us,” says Christina regarding their certification in 2018. “With a change of leadership, our CEO looked around and realized that we weren’t serving our community like we should. As a CDFI, we’re now able to support our community in a much more meaningful way. It absolutely set us apart and has helped us grow.”

A glance at the CDFI Tract Map quickly shows that the number of CDFI’s nationwide pale in comparison to banks and credit union. However, upon certification, CDFI’s have the potential to access capital – with the safety net of the CDFI Fund behind them – that can lead to growth opportunities not typically on the radar screen for most financial institutions.

“One of the most powerful things the CDFI fund offers,” says Christina “is the ability to receive grants, along with the secondary capital, necessary to hire the people required to test and validate certain lending initiatives. That’s a viable way to mitigate risk and generate opportunities, both as an employer and a community builder.”

Small Steps and a Safety Net

A key example that Christina noted was the grant money available through the CDFI Fund’s Technical Assistance (TA) program. Via this program, credit unions interested in CDFI certification can receive upwards of $125,000 for two years to hire the people necessary to test the CDFI waters and assess if this strategy is ultimately right for them.

Another benefit is that becoming a CDFI is not an all-or-nothing proposition. It is not un-common for CUs to open separate 501C-3’s to qualify as a CDFI while still honoring their original charter. This enables CU’s provide CDFI Fund programs while remaining in compliance with guidelines stipulated by the NCUA.

When it comes to CDFI certification, there’s plenty that credit union leadership needs to learn and consider – and the attached CDFI Fund website is a great place to start. I also recommend reviewing the current CDFI Tract Map and, if and when you’re ready, Rubicon has the GIS market and mapping tools to help you better understand the demographics and real estate opportunities within any urban, suburban, or rural market.

Christina Cain’s enthusiasm for CDFI’s is, in a word, inspiring. “The CDFI program proves how money can work for people instead of against them,” she says. “It changed the way we look at our neighborhoods and the world. It’s been a way to fuse integrity and respect into our policies and procedures and still make money. It’s the magical map to success for credit unions and the communities they serve.”

Corey A. Waite is a leading commercial real estate advisor to the financial services industry. As Founder and CEO of Rubicon Concierge Real Estate Services, Corey works directly with senior executives coast-to-coast to deliver strategic plans and transactional services focused on optimizing the needs of employees, clients and members.

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