Low income, big money: How credit unions are leveraging CDFI grants

Published
  • September 26 2017, 12:44pm EDT

The changing face of CDFIs

The National Federation of Community Development Credit Unions, many of whose members have successfully applied for grants from the fund, noted that since 2013, loan funds have received about $730 million and credit unions about $163 million. That’s because historically, loan funds have been the most predominant type of CDFI, the Federation explained.

But that is starting to change. Over the last four years, regulated depositories have grown in numbers and now represent almost 50% of the CDFI industry, the Federation said.

According to statistics shared by the Federation, in December 2013, regulated CDFIs were comprised of 173 credit unions, 76 CDFI banks and thrifts and 50 depository holding companies. That compares to unregulated CDFIs comprised of 492 loan funds and 13 venture capital funds.

As of July 2017, however, regulated CDFIs were comprised of 316 credit unions, 139 banks and thrifts and 87 depository holding companies. While their unregulated counterparts also grew during that time – loan funds up to 575 and venture capital funds to 17, regulated CDFIs are starting to narrow the gap a bit. In December 2013, 63 percent of all CDFIs were unregulated, with just 37 percent regulated. As of July 2017, regulated CDFIs make up 48 percent of the industry, with credit unions leading that charge with 316, or 28 percent.

Here’s a look at what some credit unions are doing with the dollars they’ve received from the CDFI fund.

Welcome to Miami

Jeanne Kucey, president & CEO of the $197 million JetStream Federal Credit Union of Miami Lakes, Fla., said her institution has received two CDFI grants in recent years – one for $1.2 million in 2014 and one for about $777,000 this year.

“We used the grant from 2014 primarily to offset loan losses, so that we could continue to provide loan services to our membership without incurring too much risk,” she said. “We also used such funds to expand small business loans for new, minority, and low-income business owners.”

The most recent grant, she noted, will be used to assist Puerto Ricans who are relocating from the island to the United States.

“We used the grant from 2014 primarily to offset loan losses, so that we could continue to provide loan services to our membership without incurring too much risk,” she said. “We also used such funds to expand small business loans for new, minority, and low-income business owners.”

Kucey explained that since the economic crisis hammered Puerto Rico a few years ago, there has been a massive migration of people to the United States mainland, primarily to Florida. “On average, about 1,000 families have been moving from Puerto Rico to Florida each month.”

Kucey estimates that about one-fourth of JetStream’s membership – or about 5500 people – currently live in Puerto Rico, where the credit union has one branch. “The latest grant from CDFI will be used to help these people with their moving and housing expenses,” she said.

Overall, about 75 percent of JetStream’s members are low- to moderate-income individuals – and many of them need used auto loans.

“I am originally from Southern California and South Florida is similar in that an automobile is an absolute necessity here, since public transit is not that extensive,” she said.

Content Continues Below

Meet me in St. Louis

Paul Woodruff, Vice President of Community Development at St. Louis Community Credit Union, a $264 million institution based in St. Louis, said CDFI grants have been primarily used to offer used auto loans and also relief from predatory payday loans.

In 2010, he said, St. Louis Community CU received a $750,000 grant that was used to offer members an alternative to payday loans – a product that allowed members to pay off usurious loans from other sources. As in many poor, inner-city areas, many residents of urban St. Louis fall prey to payday loans charging excessive interest rates. “That program was quite successful as it allowed hundreds of our members to pay off these loans or to refinance their debt,” Woodruff said.

Another CDFI grant, valued at about $849,000 and disbursed in 2013, was used to offer members used auto loans – a necessity in St. Louis.

Woodruff noted that the credit union was able to leverage the $849,000 grant into an additional $22.7 million auto loans over a three-year period as part of its "Sure Rides" program.

“While St Louis has some public transit – light rail and buses – they are often not convenient for our members,” he explained. “And when you factor in the fact that most jobs are located outside of the city, a car becomes a crucial component in many peoples’ lives. In the absence of a car, a bus ride could take someone two hours each way.”

The latest grant, valued at about $1.1 million, will be used to expand on the credit union’s auto loan program.

Overall, Woodruff estimates that about 81 percent of St Louis Community’s membership – or about 43,000 people – are low- to moderate-income.

Can't forget the Motor City

Hank Hubbard, president and CEO of One Detroit Credit Union, a $38 million institution based in the Motor City, said his credit union has received a number of CDFI grants in recent years and that such funds are generally used for “capacity building.”

“These grants help to make our organization stronger and allows us to reach deeper to help our membership with their financial goals,” he said.

For example, in 2009, One Detroit CU received a CDFI grant for about $2 million, which was used primarily as lending capital. Another grant was used to help construct a second branch for the credit union.

While Detroit has made some economic improvements in recent years, the city remains mired in poverty, crime, unemployment and a poor transit system. Closely matching the overall demographics of the city, One Detroit CU’s membership is about 80 percent African-American, with about 40 percent living below the poverty line. As such, the membership has many needs.

“One trial made possible by the grants involved the refinancing of auto loans, where we were able to offer a rate that was about half that charged by other lenders,” Hubbard said. “We found out that the risk associated with these loans was much lower than we originally expected, and have since added it to our ongoing product line.”

With respect to the auto lending program (called “RefiMyRide”) which was piloted with CDFI grant funds, Hubbard explained the grants “allowed us to try something we thought was risky.”

“Since that trial we have refinanced over 800 loans, totaling some $1.4 million, cutting their rates in half and saving those people over $1.8 million in interest payments,” he elaborated.

“[Thus,] a $1.5 million grant resulted in over $10 million in loans, and funneled $1.8 million back into the communities in the form of lower loan payments.”

In like Flint

Terry J. Katzur, executive vice president at ELGA Credit Union, a $550 million institution based in Burton, Mich. -- which was just approved for a CDFI grant of $776,500, said the credit union plans to support two programs with these funds.

“Our first is an existing program to provide automobile loans to individuals with low to moderate income,” he said. “We aim to help members get reliable transportation so they can have a better chance of getting and keeping a job. Reliable transportation also helps residents live a healthier lifestyle by having a way to get to regular doctor’s visits, and grocery stores that sell nutritious food.”

Katzur noted that in many of the neighborhoods of Flint (which is located very near Burton) “there are no grocery stores nearby and people don’t have transportation to get to a store, so they shop at convenience stores with very limited healthy food options.”

Indeed, according to NCUA income data analysis, some 85% of ELGA’s membership is low- to extremely low-income.

The second program that the funds will support, Katzur added, is ”something new” that the credit union is developing to provide micro small business loans to local businesses who may not otherwise qualify for a commercial loan at most lenders.

“We think this product will help small business owners obtain the capital they need to grow their business, while providing jobs and services to an underserved population,” Katzur explained. “We have a great need for these types of loans in our area and we believe ELGA is in the best position to provide them.”

In addition, the grant money will help fund ELGA’s allowance for loan loss and offset some of the risk associated with the proposed plans. “We should be able to lend out at least ten times the amount of the grant and leverage the funds for the greatest positive impact on our community,” Katzur added.

Content Continues Below

HOPE Floats

HOPE Federal Credit Union, a $238 million institution based in Jackson, Miss., received about $2.5 million in CDFI grants this year – about $1 million for Financial Assistance (FA) and about $1.5 million for Healthy Food Financing Initiative Financial Assistance Awards (HFFI-FA).

Bill Bynum, CEO of Hope FCU, said the credit union has received CDFI grants in prior years and they have been used for a variety of programs to help their members, the majority of whom are low income.

“We have used funds to address a range of issues, including loans for affordable housing, community facilities and small businesses,” he said.

Indeed, in order to afford a modest, two-bedroom apartment at Fair Market Rent in the Mid-South states (including Mississippi), renters need to earn an average of $15.01 per hour, according to the National Low Income Housing Coalition. But, the typical renter in the Mid South earns on average only $12.87 per hour.

Bynum said the new FA grants will expand HOPE’s support for housing, community facilities and small businesses.

As for HFFI-FA, Bynum noted that the Mid South region not only is one of the most impoverished regions in the country, but it is also one of the highest concentrations of “food deserts” in the U.S.

“Many of our members have no access to fresh, healthy food,” Bynum said. “They might need to drive many miles to get vegetables and fruits from a grocery store – this has very detrimental effects on health and productivity.”

Bynum and HOPE worked with the City of New Orleans to help alleviate food deserts there after Hurricane Katrina.

The new grant will be used by HOPE to help create healthy food outlets for people living in such food deserts.

The view from the Federation

Pablo DeFilippi, Senior Vice President of Membership and Network Engagement at National Federation of Community Development Credit Unions, commented that all these credit unions embody the “tremendous impact credit unions in general, but CDFI-certified in particular, can make in the communities they serve.”

He added that the important thing to be recognized is that the CDFI Technical Assistance and Financial Assistance grants “aren’t subsidies for these institutions, but precious resources that are used to increase their capacity to respond to the needs of the very challenging markets they serve: low income consumers, minorities, financially underserved communities and people with insufficient or impaired credit.”

CDFI-certified credit unions, he added, have “adapted their business model” to meet the needs of the markets they serve.

“What this tells us is that financial inclusion and community development is good for business and it doesn’t come at the expense of financial performance,” he stated. “CDFI credit unions have a bigger impact in their communities because there are able to go deeper in their lending and have a higher loan deployment, which results in a strong financial performance. CDFI credit unions demonstrate that we can do well by doing good.”