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Opinion

Celebrating 25 years of the CDFI Fund

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On November 20, the Clinton Presidential Library in Little Rock hosted President and Secretary Clinton in a conference marking the 25th anniversary of the establishment of the Community Development Financial Institutions (CDFI) Fund under the U.S. Treasury Department. The fund was created in 1994 to fulfill a campaign promise of Bill Clinton: to create a network of “100 community development banks and 1,000 microenterprise organizations.”

Over its lifetime, the fund has provided more than $2 billion in capital to institutions serving underserved populations and it has launched innovative programs like the Healthy Foods Financing Initiative. Community development credit unions, banks, venture funds and microenterprise funds have all benefited. Remarkably, the CDFI Fund—once attacked by his opponents as a “Clinton project”-- has become one of the rare bipartisan programs in Washington, receiving record-high Congressional appropriations despite calls from the Office of Management and Budget to abolish the fund.

In the conference’s opening panel, I related the history of the CDFI, drawing on my book, Democratizing Finance: Origins of the Community Development Financial Institutions Movement. From 1983 to 2012, I headed the National Federation of Community Development Credit Unions, now known as Inclusiv. We played a pivotal role in making the CDFI Fund a reality. In 1986, I wrote the first concept paper calling for the fund, and between 1990-92, we convened the coalition that worked with Congress and the Clinton administration to shape the CDFI Fund, testifying to committees and meeting with the new administration officials.

We campaigned hard for the fund because credit unions in low-income communities were becoming an endangered species. Our ranks had been “pruned” by NCUA, which drastically reduced the numbers of designated low-income credit unions. A recession was further straining our credit unions. But as I wrote in my book, “The notion of federally capitalizing credit unions was not necessarily a popular one in the credit union industry. Credit unions were perpetually fighting against the banking industry to preserve their federal tax exemption; the trade organizations were wary of credit unions taking any sort of appropriated federal funds.” NAFCU was unenthusiastic, at best; CUNA, which had recently allied with the National Federation, was more supportive. Among NCUA board members, the late Robert Swan and his senior staff were cautiously supportive, but wary because the Clinton proposal emphasized small business lending, a political hot button for credit unions.

Nonetheless, when the legislation was signed into law on September 23, 1994, we hailed it as a great victory for CDCUs. But we were soon to be bitterly disappointed. The CDFI Fund awarded about $37 million in capital grants in its first round in July 1996. Only six credit unions, serving communities from the Navajo Reservation to the South Bronx, won awards. Scores of small credit unions that had toiled anonymously for decades were left out because they were not considered “high impact.” For much of our movement, the discouragement lingered for years, as only a handful of credit unions each year won federal funds.

We fought for years to expand access for small credit unions. First, the National Federation became a certified CDFI intermediary, raising millions of dollars for its capitalization program (known today as Inclusiv/Capital) which we then channeled into local credit unions as secondary capital. In 2000, we finally won our lengthy battle to establish a special funding window for small institutions including credit unions, so that they would not have to compete directly against large, sophisticated nonprofits.

But for many years, credit unions represented only a small portion of the universe of CDFIs. This mattered greatly, because the CDFI Fund tended to make awards in proportion to the number of applicants from each CDFI “sub-industry” (credit unions, loan funds, banks, venture funds). By numbers of applicants, nonprofit loan funds greatly predominated, and over 1996-2016, they won 80% of total capital funding. In a bad year, credit unions received less than 10%.

Things started to change after about 2010, partly as a result of the Great Recession and the infusion of funds from the Community Development Capital Initiative (CDCI), a TARP-related program that resulted from our advocacy and, especially, that of Bill Bynum of Hope Federal Credit Union in Mississippi, an influential member of the CDFI Fund’s Advisory Board. Credit unions began to routinely receive 15% or more of the capital funds. Especially as a result of Inclusiv’s efforts, many more credit unions became certified as CDFIs and competed for funds. Currently, nearly 300 of the 1,100 CDFIs are credit unions. This growth has helped expand the share of funds going to credit unions.

Today there are more CDFI-certified credit unions than ever, but their profile has changed as well. No longer are the applicants only the “traditional” small CDCUs: Now, credit unions with $1 billion or more are applying. By 2017, 55 credit unions won $39.4 million from the CDFI Fund, a 23% share that surpassed our historic levels. In the 2019 round, 74 credit unions were funded. Especially encouraging, more than a dozen cooperativas and credit unions in Puerto Rico obtained vitally needed funds to rebuild and expand their services following the devastating hurricane Maria. That these vital institutions were funded owes much to the joint efforts of Inclusiv and the CDFI Fund itself.

Having fought for so long for the CDFI Fund to provide capital to the smallest credit unions serving the poorest communities, it is highly gratifying for me to see the advances the CDFI Fund has made in serving small institutions. But I also draw considerable hope from the fact that larger credit unions have become increasingly important players in the CDFI world. They are institutions like the 85-year old, billion-dollar Greylock FCU in Western Massachusetts. President and CEO John Bissell describes what CDFI certification and funding has meant for his institution: “We have always embraced underserved and unbanked folks, but with greater need in our community, we needed to increase our capacity and our impact. By becoming a CDFI, we learned a lot, and we received a CDFI financial award that allowed us to generate an additional $16 million in loans to the underserved, an increase which would have been impossible without the grant support. Our CDFI status has allowed Greylock to increase our outreach to the financially at-risk and underserved population, including minority and immigrant communities.”

Today, credit union assets make up the largest proportion of the $185 billion controlled by the universe of CDFIs. But still, social investors, foundations and policy analysists have tended to marginalize the role of credit unions in community development. They have focused largely on the universe of nonprofit loan funds. These funds have made crucial, highly visible impacts on the physical and social infrastructure of low-income communities, by financing affordable housing, clinics, small businesses, and community enterprises. But credit unions have the greatest potential of any CDFIs to directly serve the people in those communities, helping them to achieve financial stability which is vital to any well-functioning community.

Has the CDFI Fund achieved my dream of capitalizing the grassroots credit unions and start-ups struggling to survive in this difficult environment? Not fully. But especially in recent years, the fund has become an important resource for credit unions of all sizes. And Inclusiv recently announced a $45 million campaign of investment in community development credit unions serving the historically disadvantaged southern states. This too is the product of our credit union advocacy over the last 25 years.

Credit unions have come far in the CDFI world. Perhaps not as far or as quickly as we might wish, but nonetheless, they have increasingly claimed their vital role in community development finance.

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