Community Development with a Purpose. CDFI Certification: A Building Block of Community Finance

Transcription

1 Community Development with a Purpose CDFI Certification: A Building Block of Community Finance

2 CDFI Fund CDFI Fund established by Congress in 1994 through the efforts of Federation and others in community finance Mission of CDFI Fund Expand the capacity of financial institutions to provide credit, capital, and financial services to underserved populations and economically distressed communities in the United States Certification given by the U.S. Department of Treasury Broad bi-partisan support; appropriations stable or increasing

3 CDFI Target Markets Places (Geographic) CDFI Investment Area (Census Tracts) Low Income High Poverty High Unemployment 384 Persistent Poverty Counties Poverty rate above 20% as of 1990, 2000 and 2010 People (Demographic) Low Income Targeted Populations Other Targeted Populations

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9 Credit Unions & CDFI Fund CUs Initially slow to embrace CDFI certification New momentum since 2010 Doubling in number of NCUA Low Income Designated CUs Increased visibility of CDFI success stories 2014 NCUA CDFI Certification Challenge Federation CDFI Certification Challenge Positive research findings on performance & impact of CDFI CUs

10 The CDFI Industry More than just credit unions Type of CDFI Unregulated CDFIs December 2013 October 2015 Number Percent Number Percent Percentage Increase Loan Funds % % +4% Venture Capital Funds 13 2% 14 1% +8% Regulated CDFIs Credit Unions % % +53% Banks and Thrifts 76 9% % +47% Depository Holding Companies 50 6% 61 6% +22% Total % %

11 Top Ten States for CDFI Credit Unions Rank State # CDFIs CDFI Certifications as of 10/31/2015 Credit Unions Loan Funds Banks & Depository Holding Companies Venture Capital Funds CU % of State CDFIs 1 Missouri % 2 Louisiana % 3 New York % 4 Texas % 5 Florida % 6 Michigan % 7 California % 8 Mississippi % 9 Illinois % 10 Washington %

12 California in CDFI Terms 46% of census tracts in state classified as Investment Areas by CDFI Fund Indicators of economic distress include low median family income, high rates of poverty, unemployment Nearly 17 million Californians live in CDFI Investment Areas 11 California credit unions are CDFI certified 34 credit unions show strong potential for certification More than 67% of branches located in CDFI Investment Areas Strong financial and operational capacity Profile of community development products and services comparable to CDFI credit unions

13 By the numbers California CDFI Credit Unions CDFI certifications as of 10/31/2015; Financial data as of 12/31/2014 Type of Credit Unions # of CUs # of Branches Total Members Total Assets CDFI Certified ,603 $ 4,061,370,839 High Potential CDFIs ,298 $ 1,896,659,823 Totals ,901 $ 5,958,030,662

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22 CDFI CUs by Congressional District All 53 Congressional Districts include census tracts that qualify as CDFI Investment Areas minimum 11 tracts in CA 45 th maximum 176 tracts in CA 11 th CDFI certified credit unions are located in 21 Districts From 1 to 8 branches, depending on District 32 Districts have no CDFI certified credit unions at this time 43 potential CDFI credit unions have branches in 13 Districts that currently have at least one CDFI credit union 25 Districts that currently have zero

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27 What the Research Says

28 Positive Impact of CDFI Credit Unions CDFIs promote economic revitalization among underserved communities and populations Financial services are a critical path to financial inclusion CDFI credit unions leverage more private capital than any other type of CDFI Median Loan Fund leverage: $1.10 Median CDFI Credit Union leverage: $9.91 From , 61 credit unions that received $102.7 million in CDFI grants increased Total Assets by $2.4 billion Total Loans by $1.5 Billion Leverage rate of more than 23:1

29 Positive Performance of CDFI Credit Unions Despite serving low-income, underserved markets, when compared with mainstream peers, CDFI credit unions Deliver comparable financial results (ROI) Show no greater institutional risks Rate equal or better in operational efficiency CDFI CUs outperform their mainstream peers in Member service technologies Complex loan products Community development loan products Community development services Capacity building services

30 What Makes a CDFI? CDFI Fund has 7 requirements for certification 1. Legal entity 2. Primary mission of community development 3. Financing entity 4. Target market (more than 60% of activities) 5. Accountability to target market 6. Development services to build capacity of members 7. Non-governmental entity.

31 What Really Makes a CDFI? A matter of intent What they do, not where they live CDFI credit unions far more likely than peers to offer Community Development Loan Products credit builder, shared secured credit cards, micro business & consumer, pay da, refund anticipation anti-predatory STS loans Community Development Savings & Account Services check-cashing, international remittances, money orders, business share accounts Capacity-Building Services financial counseling, financial education, first-time home-buyers programs, bilingual services, free tax preparation services.

32 CDFI Certification Requirements & Process

33 7 Tests for CDFI Certification 1. Legal Entity 2. Primary Mission 3. Financing Entity 4. Target Market 5. Accountability 6. Development Services 7. Non-Government Entity Documents Documents Documents Documents Automatic Automatic (LICUs) Automatic Automatic Documents Automatic

34 1. Legal Entity 2. Primary Mission 3. Financing Entity 4. Target Market 5. Accountability 6. Development Services 7. Non-Government Entity What s left?

35 Test # 4: Target Market Single most critical test for credit unions At least 60% of financing activities must be targeted to eligible Target Market CDFI Target Markets: CDFI Investment Areas Low-Income Targeted Populations Other Targeted Populations May use one or more TMs to qualify

36 Investment Areas (IA) A geographic unit (county, census tract, block group, Indian/Native areas), or contiguous geographic units in the US that meets distress benchmarks for: Low median family income; High rate of poverty; and/or High rate of unemployment. Most CDCUs qualify simply on IA criteria Easiest Target Market to document Random sample of member addresses CDFI Fund mapping program Qualified Investment Area must consist of contiguous tracts Geocode member addresses to tell % that live in Investment Areas Cross check with updated ACS data

37 Low Income Targeted Pop (LITP) Population for a geographic unit is comprised of individuals whose family income is not more than 80% of the MFI. Requires more extensive analysis: Federation has developed a Random sample of borrowers addresses and income CDFI Fund mapping program Geocode member addresses to tell % that live in Investment Areas Identify area median income benchmark for each borrower Compare actual borrower income to low-income benchmark

38 Other Targeted Populations African Americans, Alaska Natives residing in Alaska, Hispanics, Native Americans, Native Hawaiians residing in Hawaii, Other ethnicities. OTP data not typically collected systematically by credit unions Must provide basis for estimating % of total activities directed towards OTP OTP credit unions can generally also qualify on basis of Investment Areas or Low-Income Targeted Populations

39 Test #5: Accountability Based on analysis of governing and advisory board members Automatic for or credit unions with Target Market defined as Low Income Targeted Population (LITP) or Investment Areas (if accounts for more than 50% activities) OTP (if accounts for more than 50% of activities) CU boards are democratically elected by the people they serve (no other types of CDFIs have such direct accountability to their TMs) Federation continues to advocate with CDFI Fund that credit unions are automatically accountable to all TMS in proportion to membership CDFIs must ensure that Boards understand and support CDFI certification

40 #6. Development Services Non transactional activities Builds capacity to manage personal finances Linked to financial products e.g., financial education, credit counseling, VITA/EITC Complete Development Services Table Provide one-page narrative Briefly describe each Development Service Clearly describe link to CU financial products If a partner organization provides your Dev Services: Describe relationship Attach a copy of the services contract/agreement

41 CDFI Certification Assistance Federation approach is based on preliminary analysis of a CU s borrowers sampling Helps determine eligibility 100% success rate for eligible certification applicants Sampling can be used for Certification, Recertification, Monitoring and CDCI Compliance

42 Questions?