Document Body Page Navigation Panel

Pages 1--12 from Microsoft PowerPoint - RESNA


Page 1 2
Introduction to CDFIs
© National Community Capital Association 2003
Introduction to CDFIs: Bridges Between Capital
and Communities
Rehabilitation Engineering and Assistive Technology Association of North America

February 17, 2004

(C) National Community Capital, 2004 2
Agenda
What is a CDFI?
Why do we need CDFIs?
What are the different types of CDFIs?
What products and services to CDFIs
offer?

Who are CDFIs' customers?
What is the federal CDFI Fund?

(C) National Community Capital, 2004 3
What is a CDFI?
Community
Development
Financial
Institution 1
1 Page 2 3
Introduction to CDFIs
© National Community Capital Association 2003
(C) National Community Capital, 2004 4
"C" and "D" Community Development
Mission must be Community Development
° Serving distressed and economically disadvantaged people and communities
Combines development services with financing

Types of financing include: Housing, Business, Community Facilities, and
Individuals

(C) National Community Capital, 2004 5
"F" --Financial
Primary activity of a CDFI is lending,
investing, or providing other financial services.
CDFIs develop financial products to
meet the needs of their markets

Make loans that are riskier, often to
unconventional borrowers

CDFIs also provide Technical Assistance

(C) National Community Capital, 2004 6
"I" --Institution
CDFIs strive to become a permanent
capital resource in their communities

CDFIs are private-sector institutions
Capital access is part of a long term
solution to poverty alleviation

This means CDFIs expect to be repaid!
° Can't avoid risk, but learn to manage risk 2
2 Page 3 4
Introduction to CDFIs
© National Community Capital Association 2003
(C) National Community Capital, 2004 7
Why Do We Need CDFIs?
Changes in the
Financial Services Industry caused

disinvestment: °Mergers
°Automation
° Growth of "parallel banking system"

(C) National Community Capital, 2004 8
Differences from Traditional Financial Institutions
CDFIs take more risk ° May be more lenient on collateral
° Different way of evaluating credit problems than a bank because of mission and the type of capital they utilize

CDFIs are more likely to provide personal attention to borrower and in analyzing the
loan ° CDFIs create new borrowers and new markets
° TA to strengthen their applications and capacity

(C) National Community Capital, 2004 9
Differences from Traditional CD or Non-Profit Organizations
Disciplined lenders
– Manage capital of mostly private investors
– Expect to be repaid
– Learn to manage risk

Market-Driven
– Respond to market demand as well as market need 3
3 Page 4 5
Introduction to CDFIs
© National Community Capital Association 2003
(C) National Community Capital, 2004 10
CDFIs as Niche Players
Work at the intersection of community
development and finance

Strong market knowledge
Long-term relationships with customers
More patient than conventional financial
institutions

Technical assistance a critical component
of relationship

(C) National Community Capital, 2004 11
What is the Scope of the CDFI Industry?
There are approximately 800-1000 CDFIs in the US under the non-technical definition.
Approximate breakdown: ° 100 Community Development Banks
° 250 Community Development Credit Unions
° 50 Community Development Venture Capital Funds
° 400-600 Community Development Loan Funds

(C) National Community Capital, 2004 12
CDFI Institution Types
4 Depositories/
Regulated
1.Community

Development Banks
2. Community Development Credit

Unions

4 Non-Depositories/
Unregulated
3.Community

Development Loan Funds
4.Community Development Venture
Capital Funds 4
4 Page 5 6
Introduction to CDFIs
© National Community Capital Association 2003
(C) National Community Capital, 2004 13
Community Development Credit Unions
Regulated and insured by National Credit Union
Administration (NCUA)

Non-profit cooperatives owned by their members
Promote ownership of assets and savings to low-income
individuals with special outreach to low-income communities

Provide affordable credit and retail financial services to
low-income people, with special outreach to minorities.

(C) National Community Capital, 2004 14
Community Development Banks
Regulated and insured by FDIC, OCC, Federal Reserve
and state banking agencies

For-profit, with community representation on Board
Provide capital to rebuild economically distressed
communities through targeted lending to non-profits, entrepreneurs, housing developers, etc.

Provide depository services, such as checking and
savings accounts.

(C) National Community Capital, 2004 15
Community Development Loan Funds
4 primary types: Microenterprise Fund
° Very small businesses & substantial TA Business Loan Funds
° Small and mid-sized businesses Community Services Loan Funds
° Social Service agencies, charter schools, childcare centers, etc.
Housing Loans Fund
° Affordable housing developers

Unregulated; primarily non-profits
Primary products are loans and Technical Assistance 5
5 Page 6 7
Introduction to CDFIs
© National Community Capital Association 2003
(C) National Community Capital, 2004 16
Community Development Venture Capital Funds
Typically not regulated; can be for-profit or
nonprofit
Provide equity and debt with equity features for medium-sized businesses in distressed communities

Most recent type of CDFI to develop
Venture capital funds are interested in businesses with high growth potential as well as a social

mission (i. e. job creation potential).

(C) National Community Capital, 2004 17
Types of CDFIs
All Bank Credit Union Loan Fund Venture Capital
Number of CDFIs in Sample 442 17 239 165 21
For Profit 31 17 0 2 12
Nonprofit 166 0 0 159 7
Cooperative 241 0 239 2 0
Government 20 0 02
Quasi-Government 20 0 20

Average year began financing 1978 1964 1971 1990 1995
Total Capital $9,221,790,765 $3,214,230,247 $3,062,881,807 $2, 682,281,742 $262,396,969
n= 436 17 239 159 21

(C) National Community Capital, 2004 18
What do CDFIs do?
1) Financing (loans, equity, guarantees, and other)

2) Retail financial services
3) Technical assistance & training
4) Advocacy 6
6 Page 7 8
Introduction to CDFIs
© National Community Capital Association 2003
(C) National Community Capital, 2004 19
Who are CDFI Customers?
Who?
° Affordable Housing Developers
° Business Owners
° Community Facilities
° Individuals

(C) National Community Capital, 2004 20
Affordable Housing Developers
For-profit and nonprofit developers
Pre-construction
° i. e. acquisition, pre-development
Construction & renovation
Single & Multi-family housing
Rental and ownership, transitional housing
Coops, land-trusts, & other innovative
approaches to affordability

(C) National Community Capital, 2004 21
Business
Micro, small and medium-sized business
Start-ups and existing
Non-profit and for-profit businesses
Working capital, equipment, acquisition 7
7 Page 8 9
Introduction to CDFIs
© National Community Capital Association 2003
(C) National Community Capital, 2004 22
Community Facilities
Childcare Centers
Charter Schools
Community Health Facilities
Social Service Agencies
Cultural Organizations
For-profit and nonprofit borrowers

(C) National Community Capital, 2004 23
Individuals (Consumers)
Housing: loans for mortgages or home
repair

Personal loans: health, education,
emergency, debt consolidation

Transportation (car)

(C) National Community Capital, 2004 24
Financing Products Offered
Loans
° CDFI expects repayment within a specified time on certain terms and conditions
Equity Investments ° CDFI receives an ownership interest in the business

Debt with equity features ° Includes convertible debt, debt with warrants, participation
agreements, royalties or other features that link the investment's return with the performance of the business

Guarantees ° Guarantees or letters of credit are provided to enhance the
creditworthiness of a borrower receiving a loan from a third party 8
8 Page 9 10
Introduction to CDFIs
© National Community Capital Association 2003
(C) National Community Capital, 2004 25
Technical Assistance
What TA a CDFI offers depends on the needs
of the CDFI's target market.

CDFI borrowers generally require TA.
Conventional financial institutions do not provide this service.

CDFIs provide TA both before and after
making a loan.

Some CDFIs contract out TA work.

(C) National Community Capital, 2004 26
Technical Assistance
Housing & Facilities
° Developing project budgets and plans
° Identifying and packaging other funding / loan sources

Micro & Small Business
° Business plan training
° Marketing, bookkeeping

Individual
° Home ownership counseling
° Credit counseling

(C) National Community Capital, 2004 27
Retail Financial Services
Savings & checking accounts
Check cashing
Money Orders
ATM
Wire Transfer
Individual Development Accounts (IDAs) 9
9 Page 10 11
Introduction to CDFIs
© National Community Capital Association 2003
(C) National Community Capital, 2004 28
Geographic Markets
% of CDFIs Serving
Neighborhood
9%

Single City/ Town
8%

Single met ropolit an area
14%

Single county
11% Mult iple counties

27%

Single State
16%

Mult iple states
11%

National
4%

(C) National Community Capital, 2004 29
Where CDFIs Work
% of Client s served

Major Urban, 41%
Minor Urban, 25%

Rural, 34%

(C) National Community Capital, 2004 30
Breakdown of Customers
72% Low-income
61% Minority
54% Female 10
10 Page 11 12
Introduction to CDFIs
© National Community Capital Association 2003
(C) National Community Capital, 2004 31
CDFI Fund
Program of the federal government
Housed within The Treasury Department
Created in 1994
Mission:
° To expand the capacity of financial institutions to provide capital, credit, and financial

services to underserved markets

(C) National Community Capital, 2004 32
"Certified" CDFI
CDFI Certification is determined by the
CDFI Fund

Can be a CDFI without CDFI Certification
Application process is extensive
Certification increases opportunities for
access to capital from the CDFI Fund, banks and others.

° 643 Certified CDFIs as of November 25, 2003

(C) National Community Capital, 2004 33
The CDFI Fund Criteria Require:
6 criteria for certification:
Primary mission Financing entity
Target market Development services
Accountability Non-government entity

www. cdfifund. gov 11
11 Page 12
Introduction to CDFIs
© National Community Capital Association 2003
(C) National Community Capital, 2004 34
CDFI Fund Programs
CDFI Fund has three core programs
CDFI Programs: Financial Assistance: provides equity, debt and grants to CDFIs
Technical assistance: provides funding for capacity-building
Native American Initiatives: provides capital and TA for the development of

CDFIs serving Native American communities

Bank Enterprise Award Program: provides cash incentives to banks for banks investing in CDFIs and

other community development activities New Markets Tax Credit: Creates a tax incentive for

equity investment in Community Development Entities (CDEs)

(C) National Community Capital, 2004 35
Questions?
12

Page Navigation Panel

1 2 3 4 5 6 7 8 9
10 11 12