By: Cliff Rosenthal, President/CEO, National Federation of Community Development Credit Unions

After an eventful, tumultuous year, we in the community development field are girding for major challenges.  Along with bleak overall economic forecasts, the media have increasingly called attention to the strains on foundation endowments, projections of decreased charitable giving, growing human needs, and cutbacks in the nonprofit sector.  Despite – or better, because of – these distressing trends, the needs and opportunities for community investing are greater than ever.

For those readers unfamiliar with our organization, a few words of introduction.  The  National Federation of Community Development Credit Unions (Federation) is a 34-year-old charity and a certified Community Development Financial Institution (CDFI) serving more than 225 low-income, grassroots, nonprofit depository institutions (community development credit unions, or CDCUs) nationwide.  Since 1982, the Federation’s Community Development Investment Program has raised debt and equity capital from many social investors to reinvest in CDCUs serving urban, rural, and reservation-based communities.  The Federation co-founded the national CDFI Coalition, which represents hundreds of institutions, from community development credit unions to community development venture capital funds.  Our Coalition continues to play a leading role in sustaining and expanding the U.S. Treasury Department’s CDFI Fund.

From where we stand, here are some developments that give us hope – and some that give us pause.

• Unprecedented media coverage.  Many of you have seen the outstanding article by Daniel Gross (Newsweek, November 24; http://www.newsweek.com/id/169160), entitled “A Risk Worth Taking: Many ethical subprime lenders still manage to make plenty of money.”  Gross was also interviewed at length on NPR (http://www.thetakeaway.org/media/player/mplayer.html?file=/xspf/2008/nov/17/dont-blame-all-subprime-mortgages-global-financial-crisis/&autoPlay=true).  As well, Reuters (http://www.reuters.com/article/rbssAutoTruckManufacturers/idUSN1646365520081116) gave favorable coverage to CDFIs, including our own community development credit unions.  These pieces clearly articulate the core message of our industry: that lending to low- and moderate-income people can be done responsibly, sustainably, and even profitably.
  
  
• Two major campaigns for federal investment in CDFIs:
  
  
  • “Capital for Communities Recovery Program.”  On November 12, 2008 the CDFI Coalition mailed a letter to the U.S. Treasury Department urging that $1 billion of the total $700 billion in funding to the Troubled Assets Relief Program (TARP) be set aside to support CDFI lending and investment in low- and moderate-income communities.  We also urged that all financial institutions that receive TARP capital investments have an affirmative obligation to support CDFIs.  Hundreds of letters of support were sent in.  (To add your voice, visit the CDFI Coalition’s web site at: www.cdfi.org).  Community development banks have already made progress in gaining access to the TARP funds on viable terms, and the CDFI coalition is pressing to extend this eligibility to other types of CDFIs, including community development credit unions and loan funds.
    
    
  • “Community Development Stimulus Program.”  On December 8, 2008 the CDFI Coalition sent a letter urging Congress to support our proposal for an allocation of $500 million per year for two years to the CDFI Fund, which can invest the funds quickly into CDFIs across America, directly stimulating economic activity in low- and moderate-income communities.

• Long-term: Brighter outlook for the CDFI Fund.  In its second term, the Bush Administration made repeated efforts to eliminate the CDFI Fund or drastically under-fund it.  For the last two years, a receptive Congress has been able to increase appropriations to near-all-time highs not seen since the Clinton Administration.  The Obama platform explicitly supported the CDFI Fund, and we are optimistic that we will be able to raise current appropriations levels despite the difficult climate.
  
  
• Financial position of CDFIs.  In general, CDFIs have strong balance sheets, unencumbered by the types of losses that have affected many mainstream banking and investment institutions.  CDFIS have not done the type of subprime and predatory lending that produced this crisis. This is not to say that there has not been  \damage in a number of portfolios, especially in areas like California and Florida that have seen unprecedented foreclosures, drops in real estate values, and rising unemployment.  But many CDFIs have actually been able to increase their lending to small businesses and individuals, because they have not suffered the same liquidity constraints and tightening of credit standards that have prevailed in mainstream banking.  (Among credit unions alone, for example, real estate loans have increased by 13.5% in the last twelve months, with overall lending up 8.1%.)
  
  
• Positive results of program-related investing.  As cited in the Chronicle of Philanthropy, the F.B. Heron Foundation – an acknowledged leader in the field – is estimating a 2008 return of 3.6% on its program-related investments. Investments in CDFI depositories – community development credit unions and banks – have preserved principal throughout these difficult times and produced reliable income streams for their depositors.

On the negative side, we are concerned about a small but vocal chorus of naysayers, as well as the contraction and stress on the banking industry.

• Community Reinvestment Act (CRA) under attack.  The Wall Street Journal as well as financial trade publications have repeatedly included unfounded assertions that CRA lending has played a significant role in the current meltdown.  This has been refuted not only by us in the community development movement, but by the OCC and Federal Reserve.  Nonetheless, these attacks fuel sentiment to avoid lending and investing in low-income communities.
  
  
• Decline in bank contributions and community investment.   The decline in numbers of leading banking institutions and the tremendous economic stress on many of the survivors seems certain to reduce the charitable giving and CRA lending that has been vital to the success of many community development financial institutions.

All in all, we in the community development movement see this as a difficult period, but one in which we believe we can raise our visibility and expand our impact.  We hope that the social investment community will seize this opportunity and increase its support in the 2009 and beyond.

To find out more about the Federation’s work and the opportunities through our Community Development Investment Program, please contact Cliff Rosenthal, President/CEO of the National Federation of Community Development Credit Unions at crosenthal@cdcu.coop, and visit our web site: www.cdcu.coop.