The last two decades have been maked by exceptional growth for many CDCUs. Our Community Development Investments, as well as other investments from banks, foundations, and especially Treasury's Community Development Financial Institutions (CDFI) Fund, have fueled this growth, enabling low-income credit unions to increase their assets as much as 1,000 percent, while adding new products, expanding their lending, and opening new branches in underserved and minority communities nationwide.
Here are a few success stories of CDCUs during the "CDFI Era":
Keeping the Dream Alive: Alternatives Federal Credit Union (Ithaca, New York)
Alternatives Federal Credit Union has long occupied a place as one of the most innovative CDCUs in the nation. The credit union is based in Ithaca, New York, a community with strong traditions of community activism. In fact, it was a coalition of environmental, social justice and anti-war organizations that first started Alternatives in the back room of a food cooperative in 1978.
From those humble origins, the credit union has grown to nearly $73 million in assets and has developed a knack for adapting traditional credit union products--credit cards, mortgages, small business loans and retirement accounts--for its socially conscious and/or low-income members.
But for years, Alternatives was forced to limit or defer many of its more promising experiments in unconventional lending because of a shortage of permanent capital to fall back on. Operating with less than 5% permanent capital for most of the 1980s and 90s, the credit union was frequently warned by regulators not to stray too far from conventional lending.
In recent years, Alternatives decided to get serious about preparing for new growth and new opportunities to serve its low-income members--and that meant building a solid capital base. With $300,000 in equity capital from the Federation, the credit union created a loan partnership with the City of Ithaca to make start-up micro-enterprise loans to low-income residents who wished to become entrepreneurs. In short order, Alternatives was able to lend more than $20,000 in start-up financing to six low-income residents.
Alternatives and its members have also benefited from our IDA, Micro-enterprise, nominee, and non-member deposit programs, with a total investment by the Federation of $525,000 in grants and loans.
For successful CDCUs like Alternatives, the greatest challenge can be to remain true to an original vision of helping the poor while continuing to grow assets and develop new products and services. In this case, as in many others, capital makes the difference.
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From Disaster to Deliverance: Central Oklahoma Federal Credit Union (Davenport, OK)
Early on in the American credit union movement, a popular symbol for the benefits of membership was a little man with an opened umbrella--there to shield members from the financial storms of life. The logo took on a terrifying relevance in the spring of 1999, when a cyclone hit Central Oklahoma and turned the region upside down. In addition to lost lives, the tornado destroyed several big businesses, resulting in the direct loss of 350 jobs and the indirect loss of another 333.
For Central Oklahoma Federal Credit Union, now a $33 million institution, the disaster couldn't have come at a worse time: the credit union was still recovering from a spate of loan losses from the early 1990s, when delinquencies the credit union to spend down 90% of its capital reserves.
To make matters worse, much of the credit union's staff was forced to cope with personal and family emergencies by providing financial counseling to storm victims. This took precious time away from the rebuilding of a loan program to help job-creating businesses get back on their feet.
The leadership of the credit union--especially its manager, a former insurance agent--knew the importance of responding quickly to the disaster. In the wake of a disaster, once emergency funds unemployment insurance payments and other temporary relief run out, families can end up in severe financial straits if measures have not been taken to re-establish working businesses and usable homes.
Using $250,000 in capital from the Federation, the credit union was able to re-start its small business loan program and give the community a fighting chance to blunt the impact of the tornado.
In one case, four credit union members--who jointly owned a children's recreation center purchased with a credit union loan--saw the tornado take the roof off the building, damage the interior, and close the business temporarily. But after helping the families secure an insurance payment, the credit union helped them re-open a successor business that includes recreation for young people and a new community café. Not only is the new business likely to show profits, the expanded operation was able to provide a job for one of the workers left unemployed when a local factory was destroyed.
A strong capital position enabled Central Oklahoma FCU to help members weather the effects of the disaster. And, just as important, the credit union has been able to continue re-building its loan operation, providing a stronger shield against the next storm that comes along.
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Small Investment Helps A Big Credit Union: ASI Federal Credit Union (Harahan, Louisiana)
With more than to $300 million in assets and nearly 80,000 members, Louisiana’s ASI Federal Credit Union is one of the largest CDCUs in the United States. But in the late 1990s, for all its size, ASI encountered two problems familiar to even the smallest financial institutions. The first problem was the urgent need to implement a new service: too many of ASI’s members, caught in a financial bind between paychecks, were falling prey to “payday” loans offered by local check cashing outlets. In these exploitative deals, a check casher typically pays an advance on a person’s paycheck, for outrageous rates as high as 20% of the face value of a paycheck.
Despite ASI’s desire to compete with the payday lenders, it was unable to create a competitive payday loan program because of a second, financial challenge: the credit union badly needed to increase its permanent capital to comply with new federal regulations requiring financial institutions to maintain a capital level of at least 7%.
In the late 1990s, what had once been an optional, suggested capital requirement was well on its way to becoming mandatory. ASI was within a percentage point of the new federal target, but still under 7%--and until the new, higher level was met, the credit union would effectively be barred by government regulators from launching any new loan products, especially a high-risk payday loan program targeted at the poorest members.
With a single, well-targeted investment, the Federation was able to assist the credit union on both counts. $250,000 in secondary capital from the Capitalization Program enabled ASI to make it over the new federal hurdle.
More importantly, by meeting the federal government’s capital requirement, the credit union earned the right to create and implement an innovative new program to help its members escape the payday loan trap.
ASI’s product, called the "Stretch Loan," allows members to borrow up to $200, which is repaid via the direct deposit of their payroll check at a fraction of the cost of the rip-off payday check cashers. Almost immediately, the credit union signed up more than 1,000 borrowers and lent more than $127,000. To date, there have been very few losses on these specialized loans, but thanks to secondary capital from the Federation, the credit union is better equipped to weather any problems that may arise.
For years, it was believed that large credit unions like ASI were too big to benefit from the level of investment offered by the Federation. ASI is proof that when it comes to leveraging new products and services to the poor, a little capital can go a long way.
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