CDFI Legislation

[wlm4 at cornell.edu (Will]

The Community Development Financial Institutions (CDFI) Coalition is
preparing position papers on the regulations being written to implement the
CDFI legislation.

The questions that seem to be in front are:
1) Should equity qualify as a source of matching funds?
2) What method should institutions have to access the BEA funds?
3) What should the application process be?
4) Should there be a mechanism to prevent large institutions from snatching
most of the funds?

Cliff Rosenthal of NFCDU is collecting comments for forwarding to the
regulatory team. Or you may post comments here.
************************************************** **********
William Myers
Alternatives Federal Credit Union
301 West State Street, Ithaca, NY 14850-5431
Voice (607) 273-3582 ext 817
FAX 277-6391
E-Mail Alternatives-Myers@Cornell.edu

"The choice of where we do our business is one of our
most powerful political and economic tools."

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[tmartin at CapAccess.org]

On Wed, 28 Dec 1994, William Myers wrote:

>
> The Community Development Financial Institutions (CDFI) Coalition is
> preparing position papers on the regulations being written to implement the
> CDFI legislation.
>
> The questions that seem to be in front are:
> 1) Should equity qualify as a source of matching funds?
> 2) What method should institutions have to access the BEA funds?
> 3) What should the application process be?
> 4) Should there be a mechanism to prevent large institutions from snatching
> most of the funds?
>
> Cliff Rosenthal of NFCDU is collecting comments for forwarding to the
> regulatory team. Or you may post comments here.
> ************************************************** **********
> William Myers
> Alternatives Federal Credit Union
> 301 West State Street, Ithaca, NY 14850-5431
> Voice (607) 273-3582 ext 817
> FAX 277-6391
> E-Mail Alternatives-Myers@Cornell.edu
>
> "The choice of where we do our business is one of our
> most powerful political and economic tools."
>
> To subscribe to our discussion list send E-Mail
> TO: ListProc@cornell.edu
> BODY: Subscribe CommunityDevelopmentBanking-L your name
> ************************************************** **********
>
>

Can I assume from your remark that Rosenthal does NOT have access to the
Internet ?

Tom Martin
-----------------------------------------------------------------------
Thomas John Martin, T.O.P. tmartin@capaccess.org
125 Mount Harmony Road West 301/855-6796
Owings, Maryland 20736-8904 USA



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[RSumner at AOL.COM]

4.) The issue shouldn't be large institution/small institution. It should
be who has the capacity to get the most money to the street. These limited
funds should not be used for overhead or capacity building.


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[ITHACAHOUR at aol.com]

4) I'd say that institutional size is indeed important. It's not only who
can get the most money to the street, but who lives on the street, is closest
to the neighborhood, and can therefore most creatively microlend. The
smallest banks will likeliest put money where the poorest can best use it.
--Paul Glover


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[wlm4 at cornell.edu (Will]

RSumner writes:
>4.) The issue shouldn't be large institution/small institution. It should
>be who has the capacity to get the most money to the street. These limited
>funds should not be used for overhead or capacity building.
>

Getting "money to the street" does not equate with sustainable, locally
controled, appropriate scale community development. If the sole purpose
of CDFIs was to lend money, then your point to close to correct.

I would number other functions of CDFIs: to empower their neighborhoods, to
be responsive to local needs, to be dependent on the community (so there is
no focus besides the community), to provide banking services to the
"unbanked", to provide an institutional model, to provide education in
community organizing.

Arguably, this type of CD is not best done from the top bown, thus Bigger is
not necessarily better. A larger institution may be better suited to do
large scale development, but a smaller one will have community members
controling the Board, will be interested in micro-enterprise, in home
ownership (rather than housing development), will itself be a focus of the
commuinty and a progenitor of other organizing activities.

Maybe it's a scope of vision issue. A large institution may see the global
problems, while a small one will be repsonsive to the needs "on the street".


************************************************** **********
William Myers
Alternatives Federal Credit Union
301 West State Street, Ithaca, NY 14850-5431
Voice (607) 273-3582 ext 817
FAX 277-6391
E-Mail Alternatives-Myers@Cornell.edu
************************************************** **********



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[RSumner at aol.com]

I do not seriously object to anything you have said. My point is that the
total dollars are so small that they could easily be absorbed by overhead
expenses. Where possible, I believe existing capacity should be utilized,
particularly where the incremental overhead expenses are little or none.
Existing, small, not-for-profit CDC's (bank or non-bank) come readily to
mind.

The large/small debate was really about the administrations attempt to
exclude banks from participating. In my view a political, rather than a
practical line of thinking.


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[wlm4 at cornell.edu (Will]

> RSumner@aol.com
>The large/small debate was really about the administrations attempt to
>exclude banks from participating. In my view a political, rather than a
>practical line of thinking.
>
First, let me thank you for your comments, which are very helpful.

As a manager of a CDCU and a participant in CRA action, I am jaundiced about
the sincerity of mainstream bank participation. Banks have had to be
dragged into low income communities. CRA, HMDA and now BEA are necessary to
make banks players in community development lending. We've tried
regulation (CRA), we've tried exposure (HMDA) and now we're trying
incentives (BEA). My concern with CDFI is that traditional banks will
swallow the money while doing as little as is necessary.

Why put up with bank intransigence? CD institutions are in CD regardless of
federal funds and if CDFI builds these institutions rather than just putting
the money out in loans, won't we be better off for the long term?
************************************************** **********
William Myers
Alternatives Federal Credit Union
301 West State Street, Ithaca, NY 14850-5431
Voice (607) 273-3582 ext 817
FAX 277-6391
E-Mail Alternatives-Myers@Cornell.edu
************************************************** **********



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[RSumner at aol.com]

In a previous life I did CRA examinations of both large and small banks in
urban, suburban, and rural communities. The banks that had "real" records
(as opposed to satisfactory CRA ratings) obtained by treating lending in the
low and moderate income community as a business. They had a business plan, a
target market and a product. If a product required a subsidy, they brought in
other players. CRA has never requried banks or thirfts to subsidize credit.
Bank CDC's can provide a subsidy by bringing in others to share the risk
and, where appropriate provide the subsidy. No one sector can do this alone.

I'm certain you are familiar with Shore Bank in Chicago and their affiliate
in Arkansas. Arkedelphia can make $500 loans with a 30% default rate because
they have non bank players willing to provide the subsidy. Other products
require no subsidy and the bank can go it alone.

We could spend months on what HMDA means or doesn't mean. In my view it
tells us that a certain amount disparate treatment based upon race occurs in
the mortgage lending process. It also tells me (based upon the Boston Fed
study) that there are very real economic factors that explain a significant
portion of the disparity.

CRA has told me that regulations written in Washington meant to be applicable
to all banks/thrifts in all locations will fail to take into account local
needs and local capacity. If CDFI's are burdened with restrictions on their
activites based upon some national perspective of what is needed/useful, I
believe their effectiveness will be limited.

I would suggest keeping it simple and very flexible.


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[wlm4 at cornell.edu (Will]

Randall C Sumner wrote:
> The banks that had "real" records
> (as opposed to satisfactory CRA ratings) obtained by treating lending in the
> low and moderate income community as a business.
My point is that there are few of this type of banks, otherwise there
wouldn't be a need for CDFIs.

> If a product required a subsidy, they brought in other players...
> Arkedelphia can make $500 loans with a 30% default rate because
> they have non bank players willing to provide the subsidy.
We describe our local lenders as "lending with a ten foot pole." They stay
as far away from poor people as they can. They expect (and receive) high
write offs, and in one micro-enterprise lending situation, wrote the loan
pool off BEFORE the funds were lent out! The Grameen Bank has an exemplary
default rate on loans averaging less than $100. CAPFCU makes its whole
business lending in the $500 range to people well below the poverty level.

>We could spend months on what HMDA means or doesn't mean.
One observation is that HMDA shows that there is an underserved market, that
that market can be profitably served because it is protected from
competition by the attitudes of lenders. A perfect entrepreneurial opportunity.

>CRA has told me that regulations written in Washington meant to be applicable
>to all banks/thrifts in all locations will fail to take into account local
>needs and local capacity. If CDFI's are burdened with restrictions on their
>activites based upon some national perspective of what is needed/useful, I
>believe their effectiveness will be limited.
Agreed.
My central question to the distribution of CDFI money is how to identify
lenders with a "heart" for lending to poor communities and a record of
success. Money spent at institutions with a mission level focus will build
those institutions and receive returns long after the initial pool of money
is spent because the focus will not go away when the money is spent. If
"capacity" is the only criteria, the money has no multiplier effect.

************************************************** **********
William Myers
Alternatives Federal Credit Union
301 West State Street, Ithaca, NY 14850-5431
Voice (607) 273-3582 ext 817
FAX 277-6391
E-Mail Alternatives-Myers@Cornell.edu
************************************************** **********



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