Community Banking

[blackx!alexhart at netcom]

I have been lurking for a time, but William Meyers' case study of Alternatives
Credit Union's livable wage has forced me to post.

Thank you for a bravura explication of philosophy in action!!

I would like to know more about your organization in terms of how it was
founded, where the seed money came from, where you got such aware board
members, etc., etc., etc.

I am a consultant with a client which is the Nickerson Gardens Residents
Management Corporation. Nickerson Gardens is the largest public housing
development in Los Angeles.

A large percentage of residents have, as their only source of income, transfer
payments of some kind; AFDC, SSI, Unemployment Insurance, Disability Insurance,
etc., etc.

The Residents Management Corporation has just elected a very energetic board of
directors, all of whom are residents, and they are preparing to plan for their
term of office, a two year period which they hope will show concrete
accomplishments.

One idea which they are going to consider is the idea of establishing some form
of community banking, as most residents have no checking accounts and thus pay
up to 1.5% of their meger incomes to check cashing firms which cash their
checks twice each month.


Most of thes residents would pay to get off of this transfer payment treadmill,
but the jobs are non-existant, and the impending changes which are in the
offing with the change in the political climate have many of them fearful that
they will join many others that they know who have recently become homeless
after losing this last chance of the dignity of living even in public housing.

Any concrete ideas that the members of the list might have which can be shared
with these folks would be most welcome.

I would be happy to fax individuals their most recent newsletter if anyone is
interested.

Alex


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[blackx!alexhart at netcom]

I have been lurking for a time, but William Meyers' case study of Alternatives
Credit Union's livable wage has forced me to post.

Thank you for a bravura explication of philosophy in action!!

I would like to know more about your organization in terms of how it was
founded, where the seed money came from, where you got such aware board
members, etc., etc., etc.

I am a consultant with a client which is the Nickerson Gardens Residents
Management Corporation. Nickerson Gardens is the largest public housing
development in Los Angeles.

A large percentage of residents have, as their only source of income, transfer
payments of some kind; AFDC, SSI, Unemployment Insurance, Disability Insurance,
etc., etc.

The Residents Management Corporation has just elected a very energetic board of
directors, all of whom are residents, and they are preparing to plan for their
term of office, a two year period which they hope will show concrete
accomplishments.

One idea which they are going to consider is the idea of establishing some form
of community banking, as most residents have no checking accounts and thus pay
up to 1.5% of their meger incomes to check cashing firms which cash their
checks twice each month.


Most of thes residents would pay to get off of this transfer payment treadmill,
but the jobs are non-existant, and the impending changes which are in the
offing with the change in the political climate have many of them fearful that
they will join many others that they know who have recently become homeless
after losing this last chance of the dignity of living even in public housing.

Any concrete ideas that the members of the list might have which can be shared
with these folks would be most welcome.

I would be happy to fax individuals their most recent newsletter if anyone is
interested.

Alex


This post transferred from the cdb-l mailing list

[wlm4 at cornell.edu (Will]

> Alex Hartley
>Thank you for a bravura explication of philosophy in action!!
>
Thank you for the compliment!

>I would like to know more about your organization in terms of how it was
>founded, where the seed money came from, where you got such aware board
>members, etc., etc., etc.

Here's a LONG post about our Credit Union. It's a draft of a brochure. Of
course, we have more should you be interested. If you get bored with our
post, skip to the end for a little on a new credit Union serving housing
authorities.

################################################## ###
WHAT IS THE ALTERNATIVES FEDERAL CREDIT UNION?
################################################## ###

The Alternatives Federal Credit Union is a member owned financial
institution dedicated to providing socially responsible banking
alternatives to the people of our community. Established in
1979, Alternatives Credit Union is a non-profit, cooperative,
community development credit union.

The principles we work for are economic opportunity, personal
dignity, community empowerment, building human capital, and
cooperative self help. We like to say we started out
microscopic, grew rapidly to minuscule, and after 15 years are
now proud to be a small, innovative, experimental institution.
There is much to be done.

We know that community development credit unions are on the
leading edge of appropriate development because they are locally
controlled, self supporting, and small enough to be beholden to
one community. While much of the socially responsible investing
movement is large business, we specialize in generating local
small business and consumer investment opportunities.

################################################## ###
WHAT MAKES US ALTERNATIVES? - OUR MISSION STATEMENT
################################################## ###
"The choice of where we do our business is one of our most
significant political and economic tools. The Alternatives
Credit Union lets us, its members, determine the social
consequences of the uses of our money."

All CUs are not-for-profit cooperative financial depositorities.
This means that we are owned by our members, that deposits are
insured by a federal agency, and that we offer a wide range of
services: savings, checking, IRA, CDs, consumer loans, business
loans, mortgages.

There is a special class of CUs, CDCUs (Community Development
Credit Unions) which are a type of CDFIs (Community development
Financial Institututions) to which we belong. CDFIs operate
under two principles: 1) that low income communities can be
developed through self help and 2) that this development effort
can be self sustaining.

Alternatives was started by a group of small businesses that were
successful on their own terms. They weren't successful as in
ready to make a killing at a public offering. They are mom and
pop businesses, cottage industry, self employment, startups.
They were successful because the people in them are doing what
they want to do and making a living.

Though they are financially sound, they got no respect from the
banks. They made deposits but couldn't get loans. The banks
were looking for middle market borrowers, they looked for middle
market documentation and performance. Our first members decided
to start their own financial institution.

We saw other areas where low income members weren't given their
due. A family renting one house for ten years couldn't qualify
for a mortgage because their rent payment didn't count as a
credit record. Recent immigrants couldn't get loans until they
were full citizens. Banks underwrote and sold their mortgages on
the secondary market. All their loans had to meet standards
designed for suburban, white, middle class, family lending. Our
members didn't fit that pattern. We felt that we could develop
new lending standards that fit our members but that did not
expose us to additional default risk.

Over the years this vision has been confirmed. Loans to low
income borrowers do not have a higher default rate. Loans to
small businesses are repaid. Reinvestment does result in
sustainable, self help community development.

The analysis that makes these principles work is that low income
communities are NOT low income simply because there is not enough
money in them. One of the poorest counties in the country is in
North Dakota, an indian reservation. For every dollar that comes
to members of that community as income, only 10 cents is spent in
the community. What makes this community poor is that capital is
continually drained from the community.

The vision of CDFIs is that an institiution could sit right in
the middle of a poor community and provide a way to stop capital
outflow. What CDFIs do is recycle money locally.

Our institutions starts with simple principles that go a long
way. For example, we decided that once our insitution reached a
break-even point (measured as an asset size) that allowed us to
pay reasonable salaries and provide a reasonable range of
services, we would not need to have growth as a strategic goal.
This is a profound change from everyday business practice.
When you don't need to grow, every member is important. If
you're willing to stay small, developing small markets is enough.
We don't have to satisify mass markets. We've developed a stay
small marketing strategy called "referral marketing". We stopped
all our mass media advertising and instead spend the same funds
educating our members how to appreciate our Credit Union and talk
to their friends about us.

################################################## ###
ENTREPRENURIAL FOCUS
################################################## ###
We are a small ($20 million) community devlopment financial
institution focusing on serving underserved markets. The working
poor is the fastest growing segment of the population. There is a
need among this population for basic financial services: low
balance savings, no fee checking, small loans, counseling, check
cashing and direct deposit. We serve the self-employed, those
poor enough to appreciate no fee checking account, and those who
can't afford to borrow for consumer purchases. What market is
less fought for by Banks than low income, self employed, or non-
profits? We make a place for ourselves by the traditional
entrepreneurial activity of finding underserved niches.
We concentrate on 1) Low income community housing, transaction
and consumer needs 2) Micro Enterprise 3) Service to Non-Profits
4) a balance of middle class members that enable us to have the
assets to meet our other needs.

Our job is to give form to the financial service needs of our
community. The results are a mixture of the usual financial
offerings and extraordinary targeted services. We target three
markets in our community.

**1** REGULAR SCALE CONSUMERS *****
Banks predominately target what they call "up-scale customers".
Even the poorest communities have cash flow and a need for
financial services. That cash flow, directed out of the
community impoverishes the community. Financial services
provided by loan sharks and check cashing stores impoverish the
community. If money leaves the community, the community stays
poor. The job of this Credit Union is insuring investment in our
community.

The limit of economic mobility for our members is not the cost of
credit but the lack of any available credit. Some members are
not ready for credit - they just need an entree into payment
systems. For many of our services, we price of a fee basis
rather than by compensating balances.

We have designed what we call a "credit path" to help move our
members to financical self sufficiency through four steps:
transactor, saver, borrower, owner.
- At the transactor step, a member has no discretionary
income for savings. The services we provide are fee based
(rather than based on compensating balances) and allow
acccess to the financial systems: check cashing, money
orders, travelers checks, coin services, checking accounts.
- At the saver step members have started a savings account,
are building a nest egg. The Credit Union provides non
minimum balance / no monthly service charge savings
accounts.
- At the borrower step the member establishes a credit
record by borrowing for consumer purchases: a car, a visa
card.
- At the owner step, the borrower establishes equity in a
home and/or business. This step is supported by flexible
mortgages and micro-enterprise lending.
It is not necessary to follow this credit path step by step.
Through education members can "jump ahead", as our Homebuyers
Club does with home ownership and the Youth Entreprenure Program
does for young business people.

**2** MICROENTERPRISE *****
Most banks ignore businesses when they have less than one million
dollars in annual sales. According to a projection by the NYS
Assembly, 80% of the new employment in the next decade will be at
firms with less than 20 employees. Yet the cottage industry, the
self employed individual, the low technology startup is not
supported by financial institutions or the State. It is at this
level that the economic miracle occurs. About 20% of our
deposits and loans are with small business accounts.

This is our market. We are looking to serve start-ups, mom and
pop storefronts, worked managed businesses, home based
businesses. We estimate about 80% of our membership is least in
part self employed.

**3** NON-PROFIT ADVOCACY GROUPS *****
Non-profits are viewed by banks as the poor cousins to small
business. They are our third underserved market. We encourage
non-profits to use the same sophisticated money management tools
that for profit businesses use. The role of non-profits can be
aligned with our advocacy role of appropriate community
development.

################################################## ###
INNOVATIVE PRODUCTS, EXAMPLES
################################################## ###
>>>- Livable Wage -<<<
We have designed a livability index upon which to base our
starting wage, rather than using what the market will bear.
>>>- Variable Term mortgage -<<<
As rates rose in the '80s, we offered on of the first fixed
payment, variable rate, variable term mortgage loans. This
product allowed low income borrowers to get into a home without
the uncertainty of a variable payment.
>>>- Blended mortgage -<<<
In the '90s we responded to concern about short term interest
rates by offering of the first blended mortgages: seven year
fixed, then one year variable.
>>>- Flexible Mortgage Program -<<<
This is one of our most successful programs, a mortgage that
distnguishes serious credit problems from "cosmetic blemishes".
We designed 20 underwriting improvements to secondary markets
that allow poor people to obtain a mortgage without adding risk
to our portfolio.
>>>- Energy Efficient Car Loan -<<<
We offer an interest rate discount to members borrowing for cars
meeting fuel efficiency guidelines.
>>>- Volunteer built handicapped ramp -<<<
We added an access ramp to our building using 200 person hours of
donated time and $15,000 in material and cash donations.
>>>- Participatory staffing -<<<
Staff are guarantted the right to participate in decisions that
affect their work place.
>>>- Support for staff on community Boards -<<<
EVERY staff member is encouraged to serve on a community board,
and will receive compensation from the Credit Union for doing so.
>>>- Local Currency -<<<
We accept Ithaca Hours, a local currency for most of our services
including mortgage fees and one IthacaHour per loan payment.
>>>- Dollars for Dreams -<<<
DFD is our youth credit union branch: with a membership, staff,
Board and Loan committee all comprised of youth under 19.
>>>- Alternatives Business Yellow Pages -<<<
We list of 900 member businesses in a free publication designed
to identify community and encourage our members to do business
with members first.

################################################## ###
DEPOSIT INSURANCE
################################################## ###
All deposits are insured to $100,000 by the National Credit Union
Administration, a US government agency.

################################################## ###
LENDING AND INVESTMENT
################################################## ###
Our core investment assumption is that we would like to loan all
available funds to members within the constraints of prudent
management. We consider that lending to be our mission - to be a
vehicle for investing money in our community.

We will not make an investment when a suitable loan is available.
Our primary investment places funds with other Credit Unions in
the state through our Corporate Central Credit Union in Albany.
In most environments, loan demand is sufficient that we need not
pursue investments beyond this point. If we do have longer term
excess funds, we place excess funds with banks and savings and
loans that have a record on investment in their communities, a
high level of capital, and a profit. Our final investment
alternative is government or government agency issues. We
usually chose short T-bills or FHLB bonds depending on the
situation.

################################################## ###
Underlying assumptions of our lending
################################################## ###
1) The poor are credit worthy. New lending criteria must be
developed to overcome current notions about risk, security and
profit in lending.

2) Efforts to overcome poverty depend on democratic control of
economic resources and access to credit so that the poor can
pursue their own self development initiatives

3) We must reexamine conventional notions about the nation's
financial system and advocate a restructuring to provide
strengthened community.

4) We must analyze performance of public spirited lending to
determine the adequacy of services in meeting credit needs of the
disadvantaged.

5) We must develop workable national models of credit servicing
the lowest income communities. Often, development efforts are
local only, with no spin off to other communities or
organizations.

************************************************** **************************
************************

>I am a consultant with a client which is the Nickerson Gardens Residents
>Management Corporation. Nickerson Gardens is the largest public housing
>development in Los Angeles.
>
>A large percentage of residents have, as their only source of income,
transfer
>payments of some kind; AFDC, SSI, Unemployment Insurance, Disability
Insurance,
>etc., etc.
I HAVE to refer you to the newest Credit Union in the Country: Binghamton
Housing Authority Residents Federal Credit Union. David Tannenbaum,
Director, has worked with us for years to get this off the ground. It is
the first FCU chartered to serve residents of this housing authority, and
now one year old. (607) 723-9491


************************************************** **********
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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