'CDFI': LEADERS LEARN THE BASICS
Facts, Figures, and Reasons
Elaine Holman is eagerly learning what it means if her credit union gains a Community Development Financial Institution (CDFI) designation by the Treasury Department—an area some in the industry say is imperative for expanding outreach to underserved and low-income consumers.
“We want to do something that’s different because our credit union is about more than offering great rates on loans,” said Holman, vice president of operations for Edwards FCU. “We’re about financial education and economic stability, and we have a lot of work ahead of us in this area.”
Holman and other leaders came together last week to find answers during two separate events aimed at educating credit unions on how to become part of the CDFI investment community, where federal funds can be awarded to financial institutions for special purposes in target regions, the “CDFI” brand is granted for community awareness purposes, and regulatory flexibility is given.
Hosted by the California and Nevada Credit Union Leagues in Ontario and Oakland, experts from the National Federation of Community Development Credit Unions facilitated the all-day presentations. It was another touch point brought about by a recent partnership between the Leagues and the federation, which came together in early November to promote how credit unions can serve locally underserved Hispanic immigrants through the Juntos Avanzamos initiative.
Like Holman, Cal State L.A. FCU CEO Ida Chapko is also in the beginning stages of educating herself on how a CDFI designation could benefit her credit union and its community. “The university is primarily our membership, but I would love to see the underserved target investment areas in our geographic area,” she said.
Chapko and Holman said they represent a larger group of credit union managers across the state whose curiosity has been piqued by facts and figures coming out of the federation’s work in spotlighting the CDFI marketplace. Some credit unions are already designated by the National Credit Union Administration as “low income credit unions” (LICU), so taking the time and energy to become CDFI-certified could be a natural extension.
CDFI leaders have been warming up to the idea of working with credit unions since the financial crisis of 2008, federation experts said. The CDFI Fund’s target was originally tailored for community loan funds when established in 1994, but that’s slowly changing.
“CDFI is now knocking on our door to see how credit unions can participate in the process,” said Terry Ratigan, senior consultant for the federation. “A grant from the CDFI Fund is essentially equity. It’s net worth that your credit union can leverage for more loans. So far, credit unions are leveraging more private capital than any other type of CDFI.”
He and his colleagues sought to clarify a misconception. Becoming CDFI-certified isn’t based on where your members live —it’s about what your credit union offers in products, services, education, and other outreach activities. Out of seven test areas (legal / primary mission / financing / non-governmental entity / accountability / target market / development services), credit unions naturally fit most of them, with the remaining two being the most critical to pass: target market and development services.
Federation Vice President of Membership and Business Development Pablo DeFilippi told attendees that many credit unions are already operating like CDFI institutions and don’t realize it. They can become certified with the federation’s assistance, although networking with local organizations is also important.
“We’re not asking you to build anything new,” he said. “We’re asking you to build upon your foundation to get to a new level. And to do this, you have to work in partnership with others in your community.”
Three more credit unions in California are ready to start the CDFI application process due to last week’s seminars, with two others strongly considering the possibility, DeFilippi said.
U.S. and California CDFI Highlights
- From 2013-2015, credit unions nationwide experienced the highest increase in becoming CDFI-certified (53 percent growth) out of all eligible organizations, going from 173 to 265. Also joining to a lesser extent were banks, depository holding companies, venture capital funds, and loans funds.
- California ranks No. 7 on a list of top 10 states for CDFI certification, yet has the lowest concentration of credit unions that are CDFIs. Out of 79 CDFIs in the state, 11 are credit unions (representing 328,000 members), 50 are loan funds, 17 are banks, and one is a venture capital fund.
- An additional 34 credit unions in California (representing 215,000 members) show immediate strong potential for CDFI certification, with 67 percent of their branch footprint located in CDFI investment areas. Others might be eligible as well upon further study.
- Nearly 17 million Californians live in CDFI investment areas.
View the Federation’s Presentation
To view the federation’s five-part CDFI presentation for credit unions: click here for Part I (Leveraging Regulations to Amplify Your Impact on Low Income Markets). Click here for Part II (Community Development With a Purpose). Click here for Part III (The Market Opportunity). Click here for Part IV (Community Development Profile). Click here for Part V (The ABCs of Community Partnerships).
Reprinted with permission from the California and Nevada Credit Union Leagues.