CDFI Impact Blog

 

 

Why We are Re-examining CDFI Certification https://www.cdfifund.gov/impact/Lists/Posts/ViewPost.aspx?ID=21Why We are Re-examining CDFI Certification <div class="ExternalClass4149CA318681437AA4D120AC2026F4C9"><p>In October 2016, the CDFI Fund released a five-year strategic plan.  <a href="/Documents/Final%20Strategic%20Plan%20102516.pdf" target="_blank"> You can read the plan here</a>.  One of the opportunities we saw was the need to re-examine our CDFI certification policies so that the certification reflects the flexibility needed to reach effectively into every community that CDFIs can serve - to more nimbly respond to changes in the financial services sector while still adhering to the primary mission of community development.</p><p>We believe that engagement of the CDFI Fund network, practitioners, and the public is a vital part of this effort, so we are calling for the public’s thoughts and ideas about CDFI Certification.  On January 6, the CDFI Fund issued a Request for Information (RFI), which was published in the <a href="https://www.gpo.gov/fdsys/pkg/FR-2017-01-09/pdf/2017-00013.pdf" target="_blank">Federal Register</a>. </p><p>Certification as a CDFI is the first step many community–based organizations take to access CDFI Fund programs and training.  Since the CDFI Fund certified its first CDFIs more than 20 years ago, their population has grown from just under 200 certified organizations in 1997 to more than 1,000 today, with total combined assets in excess of $100 billion.  While this is great news, the financial sector continues to evolve and there remains room for growth of the CDFI Fund network. Having the right certification policies will aid in this effort.</p><p>CDFI investment and lending activity touches just about every facet of finance—including lending to microenterprises and entrepreneurs; commercial and residential real estate; infrastructure investment; and financial literacy training and counseling—all of which focus on providing access to critically needed capital and credit to businesses and families overlooked by the greater economic mainstream.  Last year alone, CDFIs originated over $3.6 billion in loans and investments; financed 33,500 units of affordable housing; and made loans to over 11,000 small businesses.  This growth is a reflection of the critical demand for the vital financial services provided by CDFIs, as well as the impact they have in underserved communities. </p><p>CDFIs have matured and evolved over the past two decades, as have the tools and opportunities available to them.  The processes and policies of CDFI certification, originally established in the 1990s, need to ensure that CDFIs are able to develop operating models, products, and services to take advantage of these new tools and opportunities in order to meet the needs of underserved and distressed communities while still meeting the statutory requirements for certification.</p><p>The CDFI Fund has heard from organizations that are having difficulty utilizing new tools and growing to scale while still maintaining their CDFI certification under existing policies.  For example, new financing technologies create the potential for mission-driven organizations like CDFIs to extend their reach and impact in order to improve access to financial products and services for underserved communities and populations wherever they are. </p><p>This raises questions, however, of whether CDFI certification – particularly in terms of a CDFI’s ability to define a Target Market and demonstrate accountability to that Target Market – is currently designed to enable such scope, which was neither possible nor envisioned when the certification criteria were first established. </p><p>For instance, there may be a certified CDFI that has long worked in a local or statewide Investment Area that is growing in volume of activity as well as in the sophistication of their financing operation.  However, if this CDFI upgrades its technical ability and begins to underwrite products for customers nationwide, in areas far beyond its historic geographic footprint, it may create a challenge for the CDFI to maintain its CDFI certification. </p><p>To meet the accountability test for CDFI certification, CDFI Fund policy currently requires the CDFI to include members on its governing and/or advisory board(s) who are residents or otherwise that can represent the needs of the residents of the CDFI’s Investment Area and/or the CDFI’s Targeted Population(s).  Although the CDFI in this example historically has provided appropriate accountability through its governing board, it now would be challenged to include sufficient representation to demonstrate accountability to the communities it would be serving with a nationwide Investment Area.  However, the CDFI is still a mission-driven organization, and the increased volume from an expanded geographic market will likely strengthen their ability to further achieve their mission. </p><p>To help explore circumstances such as this one, the CDFI Fund is seeking feedback on questions such as “How should a CDFI demonstrate accountability to a national Target Market, in particular an Investment Area national in scope?   Should there be a requirement to have local accountability to supplement a national governing or advisory board?  In this context, how should the term “local” be defined?”</p><p>The CDFI Fund will tackle these and other questions – such as how the primary mission test should be met or what the criteria should be for serving Investment Areas and Targeted Populations -- when reviewing the certification criteria. </p><p>CDFI Certification represents the backbone of the nation’s on-the-ground community development finance infrastructure, and there is an enduring need to ensure this network is relevant, responsive, reliable, and representative of the CDFI Fund’s community development mission.  We hope to receive thoughtful feedback from CDFIs, community development practitioners, and the general public on how we can improve and modernize the CDFI certification process.</p><p><a href="https://www.gpo.gov/fdsys/pkg/FR-2017-01-09/pdf/2017-00013.pdf" target="_blank">View the full Federal Register notice here</a>.  Comments are due by March 10, 2017. </p><p><i>David Meyer is the Manager of the CDFI Fund’s Office of Certification, Compliance Monitoring and Evaluation. </i></p> </div>2017-01-18T20:06:00ZPrograms and Initiatives21GP0|#381b3368-a6d1-4ab9-9f3d-370d1a7e113c;L0|#0381b3368-a6d1-4ab9-9f3d-370d1a7e113c|Framework for the Future;GTSet|#52f34ab0-6f81-4fe6-b393-2715c7089532;GP0|#c8a5d5bc-32cc-47a9-88a8-702f1f974786;L0|#0c8a5d5bc-32cc-47a9-88a8-702f1f974786|CDFI Certification
Program Notes: Inside the New CDFI Program Application Evaluation Processhttps://www.cdfifund.gov/impact/Lists/Posts/ViewPost.aspx?ID=33Program Notes: Inside the New CDFI Program Application Evaluation Process<div class="ExternalClass2FF7A4CD3CB74E8FA0BC846317A09164"><p>Over the past few months, Community Development Financial Institutions Fund (CDFI Fund) Director Annie Donovan and members of the CDFI Fund’s staff have been talking a lot about the CDFI Fund’s five-year Strategic Plan, which will guide the CDFI Fund’s program and administrative decisions in pursuit of greater economic and community development opportunities for low-income communities. The very first goal of the Strategic Plan, to increase the impact of CDFIs by supporting their growth, reach, and performance, has already made a significant difference in how the Community Development Financial Institutions Program (CDFI Program) and Native American CDFI Assistance Program (NACA Program) team is handling the application process. </p><p>For the fiscal year (FY) 2017 application round, the CDFI Program and NACA Program team made extensive changes to the Financial Assistance and Technical Assistance applications to encourage greater growth and performance from CDFIs. We’ve discussed the changes to the applications previously, and you can read <a href="/Documents/FY%202017%20CDFI%20NACA%20Programs%20In-Person%20Application%20Workshop_508.pdf" target="_blank">more about those changes here</a>. But something we haven’t talked about as much are the changes we’ve made to our application evaluation process this year. </p><p>When evaluating the CDFI Program and NACA Program applications this year, we plan to both look at the strength of the applicant’s business plan and to require that award recipients commit to achieving at least one of the following four Financial Assistance Objectives: </p><ol><li><p>Expand operations into a new investment area or areas.</p></li><li><p>Serve a new targeted population or populations. </p></li><li><p>Provide new products or services.</p></li><li><p>Increase volume of products or services.</p></li></ol><p>Further, highly qualified applicants will be assessed on the extent of economic distress in the areas they are serving; the extent to which their activities have expanded, or will expand, economic opportunities; and the extent to which the applicant will collaborate with their community and increase its resources though collaborations and partnerships. These criteria will affect the size of an organization’s award. Our primary objective is to let successful CDFI Program and NACA Program awardees maintain their flexibility to respond to local needs with market-driven solutions, but in a way that also encourages growth and expansion to the communities that are most in need of investment.</p><p>As a result of all of the changes to the application, the evaluation process looks different this year than it has for previous rounds. The application evaluation and award selection process for the FY 2017 round consists of five steps:</p><ul><li><p>Step 1: Eligibility Review, conducted by CDFI Fund staff.</p></li><li><p>Step 2: Financial Analysis, conducted by external reviewers.</p></li><li><p>Step 3: Business Plan Review, conducted by external reviewers.</p></li><li><p>Step 4: Policy Objective Review, conducted by CDFI Fund staff.</p></li><li><p>Step 5: Award Amount Determination, conducted by CDFI Fund staff.</p></li></ul><p>We have provided additional information about each of these evaluation steps in our <a href="/Documents/FY17%20Financial%20Assistance%20Evaluation%20Process%20Cleared%203.24.17.pdf" target="_blank">CDFI Program and NACA Program Financial Assistance Evaluation Process document</a>, available on the CDFI Fund’s website. I’d encourage you take a moment to look at the new process as the CDFI Fund spends the next few months reviewing the FY 2017 applications. </p><p>For more information about the CDFI Program and NACA Program, please visit <a href="http://www.cdfifund.gov/cdfi" target="_blank">www.cdfifund.gov/cdfi</a> and <a href="http://www.cdfifund.gov/native" target="_blank">www.cdfifund.gov/native</a>. </p><p><i>Amber Kuchar-Bell is the Program Manager of the CDFI Program and NACA Program.</i></p> </div>Amber Kuchar2017-07-06T18:00:00ZPrograms and Initiatives33GP0|#0760f5d5-6360-4d45-ba32-761ff5345cd1;L0|#00760f5d5-6360-4d45-ba32-761ff5345cd1|CDFI Program;GTSet|#52f34ab0-6f81-4fe6-b393-2715c7089532;GP0|#c890ec6f-810e-4c92-a8a0-1af04abbffc9;L0|#0c890ec6f-810e-4c92-a8a0-1af04abbffc9|Native Initiatives
Program Notes: Eligible Uses of Capital Magnet Fund Awardshttps://www.cdfifund.gov/impact/Lists/Posts/ViewPost.aspx?ID=30Program Notes: Eligible Uses of Capital Magnet Fund Awards<div class="ExternalClassCCB7510979464FBBBCF651B9DFB1C156"><p>Earlier this month, the Capital Magnet Fund (CMF) team held a conference call to provide more information about the Capital Magnet Fund program and to encourage potential applicants to start preparing for the release of the fiscal year (FY) 2017 Capital Magnet Fund Notice of Funds Availability (NOFA), <a href="/news-events/news/Pages/news-detail.aspx?NewsID=257&Category=Updates" target="_blank">expected later this spring</a>. The <a href="/Documents/CMF%20Outreach%20Conference%20Call%20Slides%20510_for%20release.pdf" target="_blank">presentation</a> from that call can be found on the CDFI Fund’s website.</p><p>One topic covered during the call was the eligible uses of Capital Magnet Fund award dollars for Affordable Housing and Economic Development activities. A Capital Magnet Fund award can be a flexible tool for meeting affordable housing and related economic development needs in low-income communities. There are several eligible uses of CMF award dollars: </p><ul><li><p>An <i>Affordable Housing Fund</i> can be capitalized with a CMF Award. Combined with other public and private funds, an Affordable Housing Fund can be used to make loans, grants, or equity investments in Affordable Housing. The type of financing which may be offered from the Affordable Housing Fund varies and can be either short- or long-term in nature. For example, an Affordable Housing Fund may be used for predevelopment lending; construction loans; or permanent financing for rental housing, down payment loans, or subordinate mortgages for homeownership. </p></li><li><p>A <i>Revolving Loan Fund</i> can be capitalized with a CMF Award. A revolving loan fund is usually a pool of funds that is used to make loans for either Affordable Housing and/or Economic Development Activities. Revolving loans tend to be short term in nature and usually are intended to be re-paid so that the loan proceeds can be used to provide additional loans. </p></li><li><p>A CMF Award can be used to create <i>Loan Loss Reserves,</i> which are funds set-aside to cover losses on loans, in the form of cash reserves, or through accounting-based accrual reserves. This financing tool can help developers incur debt for riskier projects, or reduce the cost of debt used to finance development. </p></li><li><p><i>Risk-sharing loans</i> can also be made using a CMF Award. These are loans in which the risk of default is shared by the CMF Recipient and other lenders (e.g., top loss or participation loans). These types of loans can provide access to financing that is not readily available for affordable housing development, particularly in distressed areas. </p></li><li><p><i>Loan Guarantees</i> can be made with a CMF Award to repay all or a portion of a loan in case of default by the borrower. Loan Guarantees also help to provide access to financing that is not readily available for Affordable Housing Activities, particularly in distressed areas. </p></li><li><p>CMF Awards can also be used to capitalize an <i>Economic Development Activities Fund,</i> which can be used to finance the development, preservation, acquisition and/or rehabilitation of buildings that house businesses or Community Service Facilities (e.g., health clinics). CMF-financed Economic Development Activities must be part of a community Concerted Strategy and in proximity to Affordable Housing.</p></li></ul><p>As you can see, this “menu” of eligible uses offers CMF Recipients a great deal of flexibility to design financing products that can address a variety of affordable housing and economic development needs. For example, previous Capital Magnet Fund awardees have undertaken:</p><ul><li><p>Financing for manufactured housing in rural areas. </p></li><li><p>Loans to assist with down-payments and closing costs for first-time home buyers. </p></li><li><p>Financing the development of health centers in mixed-used affordable housing.</p></li><li><p>Preservation of rental housing to support the long-term affordability of properties with expiring subsidies.</p></li><li><p>Mixed-income housing in conjunction with related economic development projects, such as providing access to healthy food, health clinics, childcare, retail options, and other critical services.</p></li><li><p>The development of affordable housing for seniors and for persons with disabilities. </p></li></ul><p>The wide range of eligible uses of a Capital Magnet Fund Award means that applicants have the opportunity to tailor their applications and activities for the best fit for their organizations and communities. We encourage prospective applicants to learn more about the program and how a Capital Magnet Fund Award may work for your organization. More information can be found in the program’s <a href="/Documents/Capital%20Magnet%20Fund%20Statute.pdf">statute</a> and <a href="/Documents/Interim%20Rule%20FR%202016-02132.pdf">interim regulations</a>, as well as the <a href="/Documents/CMF%20Outreach%20Conference%20Call%20Slides%20510_for%20release.pdf">FY 2017 outreach presentation </a>on the CDFI Fund’s website. </p><p>To learn more about Capital Magnet Fund, please visit <a href="http://www.cdfifund.gov/cmf">www.cdfifund.gov/cmf</a>. You can also <a href="https://service.govdelivery.com/accounts/USTREASCDFI/subscriber/new">subscribe through our website </a>to receive updates from us to learn when the FY 2017 round is open to receive applications. </p><p><i>Marcia Sigal is the Program Manager of the CDFI Fund’s Capital Magnet Fund program.</i></p> </div>Marcia Sigal2017-05-25T12:38:00ZPrograms and Initiatives30GP0|#a52ce078-0bf5-4ef8-aa4b-0b66902683da;L0|#0a52ce078-0bf5-4ef8-aa4b-0b66902683da|Capital Magnet Fund;GTSet|#52f34ab0-6f81-4fe6-b393-2715c7089532