I would like to thank the Association for Enterprise Opportunity (AEO) for making this conference possible and for everything AEO is doing to advance microenterprise. I am especially impressed - as I am sure many of you here today are - by The Power of One in Three, AEO's report that was released last year on the tremendous potential of microenterprise to create jobs in the United States.
It is already apparent that the publication of The Power of One in Three is just the beginning of great things. Only a month after releasing the report, AEO made a three-year commitment to the Clinton Global Initiative to secure capital and services for one million Main Street businesses.
And last October, AEO announced that it will partner with the Insight Center for Community and Economic Development to conduct the first economic impact study focusing exclusively on microenterprises in the United States.
So, on behalf of everyone at the CDFI Fund, congratulations and thank you for your excellent work.
It is clear that microenterprises represent a powerful force in our national economy today. They may include a self-employed hair-dresser, an accountant, a grocer, a small restaurant owner, or a housing and home repair contractor. According to a survey by Accion USA, microenterprises - defined as businesses with five or fewer employees, including the self-employed - represent 13.1 million businesses in the United States. About 69 percent have no employees and on average work 50 hours a week in their business. They have median assets of $4,200, and 13 percent live in poverty, while 56 percent qualify as low-income households.
At the CDFI Fund, we are well aware that microenterprises face serious financial challenges. Many are financed with credit cards, with cash from savings or a second job, or even with payday loans. And even once they become established, they have difficulty getting the financing they need to grow their business and add employees.
We are also aware that the nonprofit lenders that serve microenterprises are also facing challenges. Just last week, we released a new report that confirms that Community Development Financial Institutions (CDFIs) have been stepping into the breach to address the growing need for financing during the recession. It indicates that many CDFIs have expanded their assets and their loan portfolios since the market peak in 2005, as the economic crisis has made it harder to access traditional credit markets. Unfortunately, it also indicates that some CDFIs have paid a financial price for expanding their lending, and have experienced declining earnings and rising delinquencies.
But we are also seeing some very positive trends among microlenders and other CDFIs that have received awards through the CDFI Program, as they try to meet the growing demand for their services and become more efficient.
For example, many are focusing on developing more innovative financial products to meet the needs within their communities.
Many are exploring new ways to use technology to scale their programs, standardize their systems, decrease their costs, and improve processing times for their clients. They are also exploring ways to standardize data collection, accounting, and reporting to funders.
And many are focusing on measuring impact, which is more important than ever to attract capital, increase transparency, and demonstrate the effectiveness of their mission and programs.
But the fact remains that many CDFIs, especially microlenders and other smaller organizations, simply lack the resources to meet the demand for capital that exists in their communities and have been unable to invest in capacity building and growth.
Support for Microlenders
I mentioned the report the CDFI Fund released last week. It is called CDFI Industry Analysis - Summary Report. It presents a detailed analysis conducted for the CDFI Fund by the Carsey Institute based on a large sample of CDFIs, and it analyzes issues relating to capitalization, liquidity, portfolio, and risk management by CDFIs from 2005 to 2010.
It explores a variety of important questions - including how CDFIs were affected by the recession - and offers a number of policy recommendations to help CDFIs serve more people, access more funds, and increase their impact.
Our hope is that this report will contribute to the ongoing discussion of long-term strategies for strengthening the CDFI industry. And I emphasize that the recommendations it presents, like the recommendations in AEO's publication, The Power of One to Three presents, are strategies for the long term.
In the short term, the government remains an important source of support for microenterprises.
At the CDFI Fund, we believe that microfinance is a powerful tool for effecting individual transformations that are critical steps in the transformation of entire communities. And that is why we are committed to supporting microenterprises and helping microlenders become stronger, more effective organizations.
CDFI loan funds that have received awards from the CDFI Fund report that microloans represent more than 10 percent of their new originations. From 2005 to 2010, CDFIs that have received awards from the CDFI Fund reported the origination of $150 million for almost 15,000 microloans. The cumulative microloan portfolio outstanding was $117 million in 2009 and $137 million in 2010.
And in the FY 2011 round of the CDFI Program, 14 percent of the Financial Assistance awardees went to organizations that provide microenterprise loans. Also last year, 51 CDFIs were selected to receive investments totaling $104.2 million through the Small Business Lending Fund, which was created to spur small business lending and microlending.
Our analysis indicates that new microloans by CDFI Program awardees create or retain about 4,000 jobs each year, or about one and a half jobs per loan. Moreover, 95 percent of microloans originated by CDFI Program awardees between 2006 and 2010 did not demonstrate any leverage, which is to be expected given the low level of equity in micro-firms and limited sources of finance.
The CDFI Fund has been active on a variety of other fronts to advance microlending.
At the end of 2010, we launched a partnership with the U.S. Small Business Administration on a loan initiative called Community Advantage, which for the first time enabled CDFIs and other non-profit lenders to use SBA loan guarantees under the SBA's flagship 7(a) lending program.
Last year, we worked closely with Representative Carolyn Maloney to develop new legislation to increase the availability of micro-loans. In December, Representative Maloney introduced the Investing in Small Businesses Act or "micro biz" bill, which would provide capital to CDFIs to create loan-loss reserves for small business lending. And in February of this year, I participated in a roundtable discussion on microlending hosted by Representative Maloney and the White House Business Council.
The CDFI Fund has also taken important new steps to quantify the impact of the work of CDFIs. In December, we released seven years of data provided by CDFIs to our data collection system, the Community Investment Impact System. It is the most comprehensive collection of data we have ever released, and it provides detailed information about the activities and impact of hundreds of CDFIs nationwide.
We believe that, as the practice of impact investing grows, it is more important than ever for the CDFI industry to develop a clear and disciplined approach to measuring its impact. It is the best way for the industry to demonstrate the value of its work and to attract new investors.
Finally, I would like to discuss our progress with the Capacity Building Initiative.
The Capacity Building Initiative was created to help certified and emerging CDFIs expand their ability to serve their communities. It provides training sessions led by established community development firms, as well as technical assistance, and access to a variety of valuable tools and resources.
Last year, we presented the first training sessions. And I am very pleased the CDFI Fund is now supporting a new training program to help CDFIs that specialize in microfinance build their capacity to meet the growing demand for small business loans.
The courses will have three components: an advanced training program, including in-person and Web-based trainings, customized technical assistance, and a virtual resource bank on our website to host course materials that will be available to the CDFI industry and the general public. The goal of the program is to help microlenders decrease costs, build human capital, and improve business models in order to attract investments. I want to encourage all of you to make use of this excellent resource, online if you can't join us in person.
The courses will soon be in development and could be offered later this summer. You will find complete details on our website. We hope you will be able to join us.
Innovators Helping Innovators
For me, one of the great joys of working in the CDFI industry is having the opportunity to witness every day the power of innovation in action. And nowhere, I believe, is that power better displayed than in the world of microfinance.
After all, the whole purpose of microfinance is to give life and form to the innovative spirit of microentrepreneurs. And the organizations that support those microentrepreneurs - organizations like yours - are themselves innovators that are helping to build an entirely new industry.
So microfinance is really all about innovators helping innovators.
In closing, I would like to salute two organizations that have established themselves as leading innovators in microfinance.
The first is Justine Petersen, located in St. Louis, Missouri, which was founded in 1997 to honor the work of the late Justine Petersen, a pioneer in implementing community reinvestment in St. Louis.
One of the organization's newer innovations is its Emerging Markets Loan Fund, which seeks to provide safe and affordable capital to an array of underserved entrepreneurs, especially minority businesses, minority contractors, women-led businesses, and start-ups.
Great Rivers Community Capital, a CDFI wholly owned by Justine Petersen, would capitalize and administer the loan fund. It is working with local banks, county economic development programs, and municipal entities in raising dollars earmarked not only for underserved entrepreneurs, but for those who operate within specific geographic areas. One such bank is the Bank of Edwardsville, in Illinois, which has contributed funds to a loan pool targeting businesses in Madison and St. Clair Counties. Thus far, Justine Petersen has raised $3 million of the $10 million it wants to raise for the Emerging Markets Loan Fund.
The second organization is Opportunity Fund, based in San Jose, California, which provides microloans for small businesses, microsavings accounts, and community real estate financing, and since 1995, has deployed more than $200 million into California's communities.
In July 2009, Opportunity Fund became one of the first two microlenders in the United States to use the platform of the online microfinancer Kiva to enable investors to make microloans to small business owners in the United States. That in itself is a noteworthy innovation. But Opportunity Fund has also recently launched an ambitious pilot program that is bringing new loan capital to microentrepreneurs in Greater Los Angeles, which has the highest level of poverty of any major city in the United States.
At the heart of the program is an innovative partnership that combines the strengths of the nonprofit Opportunity Fund with those of Financiero Confianza, an established for-profit micro-lender. The program's primary target region is the southeast part of Los Angeles County, which includes economically distressed neighborhoods such as Boyle Heights, East LA, South Central, and Huntington Park.
The pilot program launched last July, and through the end of March, it has made 408 loans in Los Angeles, for a total of nearly $2.4 million, in FY 2012. (For purposes of comparison, Opportunity Fund made 252 loans totaling $2.9 million in the Bay Area over the same period.) And it is not just providing capital - it is doing good. The businesses it has financed have seen a 30 percent increase in income. Obviously, it is a pilot program that is working.
But perhaps the most inspiring thing about Justine Petersen and Opportunity Fund may be that, as outstanding as they are, they are not all that exceptional - all of you are doing wonderful work in the communities you serve. All of you are innovators in your own right.
So I want to encourage you to always keep exploring new ways to put the power of innovation to work every day. And always remember that, as you do, the CDFI Fund is here to help you continue succeeding.
Thank you. We look forward to working with you.