Kansas City, MO -- CDFI Fund Director Kimberly A. Reed delivered a keynote address at the 2007 Annual Conference of the Association for Enterprise Opportunity (AEO) on May 18, 2007. AEO is the national association of community-based organizations that provide entrepreneurial education, access to capital, and support to aspiring and active low-income entrepreneurs. Approximately 550 microenterprise development practitioners attended the event.
During her speech, Director Reed spoke about the breadth of microentrpise work funded by the CDFI Fund, through the work of certified CDFIs and past CDFI Fund awards that are currently funding organizations that offer financial products to low-income entrepreneurs. To see a full text of Director Reed's speech, see below. Dr. Muhammad Yunus, a pioneer in the strategy of microcrocredit, also spoke at the conference. Yunus received the Nobel Peace Prize in 2006 for his achievements in the microenterprise industry.
Following Director Reed's speech, CDFI Fund staff hosted a training workshop for conference participants that included an overview of CDFI Fund programs, the certification process and best practices for applications submitted to the CDFI Fund for awards and allocations. If you are interested in attending future CDFI Fund training or outreach sessions, sign up to receive email notifications here.
Full Text of Keynote Address by Kimberly A. Reed
Association for Enterprise Opportunity Annual Conference
May 18, 2007
Kansas City, MO
Thank you very much for that kind introduction Dan. I am delighted to be for your 2007 annual conference and I love the theme "Microenterprise Development: The Rhythm of Successful Communities". My name is Kimberly Reed and I am the Director of the U.S. Department of the Treasury's Community Development Financial Institutions Fund, or CDFI Fund.
I began in February of this year and one of my first events as Director was attending an event that you hosted for Members of Congress on Capitol Hill. It was a great honor to address you there, and a great honor to be with you today.
The CDFI Fund was created for the purpose of promoting economic revitalization and community development through investment in and assistance to community development financial institutions, commonly referred to as CDFIs. Our mission is to expand the capacity of these financial institutions to provide credit, capital, and financial services to underserved populations and economically distressed communities in the United States.
The CDFI Fund does not directly fund individuals or projects. Through its various programs, the CDFI Fund makes investments that strengthen and sustain a network of CDFIs and Community Development Entities, or CDEs. Since its creation in 1994, the CDFI Fund has awarded $820 million to community development organizations and financial institutions and has awarded $12.1 billion in allocations under the New Markets Tax Credits Program.
We know that CDFIs play an important role in contributing to the country's economy. I am pleased that the American economy has added jobs for forty-four straight months and that the country's unemployment rate is now at its lowest in six years.
Through the CDFI Fund's data collection system known as the Community Impact Investment System - or CIIS - we have quantitative evidence of how the CDFI Fund's programs are expanding the economy and directly impacting communities. CIIS is a sophisticated web-based system that allows for the collection of institution and transaction level data from CDFI awardees and from New Markets Tax Credit allocatees.
The data includes the purpose of the loan or investment, project address, borrower socio-economic characteristics, loan and investment terms, repayment status, and community development impacts. This data allows the CDFI Fund to measure the impact at the census tract level and to map CDFI and CDE activity in specific geographic locations.
In Fiscal Year 2005, 186 CDFI Program awardees reported leveraging their awards with $1.4 billion in private and non-CDFI Fund dollars. These CDFIs helped create nearly 14,000 full-time jobs and to finance over 2,500 businesses in distressed communities. Our 2005 data also shows that CDFIs provided financial literacy training to 148,000 individuals and organizations, and created 14,000 checking accounts for those previously unbanked. Both Secretary Paulson and I are committed to Financial Literacy and I want to take a moment to applaud all CDFIs for their focus on this important area and encourage them to do even more.
Generally, CDFIs are community-based specialized financial institutions that serve low-income people or work in economically distressed communities, often working in market niches that may be underserved by traditional financial institutions. CDFIs include regulated institutions such as community development banks and community development credit unions. These institutions, in particular, provide consumer financial services that are designed to bring underserved persons into the financial mainstream, building wealth on affordable terms.
CDFIs respond to gaps that exist in local markets that traditional financial institutions are not able to adequately serve. CDFIs provide a wide range of financial products and services. While the types of products offered by CDFIs may be similar to those provided by larger mainstream financial institutions, such as checking and savings accounts, mortgage financing for low-income and first-time homebuyers, small business lending, and lending for community facilities, CDFIs generally lend to and make equity investments in markets not served by these traditional financial institutions. In fact about one-fifth of all CDFI lending is in the form of business loans ($8,201 out of $51,949).
The size of these transactions and the risk profile of the transactions or customers make it difficult for traditional financial institutions to serve these customers. By comparison, CDFIs often offer rates and terms that are more flexible than those provided by traditional financial institutions.
CDFIs that are certified by the CDFI Fund are required to provide services that will help ensure that credit is used effectively, such as technical assistance to small businesses and credit counseling to consumers.
I would now like to focus on the area of microenterprise development and highlight some of the data reported to us which shows just how active CDFIs are in the micro-enterprise field. Of all business loans made by CDFIs, nearly two-thirds are micro-loans, and nearly all of these micro-loans are fixed interest loans (97%) and are fully amortized (95%).
- The average size of micro-loans is $11,200, and the median is $8,900.
- The average interest rate is 10.7 percent, and the median is 11.1 percent.
- The average term is 40.5 months, and the median is 36 months.
Approximately 60% of these loans go to minority-owned or controlled firms and almost 40% of these loans go to women-owned or controlled firms. I am also pleased to see that over half are to low-income controlled or owned firms.
I am very pleased to see that CDFIs are engaged in so much micro-lending, but I would like to see more!
If I may conduct a quick survey, would you raise your hand if you are a certified CDFI? My challenge to see more micro-lending rests with all of you. To the certified CDFIs in the room, I encourage you apply to the CDFI Program which uses federal resources to invest in and build the capacity of certified CDFIs. Specifically, the CDFI Program provides Financial Assistance awards to CDFIs which can be used to capitalize your micro-loans.
The CDFI Fund provides Financial Assistance awards in the form of equity investments, loans, deposits, or grants, depending on applicant needs, and must be matched dollar-for-dollar by the applicant with funds of the same type from non-federal sources.
There are two applicant categories for Financial Assistance awards: (1) Core, for larger CDFIs, and (2) SECA (Small and/or Emerging CDFI Assistance), which is available for applicants that are smaller and/or have a shorter operating history. These awards enable CDFIs to leverage private capital to respond to demand for affordable financial products and services in economically distressed markets and by low-income families. CDFIs respond to this demand through the provision of loans, investments, training, technical assistance, and basic financial services, such as checking or savings accounts.
To you who are not certified CDFIs, I encourage you examine if CDFI certification and our funding programs could be beneficial to you as you serve your existing markets or if you are considering expanding into new markets. CDFI certification requires a determination that the institution has a mission of serving low-income communities, is a financing entity, and commits 60 percent or more of its lending or investing resources to low-income communities, together with the provision of technical assistance or counseling services to its customers, among other requirements.
One of my goals as Director of the CDFI Fund is to expand the reach of existing certified CDFIs, as well as increase the total number of certified CDFIs. In my meetings with CDFIs and with various CDFI trade groups, a common request has been that the Fund should examine ways in which the certification process could be open year-round and ways to streamline the application process to make it easier to apply.
I am please to announce that starting on July 1st, organizations can apply for certification as a CDFI year-round.
The CDFI Fund also provides Technical Assistance grants to build the capacity of start-up and existing CDFIs. These grants can be used for consulting services to acquire needed skills or services (such as a market analysis or lending policies and procedures).
In addition, Technical Assistance grants can be used to acquire prescribed types of products or services including technology (usually efficiency enhancing technology, such as computers and loan management software), staff training, or staff support to conduct discrete, capacity-building activities (such as website development).
More established CDFIs also use Technical Assistance grants to build their capacity to provide new products, serve current markets in new ways, or enhance the efficiency of their operations; examples include upgrading computer hardware and software.
An example of a CDFI utilizing our CDFI Program to support more microenterprise development is ACCION New Mexico. ACCION New Mexico has a demonstrated track record to effectively deliver credit to a large number of microentrepreneurs. The CDFI Fund's $500,000 loans to ACCION New Mexico will allow the organization to significantly expand its lending both in its existing and new markets, increasing capital available to low-income and other underserved microentrepreneurs in rural and urban New Mexico.
In addition to financial assistance, they also received a technical assistance grant that will offset the cost of technology upgrades including voice mail and an intranet system, improving ACCION New Mexico's internal efficiencies and ability to manage an increased client base.
Another example of the CDFI Program awards supporting entities engaging in microenterprise work is the award to The Lower East Side People's Federal Credit Union.
The Lower East Side People's Federal Credit Union is 18-year-old credit union that provides a range of affordable financial services including saving and checking accounts, ATM access, basic credit counseling, and financial counseling in Manhattan's Lower East Side. The Lower East Side People's Federal Credit Union was formed by the community when all other commercial banks left the Lower East Side.
The Lower East Side People's Federal Credit Union serves a Target Market concentrated in the Lower East Side of New York City -- a predominantly Spanish-speaking community known as "Loisaida." The Lower East Side People's Federal Credit Union will use the 2006 Technical Assistance grant of $100,000 to 1) To purchase and install 25 new computer systems; and 2) purchase and install technology to allow for credit/Debit/ATM card issuance and management.
These are just two examples of many. CDFIs are working in the field of microenterprise development and I encourage all of you to apply for our awards. If you preference is to not apply yourself, but to work with CDFIs or CDEs that have already received awards, I would encourage you to visit our website at www.cdfifund.gov for the following resources.
On our website you can view a list of Certified CDFIs, which includes their contact information. These lists are sorted alphabetically by name, type (such as bank, credit union, or venture capital fund), and by state. For example, you might want to research the list of CDFIs for organizations offering mortgage financing for low-income and first-time homebuyers, small business lending, and lending for community facilities. You can also view a list of CDEs under the New Markets Tax Credit Program. This list also includes their contact information and is sorted alphabetically by name and by state.
You can use this list to identify CDEs that you would like to approach if you are an organization interested in obtaining a capital infusion for a project in a low-income community or if you are interested in social conscious investment and would like to invest in one of the CDEs that has received an allocation of tax credits.
If you are looking for who has received our awards in the past, or are interested in how CDFIs are intending to utilize our awards, you can search our complete database of CDFI Fund awards, including the CDFI Program awards and the NMTC allocations. Search by award type, amount, year, location and/or service area, where applicable. This tool offers comprehensive information on CDFI Fund awardees and allocatees, including organization profiles and descriptions of how CDFI Fund awards will be spent or invested.
One last resource I would like to point out to you from our website is our Qualified Equity Investment, or QEI Report. The QEI Report identifies, among other things, each entity that has received allocations of New Markets Tax Credits; the total allocation amount received by each entity; the dollar amount of allocation authority that has been issued to investors; the amount remaining to be issued to investors; and the predominant markets to be served by each entity.
Users may download this Report and use either the Find toolbar or the Search PDF window to locate a word, series of words, or partial word in the PDF document bearing in mind that it is case sensitive. Users may also find it useful to cross reference this Report with the Fund's reports on States served by Allocatees for each round of the New Markets Tax Credit Program. These reports are available in the New Markets Tax Credit Program section of the Fund's website.
The States served reports allow users to quickly identify Allocatees serving particular geographic areas of interest that users could then look-up in the QEI Issuance Report that lists Allocatees in alphabetical order. The Fund, on a monthly basis, will update the Report based on information reported by Allocatees. Annually, after the Fund completes its competitive review process and successful applicants are selected, the Fund will add those organizations selected to receive allocations of NMTCs to the Report.
We hope that this information is helpful to you as you look to see ways in which in you can increase your organizations capacity by applying to us for financial or technical assistance to deliver credit or services to microentrepreneurs.
In closing, I invite you to attend the CDFI Fund training session hosted by Star Wilbraham and Meagan Taylor. I also want to thank you all for joining me here today. As Director of the Fund I look forward to working with you as we carry out the mission of the CDFI Fund.
View: CDFI Fund Training Presentation
Kimberly A. Reed Delivers Keynote at Association for Enterprise Opportunity's Annual Conference