Keynote Address by CDFI Fund Director Gambrell at the 2011 SRI in the Rockies Conference

 

Introduction

This is the first time that anyone from the CDFI Fund has been invited to speak at SRI in the Rockies, and I am very honored to be here and very grateful for the opportunity to speak to you about the work of the CDFI industry and the CDFI Fund.

I am especially happy to be here because I believe that this is the perfect time for the SRI community and the CDFI industry to begin a discussion about the future of community development finance. The CDFI industry, like the SRI industry, has been built upon an inspired vision of the potential of the financial services industry in American society to promote positive change, and in recent years our industry, like yours, has made impressive progress towards realizing that vision.

Indeed, this is a new era for the CDFI industry, and it is producing many new opportunities for CDFIs to increase their impact in the communities they serve. And it is also producing many new opportunities for you, the SRI community, to expand your reach and to increase your impact.

So I hope, above all, that this occasion, the first appearance by the CDFI Fund at SRI in the Rockies, will mark the first step in the development of a new era of cooperation between our two industries. Everyone involved - the CDFI industry, the SRI community, and all of our various stakeholders - has a tremendous amount to gain as we explore the common ground we share and find new ways to move forward together.

Overview of the CDFI Industry

I know that many of you are already quite familiar with the work of CDFIs and the CDFI Fund, but I know that some of you may not be. So before I speak about the opportunities and challenges before us, I would like to give you a brief overview of the role that CDFIs play and the impact that they are having in the communities they serve.

By the way, if you didn't have a chance to take the community development tour of New Orleans that was offered yesterday as part of this conference, I want to encourage you to take the tour on Wednesday afternoon. It will be an excellent chance to learn more about the work of CDFIs and see some high-performing community investments in action.

CDFIs are specialized financial institutions that are dedicated to serving low-income communities. There are four basic types of CDFIs - community development loan funds, banks, credit unions, and venture capital funds - but these four types appear in a wide variety of forms. There are urban CDFIs, rural CDFIs, and Native CDFIs. There are small CDFIs that focus on local or regional markets, and large CDFIs with a national focus.

All CDFIs, however, share one important thing in common, and that is a primary mission of serving low-income communities and individuals that lack access to credit, capital, and financial services from mainstream financial institutions.

To that end, they provide financing to build small businesses and microenterprises, to develop affordable housing, and to support community service organizations. They provide mortgages for low- and moderate-income homebuyers, and Individual Development Accounts and other retail banking services for the unbanked. And they also provide a variety of development services - such as business planning, credit counseling, and homebuyer education - to help their borrowers use credit effectively.

The Role of the CDFI Fund

The CDFI Fund is part of the U.S. Department of the Treasury, and we were established by Congress during the Clinton administration with the enactment of the Riegle Community Development and Regulatory Improvement Act of 1994, a bipartisan initiative.

Our purpose is to promote economic development in underserved communities throughout the United States, and we accomplish that not by providing direct funding to individuals or projects, but by offering financing to and support for CDFIs.

To be eligible for most of our programs, a CDFI must meet a variety of criteria and be certified by the CDFI Fund. So, certifying CDFIs is one of our main roles, and it is ongoing. As of August 31, 2011, there were 962 certified CDFIs throughout the 50 states and in the District of Columbia, Guam, Puerto Rico, and the U.S. Virgin Islands, and we continue to certify new ones each month.

Another of our roles is to provide capacity-building programs for CDFIs. We do this through our flagship program, the CDFI Program, by providing Financial Assistance awards of up to $2 million and Technical Assistance grants of up to $100,000 to qualified organizations; and by providing targeted training and technical assistance to CDFIs through our Capacity Building Initiative under which portfolio management, capitalization and foreclosure prevent programs, among others, are being offered.

Among our other programs are the New Markets Tax Credit program, which is designed to attract new investment capital to low-income communities; our Native Initiatives, which promote the development of CDFIs serving Native American, Alaskan Native and Native Hawaiian Communities; and the Bank Enterprise Award Program, which provides monetary awards to FDIC-insured banks for increasing their investment in low-income communities or in CDFIs.

Since its creation in 1994, the CDFI Fund has awarded more than $1.4 billion to CDFIs, community development organizations, and financial institutions through its programs.  In addition, the CDFI Fund has allocated $29.6 billion in tax credit authority through the NMTC Program.

In 2010 alone, CDFI awardees reported originating loans or investments totaling more than $1 billion. CDFIs financed almost 18,000 affordable housing units, and more than 5,200 business and microenterprise loans. CDFI Program awardees in 2010 helped provide financing that created or maintained over 25,000 jobs and leveraged $1.5 billion in private investment.

The recipients of CDFI Fund awards have a tangible impact in the low-income communities they serve. Each business financed, each job created, each bank account opened represents a critical step in the transformation of a life, a family, and a community. So the work of CDFIs and the CDFI Fund is about much more than offering programs and services. It is about changing lives, building stronger communities, and creating economic opportunity for all Americans.

New challenges, new opportunities

As I mentioned, the CDFI industry has entered a new era, an era of critical importance born of our nation's recent recession and economic downturn.

The low-income communities that CDFIs serve were struggling long before the recession began, and they have been among the hardest hit. They have suffered - and continue to suffer - from high unemployment rates, declining property values, and epidemic foreclosures.

In the wake of the recession, there has been a renewed discussion of the importance of community development finance and its role in promoting economic recovery.

Indeed, we realize that we cannot allow ourselves to be content with the progress we have made. As the recession has made all too clear, the safety net for the communities we serve is shrinking. These communities - and the people in these communities - depend on the services CDFIs provide, and we must always be there for them. So we must continue moving forward.

Now if we are to move forward, we must be realistic about the challenges ahead of us. And one of the most significant of those challenges, we believe, is the need for capital.

In the current economic climate, the supply of low-cost, long-term funding for CDFIs from government, foundations, and commercial banks has been flat or has even decreased. Funding from these sources may no longer be sufficient to sustain the future of our industry. The CDFI Fund in particular is a limited source of funding and by itself cannot meet the industry's need for capital.

Therefore, the CDFI industry must increase and diversify its support, and seek new sources of capital - which is where I believe the SRI community can play an important role in shaping the future of the CDFI industry.

Now, I am certainly aware that the SRI community is already investing in our industry, According to the Social Investment Forum Foundation's 2010 Report on Socially Responsible Investing Trends in the US, SRI assets in community investing institutions rose more than 60 percent from $25.0 billion in 2007 to $41.7 billion at the start of 2010. Believe me, we are all very grateful for the SRI community's support.

But I also believe that we still have a long way to go to realize the tremendous potential that exists for a partnership between the CDFI industry and the SRI community. Although community investing is considered one of the three pillars of SRI, data shows that in the past the SRI community has focused more on the other two pillars, social screening and shareholder advocacy. That $41.7 billion that SRI investors directed to community investing represents just 1.35 percent of the $3.07 trillion in total SRI assets in 2010.

Moreover, most of the SRI community's investment in CDFIs has been in depository institutions - community development banks and credit unions. Again according to the Social Investment Forum Foundation, 68 percent of all SRI funds placed in CDFIs in 2010 went to depositories.

Community development banks and credit unions play an absolutely vital role in the communities they serve, and are a critical part of the CDFI industry. However, of the 962 CDFIs that are currently certified, 87 are community development banks and 203 are community development credit unions. So depository institutions represent just over 30 percent of all certified CDFIs. The largest segment is community development loan funds. There are currently 593 certified community development loan funds in the United States, which is more than 61 percent of all certified CDFIs.

There are already a number of loan funds around the country that are experienced money managers and offer excellent investment programs for individual and institutional investors, and I invite you to learn more about their programs.

So I do hope that more SRI investors will begin exploring all opportunities to invest in CDFIs. After all, the values upon which the work of CDFIs is based fit perfectly with the values of SRI. And investing in CDFIs offers a way for SRI investors to put their money to work here at home in the U.S. and to have a tangible impact in their own communities.

I am well aware that, if the CDFI industry and the SRI community are going to build a sustainable partnership, the CDFI industry will need to offer investment options that truly meet the needs of the SRI community. And I am pleased to report that, as the CDFI industry continues to grow and mature, we are exploring ways to improve our investment products and to expand our menu of options.

A year ago, an organization called the Triple Bottom Line Collaborative published a report that examined the current state of the relationship between CDFIs and SRI investors. The report concluded that, while the interest in CDFIs among SRI investors is growing and the potential for building partnerships is great, the CDFI investment product needs to be improved.

The report indentified seven barriers that are limiting investment in CDFIs. These include:
 

  1. Lack of awareness of opportunities to invest in CDFIs;
  2. Below-market financial returns for CDFI investments;
  3. Higher perceived risk;
  4. The lack of structured and familiar terms;
  5. Lack of liquidity;
  6. The lack of electronic systems for trading and reporting; and
  7. Lack of financial incentives for investment professionals.

I will not attempt to address all of these issues here. What I will say, however, is that our industry is aware of them, and we are working hard to address them.

For example, more CDFIs are reaching out to investors and raising awareness of the opportunities to invest. Many are offering investments with terms that are more familiar and more standardized. And some are offering more competitive rates.

But I acknowledge that we need to improve our product. And I assure you that we will improve it, and that the CDFI Fund is more than ready to play a role in the process, providing technical assistance to help CDFIs solve the technical issues they face, and working with wealth mangers from the SRI community to help them understand our industry and connect with CDFIs.

And I invite all of you in the SRI community to participate as well. So let us hear from you. Tell us what you need. Tell us what we can do better. Let us work together to build a sustainable partnership that will benefit all of our stakeholders.

Moving forward together

As we go forward, I think it is important for us all to remember why we are building this partnership and what is at stake, because what we are doing is about much more than creating investment products and growing our industries and realizing our potential.

Ultimately, it is not about us at all. It is about the communities we serve. It is about the lives of the people who live there. It is about opportunity and hope.

So we invite you to join us as we explore the new opportunities that are before us in this new era for CDFIs. Let us go forward together. And let us build new opportunity and hope in communities where it is needed most.

Thank you.