On May 4, Sens. Mark R. Warner, D-Va., and Mike Crapo, R-Idaho, reintroduced the
Warner and Crapo are the co-chairs and creators of the bipartisan
"CDFIs, whether they're depository institutions, credit unions or CDFI direct loan funds, really play an important role serving underserved communities. … This legislation is about how we can take this group of lenders that by definition are lending into an oftentimes 'hard to lend to' community and see if we can expand the capacity," Warner said.
Warner explained that the bespoke nature of these loans makes them difficult to sell on the secondary market, thereby creating
With the financial backing of the CDFI Fund, selected organizations would address these challenges by purchasing loans and loan participations from certified community development lenders as an added source of excess capital. The results of these efforts — which would include the total amount of participations bought and guarantees provided — would be reviewed by Congress to determine the bill's overall impact.
"If you had a small amount of first-dollar loss cushion that could be a small level of public funds, perhaps with some level of charitable or nonprofit funds, you could bring [the loans] to a category of creditworthiness that would be easier to then go into a secondary market," Warner said.
Industry leaders with the CDFI Coalition and the National Development Council — both of which assist and advocate on behalf of CDFI-certified institutions — underscored the importance of the proposal as the first step to securing reliable sources of funding.
Bob Rapoza, president of the Washington D.C.-based lobbying firm Rapoza Associates which manages the CDFI Coalition, said worries regarding the
"Domestic discretionary funding is going to be strained in the short run, and we probably aren't gonna see the growth that we've seen over the last several years, so this would be a way to further capitalize and provide resources to CDFIs that want to take a piece of the loans that they hold in portfolio and sell them," Rapoza said.
With a focus on consumers who have been overlooked by traditional financial institutions, these lenders are "providing capital for a segment of the marketplace that I like to refer to as the missing middle," said Dan Marsh, president and chief executive of the NDC.
Alongside the bill, organizations that are seeking a CDFI designation and are in dire need of such funding have been left waiting as the CDFI Fund continues its overhaul of the certification process.
The organization
For credit unions, which make up more than a third of all certified CDFIs in the U.S., the ambiguity surrounding the reopening of the fund's applications leaves institutions with smaller economies of scale at risk, said Lewis Plush, senior associate director of legislative affairs for the National Association of Federally-Insured Credit Unions.
"When you're a small institution that relies on funds and assistance from the CDFI Fund, you need to know concretely when you can apply because this is important assistance for underserved areas. … It's important that CDFI credit unions have every tool in their toolbox that they can to serve the underserved areas," Plush said.
