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Federation study tracks CDCUs CDFI industry
NEW YORK (3/16/12)--As part of its working papers series, the Federal Reserve Bank of San Francisco has released a new study by the National Federation of Community Development Credit Unions that explores the role played by community development financial institutions (CDFI) and the community development credit unions (CDCU).

Written by federation President/CEO Cliff Rosenthal, "Credit Unions, Community Development Finance and the Great Recession" offers a detailed history of the role of CDCUs within the CDFI movement; shows how federal investments helped preserve and expand CDCU services during the Great Recession; and recommends ways to strengthen CDFI depository institutions through best-practice models and collaborations.

The paper outlined both significant developments and challenges for CDFIs, including:

  • The CDFI movement has grown rapidly. By the end of 1997, the recently established CDFI Fund counted 190 certified institutions; by the end of fiscal year 2000, that number had more than doubled to 415.3. By August 2011, the CDFI Fund counted 962 certified institutions. Along with the numerical expansion of the field, many individual CDFIs have grown and matured, adding significant capacity and a new sense of possibility to the field.
  • A new generation of CDFIs and CDFI leaders is emerging. Many new CDFIs have little connection to the historic roots of the CDFI movement. They represent a new source of energy and ideas, but a number of veteran practitioners have begun to debate whether the CDFI brand has been diluted by rapid expansion.
  • CDFIs are the focus of federal initiatives beyond those of the CDFI Fund. CDFIs were part of the Community Development Capital Initiative (CDCI) and the $30-billion Small Business Lending Fund, created by the Small Business Jobs Act of 2010, which carved out a window for CDFIs and established the unprecedented CDFI Bond guarantee program now under development.
  • CDFI certification has become a valued brand beyond the federal CDFI fund. The fund's confirmation now is required for a growing number of federal and state programs, such as those of the Small Business Administration, the Federal Home Loan Bank System and the Empire State Development Corp.'s CDFI Program in New York.
  • The CDFI movement has--so far--survived a "stress test." The recent recession has put great strains on the balance sheets of many CDFIs. There have been some losses, but the movement has survived, demonstrating resilience, the paper said.
The paper also makes several recommendations, including:

  • Increase investment in CDFI depositories. CDFI credit unions and banks offer leverage, sustainability and impact in ways that loan funds cannot, according to the paper. It calls for a re-examination of fund application forms, scoring, review procedures, and allocation formulas to take into account the characteristics of each category of applicant to the CDFI Fund.
  • Improve and expedite certification procedures. CDFI certification is the most important credential in the community development field and a prerequisite for accessing various funding sources. More CDFIs will bring the CDFI Fund increased visibility and support in a time of federal budget cutbacks, the paper said.
  • Invest strategically to build the CDFI field, through new structures and new platforms. The fund should explore supporting hybrid or complex institutions that combine the strengths of CDFI loan funds and CDFI depositories, the paper said.
Rosenthal announced earlier this month that after 32 years with the federation he will leave May 4 to take a job with the federal government. On Thursday, the federation confirmed Rosenthal would move to the Consumer Financial Protection Bureau to become the bureau's assistant director of its Office of Financial Empowerment.

To download the paper, use the link.
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