HOPE Partners Submit Comment on CDFI Fund’s Financial and Technical Assistance Fund Programs

May 26th, 2023

By Courtney Thomas, Senior Policy Analyst

In early March, The Department of Treasury CDFI Fund requested public comments to gather feedback on changes to the Community Development Financial Institutions Program (CDFI Program) and the Native American CDFI Assistance Program (NACA Program), Financial Assistance (FA) and Technical Assistance (TA) Applications for FY 2023- 2025.

FA and TA awards provide crucial funding and training to CDFIs that serve persistent poverty regions, particularly rural areas where there has been widespread disinvestment. In many cases, FA awards are a flexible form of funding that rural-serving CDFIs can access. These awards help CDFIs scale operations and service to historically underserved markets.

Partners for Rural Transformation (PRT), a coalition of rural serving CDFIs including — Come Dream | Come Build (CDCB) of Brownsville, Communities Unlimited, Fahe, First Nations Oweesta Corporation, (HOPE) Hope Credit Union and Hope Enterprise Corporation, and Rural Community Assistance Corporation, submitted comments on the proposed changes to the FA and TA award programs.

Comments are as follows:

Include a Fourth Financial Assistance Objective

The new FA application proposes a 3-list objective that focuses on the expansion of new activities, products or territory of a target market. However, some markets, particularly rural communities, are more difficult to serve and CDFIs need additional capital to scale their efforts in those areas. PRT recommends adding a fourth objective that allows awardees the option to deepen their lending services in well-established target markets with high concentrations of underserved communities.

Nuanced Approach to Projected Lending Model

The CDFI Fund proposed changes to the calculation of projected lending activity which would increase lending volume. These changes may negatively impact smaller CDFIs that cannot commit to an aggressive growth strategy. The suggested nuanced approach would allow the awardee to “choose between a set percentage of a three-year average of lending or the size of their FA award.”

Avoid Award-Winning Commitments

If a FA award is made but not in its full amount, then it requires CDFIs to complete the project with less funds that were made available, which is unfair.

Make Awards Usable in Broader Geographies than Explicitly Persistent Poverty Communities

There are neighborhoods—particularly in rural areas, that are not themselves considered persistent poverty but are surrounded by persistent poverty communities. Loans made to adjacent communities can benefit persistently poverty regions.

Consider the Diverse Metrics to Measure Economic Distress

Common metrics such as median family income unfairly discriminate against persistent poverty communities. In these communities with extremely low incomes, the median is much lower, making it difficult to qualify as low income since all of the community is extremely poor. This is prevalent in rural counties and excludes families who would otherwise qualify for financing opportunities.

PRT supports the inclusion and use of a national non-metropolitan floor to ensure that place-based discrimination does not occur among clusters of persistent poverty communities. Furthermore, census tract data should be used in conjunction with county-level data to create a clearer picture of poverty within the region. Allowing greater flexibility in data options will create more evidence-based designed programming that fits the complexities of smaller communities.

Do Not Rely on Net Asset Ratio to Measure Impact of CDFIs

Net asset ratio is not the appropriate measure to asses if a CDFI is effectively using its balance to leverage resources. Relying on the net asset ratio will create a system where CDFIs are incentivized only to work in areas where capital is easy to move, resulting in only those CDFIs receiving awards.

Eliminate or Increase SECA Award Maximum Assets Size

To qualify for Small and Emerging CDFI Assistance award, there is an asset cap of $5 million. However, CDFI asset size is not necessarily the best measure to determine if a CDC is emerging since established non-profits, but new CDFIs may have a variety of real property, such as housing, that would increase their asset size and eliminate them from accessing crucial capacity-building funds. PRT would prefer eliminating the maximum asset requirements but would support increasing the limit to $25 million and changing into CPI-W.

Adopt the CRA Definition of Larger CDFI

The proposed application characterizes an unregulated institution with asset size of $25 million as a “larger CDFI.” However, CDFIs that have the same asset size in different geographies attract varying investments and thus yield divergent impacts. PRT proposes the CDFI Fund to adopt the definition found in the Community Reinvestment Act, which defines a larger institution as one with more than $346 million in assets.

Invest in the Continued Viability of CDFIs

While FA awards should not be used to prop up institutions that would otherwise fail, subsidy will always be important to address systemic inequities in the U.S. economy. CDFIs are crucial to meeting the needs of communities that have been historically excluded from mainstream financial institutions, and it is imperative that we continue to invest in their sustainability.

You can read the full comment here