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Community development banks in the news--opportunities for mission investors

Lisa Hagerman, Tuesday, January 13th, 2009

Community Development Finance Institutions (CDFIs) have been getting some positive press lately.  Greg Fairchild Associate Professor at the University of Virginia’s Darden School of Business comments that the CDFI model can help us out of the mortgage mess.  CDFIs have built a business model on providing mortgages, building savings accounts and providing equity to small businesses in underserved markets often perceived as too risky, and have done so with charge offs less than or comparable to the overall banking industry.  See the full article in the American Banker (Viewpoint:  CDFI Model Can Show the Way Back to Reality, January 2, 2008).  Cliff Rosenthal, CEO of the National Federation of Community Development Credit Unions comments that CDFIs have strong balance sheets and are relatively unencumbered by the types of losses that have affected mainstream banking and investment institutions ( See Outlook for Community Investing in 2009). 

Recent press on community banks (See Crain’s New York Business Article November 24, 2008) talks about how as major banks scale back their small business lending, it has created more opportunities for the smaller community banks—that often keep their loans rather than reselling them and follow a due diligence process that emphasizes a company’s finances and credit history.  Carver Federal Savings Bank projects a 15% increase in small business loans this year, with most deals in the $100,000 to $2.5 million range.  Carver Federal Savings Bank is a member of the Certificate of Deposit Account Registry Service (CDARS), a deposit-placement service that allows deposits with member institutions to be eligible for full FDIC insurance of up to as much as $50 million.    

More for Mission Leadership Committee member, W.K. Kellogg Foundation, has deposited $22.4 million in community banks and credit unions—part of their “mission-driven” commitment (See W.K. Kellogg press release).  Carver Federal Savings Bank and ShoreBank, the largest CDFI, are among the seven selected banks.  

 

posted 3:45PM 01/13/2009 by Lisa Hagerman

Comments

1. Dominik Mjartan, Southern Bancorp

10:40am 02/25/2009

Thank you for this post highlighting the mission investment opportunities presented by community development financial institutions. CDFI’s are united in their service of distressed regions of the United States, however they differ in the business models and strategies used to meet their community reinvestment goals and accomplish their missions. The resulting variety of investment options gives More for Mission investors the option to choose the CDFI that best suits their investment strategy.

Southern Bancorp is another of the beneficiaries of the mission-related investment strategies used by the W K Kellogg Foundation, the F B Heron Foundation, and others. As the country’s largest rural development bank, the Southern family of community banks and nonprofit development organizations provides a unique investment opportunity because our business model creates investment vehicles throughout the mission-related investment continuum. These opportunities include market rate and submarket rate loans, equity, loan guarantees, trust preferred securities, community deposits, and other investment options, which are used to fund our work in the Delta region of Arkansas and Mississippi, the poorest area of the United States. Thanks to the generosity of our funders we are making significant progress toward our 15-year goals of reducing poverty and unemployment by 50% and increasing high school graduation rates by 50% in this highly distressed region of the country.

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