The 2014 CDFI Certification Campaign: Your admission ticket to external resources and community partnerships

This past December, the National Federation of Community Development Credit Unions announced that we were embarking on a year-long campaign to greatly expand the number of credit unions with Community Development Financial Institution (CDFI) certification. We set out to engage the hundreds of credit unions that that are readily CDFI eligible and that already have a product lineup geared to the needs of low income consumers.

As you know, over the last couple of years NCUA has been proactively and consistently determining eligibility for low income designations, which has resulted in a dramatic increase of LICUs. In fact, as of February 2014 there were 2,026 low income designated credit unions with combined assets of $192 billion, providing services to 20 million predominantly low-income consumers. These credit unions roughly represent a third of the entire credit union system!

The Federation’s initiative has been supported from very early on by critical industry partners that fully understand the importance and value the CDFI certification brings to our movement.

• For the first time ever, NCUA instituted a Technical Assistance Grant (TAG) specific for CDFI Certification, which provides $2,500 to help credit unions cover the preparation of their CDFI certification applications. Nearly 200 credit unions submitted TAG requests at the NCUA’s first funding round in February, and 40 were awarded.  We’re pleased to share that the vast majority of those credit unions awarded are working with us. A couple of weeks ago NCUA announced their second TAG round  which will provide a total of $1.2 million in awards to eligible credit unions. This time and based on the strong interest in the industry, NCUA is making 60 $2,500 grants through their CDFI Challenge Initiative. Click here for more information . If you’re interested in taking advantage of this tremendous opportunity, it’s imperative you contact us at the Federation as soon as possible as we anticipate a huge demand for our CDFI Certification consulting services.
• In collaboration with CUNA, we  developed a White Paper: “CDFI Certification:  A Building Block for Credit Union Growth Performance, Profiles and Prospects for CDFI Credit Unions” that sheds new light on the value of CDFI Certification and best practices from CDFI credit unions. Read highlights of the white paper below and click here to read the full report.
• Numerous State Credit Union Leagues/Associations have been promoting the benefits of CDFI certification. The Federation is doing targeted trainings with the Mississippi Credit Union Association and the Missouri Credit Union Association. We’re scheduling additional trainings in Alabama, California, Florida, Louisiana, Massachusetts, New Jersey and Pennsylvania.

Through our consulting services arm, CU Breakthrough, the Federation has helped over a hundred credit unions obtain their CDFI certification and/or recertification. Since 2010 we’ve used a CDFI tested methodology based on a statistically valid random sampling of borrowers’ income date that greatly streamlines the CDFI certification process. It also significantly reduces the amount and type of information and supporting documentation credit unions must produce.

The certification campaign is already seeing some dramatic results.  As of YE 2013, credit unions represented 22% of the CDFI industry, but currently our industry is the fastest growing category of CDFI. So much so that by the end of 2014 credit unions are projected to account for nearly one‐third of all certified CDFIs. Increasing our market share within the CDFI field and engaging higher capacity credit unions in community development, we seek to see more funding directed to our industry.

Last year 35 credit unions received over $24 million in Financial and Technical Assistance Awards, with success rates of 41% and 75% respectively.  According to remarks made by Dennis Nolan, CDFI Fund Deputy Director (and current Acting Director) at our Annual Conference ia couple of weeks ago , this year we may see a significant increase in the number and amounts of awards directed to credit unions.

The Value of CDFI Certification

With around 70 million Americans un-banked or under-banked, the opportunities for the growth and relevance of credit unions are greater than ever before.  Proposed new risk capital rules make the need to raise capital for high-return, community development activities even more critical.   The CDFI certification provides credit unions with the opportunity to tap into external resources to support their growth and expansion in LMI markets.

Since inception, the CDFI Fund has awarded $1.5 billion in financial and technical assistance awards to certified CDFIs across the country, including nearly $150 million in awards to 151 CDFI certified credit unions.  These credit unions together deliver vital financial products and services in some of the nation’s most impoverished communities, providing a path to financial security for low‐income, minority and underbanked individuals and communities.

Benefits of CDFI Certification:

• Eligibility to apply for Technical Assistance Awards up to $125,000 and Financial Assistance Awards of up to $2 million dollars each year.
• The opportunity to attract capital from additional public and private sector sources like the one time Community Development Capital Initiative, which resulted in the investment of $70 million in 48 LID and CDFI CUs
  • Participation in the CDFI Bond Guarantee Program, that provides access to long-term credit at below market rates by providing federal guarantees to bonds from qualified issuers.  As the newest CDFI Fund program, specific policies and procedures that govern this new program are still under development, and advocates are hopeful that the program could prove to be a substantial source of low-cost secondary capital loans for CDFI credit unions.
  • Participation in the New Market Tax Credits (NMTC) that can be used to finance large scale commercial or affordable housing developments in low income communities.
    • Participation in the CDFI Bank Enterprise Award (BEA) program, which provides mainstream banks with capital that can only be reinvested in certified CDFIs; certified credit unions have received millions of dollars of BEA deposits at below-market rates.
    • Participation in the CDFI Capacity Building Initiative offers training, educational and free consultancy opportunities to CDFI credit unions in specialized areas such as small business lending, microfinance, and financing healthy foods options. The Federation is the only credit union organization recognized by the CDFI Fund to provide technical assistance in this space. In fact, we recently provided TA under the Scaling Up Microfinance Capacity Building Initiative.
    • Since 2008, all CDFI credit unions have been eligible to join the Federal Home Loan Bank, including state-chartered credit unions without federal insurance.
    • Participation in the Bureau of Indian Affairs Loan Guarantee Program.
    • Exemption from the Member Business Loan (MBL) limit of 12.25% of assets
    • Access to additional State and local funding sources.

Credit Unions: the ultimate type of CDFI

Credit unions have long been at the forefront of community development finance and were among the nation’s first community development financial institutions. In fact, the Federation played an instrumental role in the creation of the CDFI Fund and has since then, we represent the vast majority of the CDFI credit unions.

Within the CDFI industry, credit unions provide the most comprehensive range of affordable loan products; responsive financial services and financial education that has helped bring millions of low income consumers into the financial mainstream.

By design credit unions are also directly accountable to the target markets they serve and as financial cooperatives, they also provide a participation mechanism that’s unique in the CDFI world.

Credit unions have made the most of these awards; a CDFI Fund study indicates that these grants to credit unions are sufficient to leverage more than $2 billion in asset growth. In an era marked by the rapid consolidation of financial institutions of all types, 99% of the total amount of CDFI Financial Assistance (FA) grants to credit unions is still at work; 95% in the original recipient institutions and another 4% with successor credit union entities.

We recently published a  White Paper: CDFI Certification -A Building Block for Credit Union Growth that provides fascinating information about the financial performance, community impact and  unique business model of CDFI certified credit unions. Among the highlights:

1. CDFI credit unions thrive in tough markets. By definition, CDFI credit unions focus most of their loans and services in the nation’s most economically disadvantaged communities, yet their financial growth and performance meets or exceeds that of their mainstream peers. And yet, they are distinguished by what they do, not where they live. CDFI credit unions offer a significantly greater number and variety of community development products and services than their peers, including credit‐builder loans, anti‐ predatory loans, check‐cashing services, bilingual services, financial counselling and more.
2. CDFI credit unions excel in leveraging external resources. From 2009 through 2013, 61 credit unions received $102.7 million in CDFI Financial Assistance grants. During that time, these credit unions increased total assets by $2.4 billion – a leverage rate of $27.70 for each equity grant dollar added by the CDFI Fund – and increased total loans by more than $1.5 billion. They are resilient platforms for the deployment of CDFI Fund capital.
3. CDFI credit unions are among the most innovative financial institutions. While traditionally known as “high touch” rather than “high tech”, CDFI credit unions today significantly outpace their peers in the use of high technology for member services. This enables them to remain up to date with innovative approaches to serving high transactional populations, such as online and mobile banking, bill payment services, online loan applications and access to account information 24/7. Serving lower‐income, high transactional populations has actually pushed CDFI credit unions to innovate at a higher rate than their peers becoming more relevant across multiple market segments.
4. CDFI credit unions represent a viable business model for community development finance. By coupling financial products with capacity‐building services, CDFI credit unions build the capacity of members to manage their personal finances and, as a result, are able to put a higher proportion of their assets to work as loans. The increase in number, size and capacity of CDFI credit unions since 2009 has been matched by an intensified focus on community development products and services.
5. CDFI certification is within reach for thousands of credit unions. Nearly half of all credit unions are concentrated in economically distressed census tracts that qualify as CDFI Investment Areas, but that does not make them CDFIs. But any credit union that takes decisive action to address the needs of these underserved communities can become eligible for CDFI certification.