CDFI Certification Helps Credit Unions Perform Better
Posted by Miriam Axel-Lute on June 3, 2014
The Credit Union National Association and the National Federation of Community Development Credit Unions released a report last week comparing credit unions that are certified as CDFIs (community development financial institutions) with both mainstream and low-income designated credit unions.
The numbers are really impressive, and not always intuitive. CDFI-certified credit unions, for example, are way out ahead of the other groups in terms of offering high-tech member services. They also tend to perform well, with a median return on assets that's significantly higher than the other two groups. Less surprising, of course, is the fact that they offer a wider range of specialized products aimed at the communities in which they are located.
It's really exciting to see a study saying that serving your community well does not have to be a sacrifice for a financial institution. The big question this raises for me of course, is how much of this is due to the fact that CDFI status gives these institutions access to grant funding—from the CDFI Fund, and elsewhere, and who might now not be getting that grant funding? (The report specifically notes that CDFI certification can make credit unions eligible for grants from, say community development divisions of banks, foundations, and CD intermediaries.)
While the report makes a specific point of showing that the rapid increase in CDFI-certified CUs from 2009 to 2013 "has not diluted the community development mission, but rather has increased the provision of high-impact financial products and services most critical to building financial capability in low-income and underserved communities," I still have to wonder about the implications for the larger CDFI, or even community development, ecosystem.
Is the CDFI Fund going to keep growing at a pace to accommodate the predicted addition of a couple hundred more CDFI-certified credit unions? Are CDFI loan funds or the nonprofits who use loan fund or credit union financing but also rely on grant dollars to keep going to feel a resource squeeze that might tip the ecosystem too far toward one kind of organization?
Or can the movement of these efficient, well-capitalized institutions into this space shake loose more total money? That of course, would be the best answer, since these CDFI-certified credit unions are clearly doing impressive and necessary work and it would be wonderful for that work to expand. But they still can't do it alone.
(See a summary of the report's key findings below, or download the pdf here.)
KEY FINDINGS (Quoted directly from CDFI Certification:
A Building Block for Credit Union Growth)
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 the financial growth and performance of CDFI credit unions meets or exceeds that of their mainstream peers. This performance is built on a foundation of products and services that respond to the needs of tough markets; 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 counseling and more.
2. CDFI credit unions maximize leverage of 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 $23.70 for each equity grant dollar added by the CDFI Fund – and increased total loans by more than $1.5 billion. Credit unions are resilient platforms for the deployment of CDFI Fund capital; while CDFIs have not been immune to the widespread consolidation in the financial industry, 99% of the dollars awarded to credit unions as permanent capital grants from the CDFI Fund are still at work in credit unions.
3. CDFI credit unions are leaders in technology and innovative member services. 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. The high-transactional needs of low-income communities pushed CDFI credit unions to lead the way with innovative services such as online and mobile banking, bill payment services, online loan applications and 24/7 access to account information.
4. CDFI credit unions represent a viable business model for community development finance. CDFIs blend financial products with capacity-building services to help members better manage their personal finances; as a result, CDFI credit unions put a higher percentage of their assets to work as loans. Since 2009 CDFI credit unions have grown tremendously in number, size and capacity, and intensified their focus on community development products and capacity-building services.
5. CDFI certification is within reach for thousands of credit unions. CDFI credit unions are defined by what they do, not where they live. Nearly half of all credit unions are concentrated in economically distressed census tracts that qualify as CDFI Investment Areas, but that alone does not make them CDFIs. Credit unions that make a strategic decision and take decisive action to address the needs of these underserved communities can become eligible for CDFI certification.
(Photo by 401(k) 2013 CC BY-SA)
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Miriam Axel-Lute is editor of Shelterforce and associate director of the National Housing Institute. Her email is miriam at nhi dot org.