Lehn Benjamin, PhD in Regional Planning from Cornell, studies nonprofit organizations’ contributions to democracy at George Mason University’s Public and International Affairs department. Julia Sass Rubin, PhD in Organizational Behavior from Harvard, studies community economic development, developmental finance, and social enterprise at Rutgers School of Planning and Public Policy. Sean Zielenbach is Senior Consultant at the Woodstock Institute. Previously, he was research director at the Washington, D.C.-based Housing Research Foundation.
The authors here summarize services and products provided to low-income communities by community development financial institutions (CDFIs). One of the Clinton administration’s two community initiatives (other other was the enforcement of the 1977 Community Reinvestment Act [CRA]), CDFIs offer basic financial services (e.g. checking, savings) as safer alternatives to “fringe banking” products. In addition, they provide single-family housing financing in the forms of low interest “sub-prime” loans, options for the second/third mortgages, loans for down payments, and balloon repayments. Larger community development funds finance multi-family housing and typically focus on CDC’s organizational capacity. CDFIs provide “pre-development” loans to get projects underway and petitioned successfully for the effective Low Income Housing Tax Credit (LIHTC). CDFIs also provide community facility and small business financing, products for which include both debt and equity financing options — there are community development venture capital funds.
Benjamin, Rubin, and Zielenbach, writing before the crisis, do acknowledge there is some risk to the sub-prime and balloon repayment strategies, but their main, professed concerns are how to measure the CDFIs success, how to attribute causality, and since CDFIs can’t do everything, what next? They propose analysts measure both direct and indirect outcomes, adopt more realistic expectations, and that CDFIs innovate with the changing times to make the most of their resources.