Three weeks ago I went to Philadelphia to attend the annual conference of the Opportunity Finance Network, the trade association for CDFIs, or community development financial institutions.
I go to a lot of conferences in the field, and the difference in the energy of this one practically knocked me over. While every gathering is packed with dedicated, creative, optimistic, hard-working folks, it's no surprise that many gatherings that have to do with affordable housing and neighborhoods recently have had their somber moments. Traditional sources of funding are shrinking, while need and economic inequality are rising, regulations and finance systems are shifting, and the federal government may be abandoning us all together. Sequestration, tax reform, mergers, telling our story better so we can convince people that what we do is actually important… these are the sorts of the things on people's lips (in-between wonderful success stories).
OFN's conference, on the other hand, was clearly a gathering of a sector concerned with growth. There were 1200 people there (not counting the 50 odd federal employees who couldn't come thanks to the shutdown); 7:30am breakfast networking sessions drew crowds of 60, breakout sessions were maxed out, and at one point you weren't allowed upstairs to the lobby outside the ballroom where lunch was being held at all because it was too full.
But more than the actual people who showed up, the difference was in the tone and topics. Individual attendees spoke of adding staff and programs, and shopped the vendor tables seeking software to handle their new volumes of loans.
Early in the conference, Mark Pinsky, OFN's CEO, delivered a rousing “State of CDFIs” speech on the “opportunity revolution” in which he exhorted the field to stay true to its mission as it takes on greater influence and amounts of capital. Most organizations that fail do so “from indigestion, not starvation,” he cautioned, and claimed that CDFI challenges right now “are more internal than external.” “We may still be fleas on the tail of the dog,” he said, “but we're wagging the tail, if not the dog.” CDFIs challenge capitalism, said Pinsky, and can return the United States to the principle of opportunity from which it has strayed.
What does it mean for the community development field that the lender portion of the field is feeling its oats, while the borrower side is still hunkered down against a coming storm?
First of all, it's wonderful that CDFIs as a sector are doing well. I'm on the board of my local CDFI here in the Capital Region of New York state, and I think its an incredible organization. If CDFIs in general play an expanded role in allocating capital in spaces vacated by profit-maximizing financial institutions, I will consider that a good thing for the world.
But I do find myself wondering about the dangers of uneven growth, and supply and demand. While CDFIs do a lot of small business and microenterprise lending, and some direct residential lending, traditional community development work—affordable housing, community facilities, neighborhood commerical spaces—is a large part of most of their portfolios.
For CDFIs to thrive they need borrowers in that space who are also thriving, and it will take more than the availability of CDFI loans to make that happen. Joe Kriesberg, of the Mass. Assoc of CDCs explains the concern like this:
While CDFIs have grown tremendously since the launch of the [Dept. of Treasury] CDFI Fund, the federal government does not have any comparable system of support for CDCs—nor do most states. Many, although not all, CDCs are undercapitalized, which limits their ability to pursue a community-led agenda and their ability to leverage capital investments. The result, I fear, is a capital absorption ecosystem (a.k.a. a community development ecosystem) that is growing out of balance. This imbalance—if it continues to grow—threatens to undermine both the CDFI and the CDC sectors and more importantly the communities we all seek to serve. (Read the whole post.)
On a similar note, CDFIs are still nonprofits, and even though they function like mission-oriented businesses in their lending activities, many if not most of them still rely on grants to fund their operating budgets. (Something you might not have gleaned if you were a novice attending the OFN conference.)
If CDFIs are growing without that growth contributing to a greater pie of funding for the whole sector, isn't it a danger that they may be out-competing their own potential borrowers for scarce resources? And that would affect the ability of the community development sector to make change using the capital that the CDFI sector is ready to lend.
Living Cities, having struggled with capital absorption in its Integration Initiative, has begun talking about “capital absorption ecosystems.” While successfully deploying capital in a community may sometimes require importing capacity via intermediaries, as Robin Hacke has argued here recently, it seems that it may also involve a recognition on the part of the CDFI field, and those who are eagerly deploying their capital through CDFIs, that the capacity and health of the end users of those funds is critical to the functioning of those ecosystems.
The theme of the OFN conference was E Pluribus Unum. Imagine if, following that theme, following the exhortation to align capital with justice, the CDFI sector took some of its its burgeoning influence and respectability and used it to speak up for, or join voices with, its community developer borrowers—telling the stories it knows so well about their effectiveness, impact, and efficiency.
OFN has an “increased focus on public policy“ right now. There's some good stuff in their policy agenda about strengthening CRA and affirmative expectations for investing in low-wealth communities, and it seems like there could be some opportunity for aligning or coordinating policy agendas with others, like United for Homes, who are making concerted efforts to present bold, unified voices.
After all, we all share the same goals: justice and opportunity.