The pressure on banks to perform under the Community Reinvestment Act has sparked a renaissance of community development corporations.
In the spotlight is Arizona Multibank Community Development Corp., regarded as a model because its reach is wide, its loans performing, and its operation efficient.
Launched in 1992, Arizona Multibank is the creation of New York economic development veteran Andrew W. Gordon who persuaded 13 banks to put up $10 million. Since making its first loan late last year, the CDC has provided 21 businesses with $2.3 million in financing.
"The theory is to spread risk, spread cost, and concentrate expertise," said Mr. Gordon, president of the group. "Our job is to be on our toes, and creative and flexible."
Small-Business Lending
"It is the first and only CDC to have such a broad mission," said Janet R. Gordon, managing consultant for community development at Barefoot, Marinan & Associates, a Columbus, Ohio-based consulting firm.
Most CDCs focus on housing, she said, but Arizona Multibank lends to small businesses, including companies owned by minorities and women.
It is also unusual for such an organization to be nonprofit. Of the 200 CDCs created by banks, 80% are for-profit, according to Ms. Gordon, who worked previously in the community development division of the Comptroller's office.
The big investors in Arizona Multibank are: Banc One and Bank of America at $3 million each and First Interstate with $2 million. Citibank put up $750,000 and Chase another $250,000. Eight other, smaller banks made up the $1 million balance along with $100,000 from the Arizona Bankers Association.
All the banks have a 15-year commitment to the program, which means they can't withdraw their funding.
"You need leadership from the banking community," Mr. Gordon said. "You need genuinely concerned people. Without that, you have nothing."
Arizona Multibank's solid financial footing is the key to its success.
Community development corporations were created in the 1970s to finance borrowers who were not being served by main-stream lenders. CDCs don't adhere to strict underwriting standards the way banks do.
CDCs foundered in the 1980s, but have been rejuvenated recently as attention on CRA has intensified.
Mr. Gordon has been in community development since 1979. He helped set up New York's Financial Services Corp., a nonprofit economic development bank that assisted 1,000 small-business and community projects in Manhattan. He left in 1991, as senior vice president, to start Arizona Multibank.
Mr. Gordon, who has degrees from Harvard and Yale, said he wanted to give something back to his native state, where he attended elementary and high schools.
Arizona Multibank has a staff of three: Mr. Gordon, Richard Niedling, an executive on loan from First Interstate Bank, and a secretary.
Because the multibank is non-profit, it borrows a seasoned banker every year to help run the organization. The executive's bank continues to pay the his or her salary.
"We can infinitely identify with a small business," said Mr. Gordon.
Mr. Niedling has been working for the CDC for the past year. His term ends this month, and he plans to return to First Interstate as the director of small-business lending. An officer from Bank of America is scheduled to join Arizona Multi-bank soon.
Mr. Niedling acts as a liaison with the investing banks that tell him of customers who don't quite meet the bank's lending standards but have potential. Those leads provide the CDC with most of its customers.
About 600 businesses have inquired about financing from Arizona Multibank; 50 actually filed applications.
Mr. Nielding said the CDC makes loans that will help accomplish a public purpose such as job creation, economic development, or new opportunities for minorities or women.
Arizona Multibank has financed the state's first homeless shelter for families, a copper wire manufacturing plant, and a wholesale distributor of industrial abrasives such as sand-paper.
Good Guy, for a Change
The job is a real switch for him. Mr. Niedling, with 12 years of lending experience, was accustomed to being the bad guy.
"Before, I was the policeman of the bank," he said. "I'd try to figure out why I shouldn't make the loan. Now I try to figure out how we can do the loan."
Arizona Multibank works with its 13 bank investors to get money into their customers' hands. The banks refer borrowers who are not ready for a traditional loan to then tries to work out a then tries to work out a way to make the loan.
Mr. Gordon said bank referrals work well because the applications have already been reviewed once.
Gordon Murphy, executive vice president of the Arizona Bankers Association, said the program has been great for the banks' Community Reinvestment Act ratings.
Mr. Murphy said examiners in Arizona ask banks whether they are members of the CDC.
"The OCC saw this as a model other states could imitate," Mr. Murphy said.
Arizona Multibank's first year consisted mainly of development and strategic planning. The CDC spent its second year searching for customers. The kinds of customers they were looking for didn't know Arizona Multibank existed, Mr. Murphy said.
That problem was solved with the creation of the referral system with banks.
For now, Arizona Multibank is holding the loans it makes. But eventually, Mr. Gordon said, he hopes to sell the loans to the investing banks.
