$1B Fund For CDFIs Is Explored
NEW YORK — The National Federation of Community Development Credit Unions is exploring whether a federal bond program could be used as a funding source for long-term assets and to bolster secondary capital for Community Development Financial Institutions (CDFIs).
Federation President Cliff Rosenthal said the new program could mean billions of dollars in government-guaranteed bonds issued by CDFIs. The CDFI bond program was established under the Small Business Jobs Act of 2010 and authorizes federal guarantees for bonds and notes for community and economic development purposes. Under the new legislation, the U.S. Treasury Department may issue up to $1 billion a year in bond authority through Sept. 30, 2014. Minimum increments of bonds are $100 million. The bonds are taxable, and guarantees may be as long as 30 years. The program will be restricted to certified CDFIs.
The Federation represents credit unions in a group of CDFIs organized by Opportunity Finance Network, which is formulating guiding principles for the new bond program. Rosenthal is hopeful that the first bond issuance will take place by the end of the year. "We will be pushing for an early regulation writing process that would be played out over the next four to six months."
Due to the minimum bond size of $100 million, Rosenthal sees a major role for the Federation in aggregating capital demand among its member credit unions. "We think that if the program is to work it will have to have a role for aggregators," Rosenthal said. "We are trying to create space for that in the program design."
Currently there are about 200 CDFI credit unions, an all-time high according to Rosenthal who attributed the total, in part, to the Treasury Department's Community Development Capital Initiative (CDCI), which encouraged a large number of credit unions to apply for and receive the CDFI designation last year. In 2010, the Federation helped 48 credit unions obtain $69.9 million in secondary capital under the CDCI program.
Rosenthal suggested the bond program could have an even bigger impact on CDFI-designated credit unions than the CDCI program, due to the fact there are no "onerous restrictions that discouraged many credit unions from participating in the CDCI program."
The Federation's next step is to inform credit unions of the opportunity and to assess interest, explained Rosenthal. "Very soon we will send a survey to all of our members, other CDFI-certified credit unions, and those we think are potential candidates to see what the demand could possibly be. So credit unions need to be prepared to answer the survey and to asses their needs for long-term capital to finance long-term lending, and their potential appetite for secondary capital with long terms."