WASHINGTON Funding legislation approved by Congress last month will allow community development credit unions and other CDFIs to issue federally guaranteed bonds to finance a variety of development activities, helping to boost capital and lending capacity of the CDCUs.
The maximum maturity of the bonds is 30 years and the bonds are taxable. Qualified Issuers will lend the bond proceeds to Eligible CDFIs. The CDFI program has been a major source of funding for CDCUs, providing more than $200 million in grants and low-interest loans for more than 200 credit unions over the past 15 years.
The Treasury Department is still developing final rules for participation in its CDFI Bond Guarantee program. Since the bonds will be issued in minimum amounts of $100 million, the program is expected to be limited to potential aggregators such as the National Federation of CDCUs, which claims 165 credit union members, or the Center for Community for Self-Help, sponsor of two CDCUs and the Self-Help Venture Fund.
The Federation, in a comment letter submitted to Treasury last week, urged that the final rules allow proceeds from the bonds be able to be used by CDCUs for secondary capital or to buy loans from other CDFIs, particularly mortgages. “The CDFI Fund would enable us to greatly expand the scope of this activity,” said the Federation in its comment letter. “This is a particularly important function for existing CDFI intermediaries, such as the Federation, as well as other CDFIs who may enter the market to enhance liquidity.”
CDCUs, or credit unions designated by NCUA as “low income,” are the only credit unions permitted to accept outside capital and to count it as net worth.
The creation of the CDFI bonds, which will be purchased by the Treasury’s Federal Financing Bank, was authorized in the Small Business Jobs Act of 2010 and authorizes the Treasury to guarantee up to 10 bonds per year, each at a minimum of $100 million. The total of all bonds cannot exceed $1 billion per year. Last month Congress passed an appropriations bill that will allow Treasury to buy up to $500 million this fiscal year.
