The government's Community Development Financial Institution Fund has proved to be overwhelmingly popular among financial institutions seeking seed money for low-income projects.

At the first meeting of the agency's advisory board Friday, Treasury Secretary Robert Rubin announced that the program drew 262 applications requesting more than $300 million.

"That's a remarkable response," Mr. Rubin said. "CDFI is an enormously promising idea. It is simply too good to allow it not to succeed."

Congress does not share Mr. Rubin's view. The agency, created by the 1994 community development banking bill, is being sustained by $50 million appropriated for fiscal year 1995. That's 60% less than the original appropriation of $125 million. Congress voted to ax the community development fund in the 1996 budget reconciliation measure, which President Clinton then vetoed.

Of the $50 million up for grabs, $31 million is available as funding for community development projects. The money - 10 times less than the amount requested by financial institutions - is expected to be awarded no later than early summer.

"Any way you cut it, we are quite oversubscribed," said Kirsten Moy, director of the agency.

The bulk of the appropriation's balance - $15.5 million - would fund implementation of the Bank Enterprise Act, which awards money to banks and thrifts that increase their lending in low-income areas.

Carol J. Parry, a managing director at Chemical Bank and a member of the advisory board, criticized the bank enterprise program application process as being extremely complicated.

She said that the method for tracking loan and deposit growth required in the application process is different than the tracking system required under the Community Reinvestment Act.

Ms. Moy said the agency would revise its regulations to simplify the application procedure. The public has until March 15 to comment on the proposed changes.

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