WASHINGTON - Rural America needs more capital to deal with poverty and a dwindling population.
So say Iowa lawmakers - and the Federal Home Loan Bank of Des Moines, which is committing $500 million to funding rural economic development.
At a recent Washington conference it sponsored, Sen. Tom Harkin said venture capitalists and large banks have largely ignored rural areas because the projects there are too small to promise an attractive return.
"We need capital in rural America, and we're not getting it," the Iowa Democrat said.
The state's other senator, Republican Charles Grassley, said even community banks are being too conservative in their lending. Small towns need "a banker that's not putting all of his money into municipal bonds or U.S. federal bonds - he's got it out there working in the community," Sen. Grassley said.
But Rep. Jim Leach, R-Iowa, said the problem is not a shortage of capital. Community banks, credit unions, microlenders, the Federal Home Loan banks, and insurance companies provide rural businesses with plenty of access to capital, he said in a panel discussion among House members at the April 26 conference.
"Rural America is not short on credit," Rep. Leach said. What it needs, he said, are leaders and young people committed to staying, starting businesses, and raising families.
Nevertheless, the Des Moines Home Loan Bank says community banks are crucial. To help them, the $50 billion-asset bank has pledged to lend the $500 million at cost to its members in Iowa, Minnesota, Missouri, North Dakota, and South Dakota over the next five years for rural development.
The program will give member banks more flexibility to lend for start-up businesses in rural areas. They will be able to borrow as little as $25,000, a quarter of the current minimum.
And because the Home Loan bank will be lending at cost, it expects members to charge below-market rates.
The bank began offering the funds May 2. As of Thursday it had received 14 applications and advanced nearly $9 million.
Jon von Seggern, the president of the Council of Federal Home Loan Banks, said that though other Home Loan banks have lending programs for economic development, none of the others have made such a big commitment.
The Des Moines bank has "made this a very high priority - to bring focus on the issues that rural America is facing," Mr. von Seggern said.
Patrick J. Conway, the bank's president, said the focus on rural economic development came out of a strategic planning session of its board three years ago.
"One of the outcomes was trying to transform the Home Loan Bank of Des Moines into the Home Loan Bank of Rural America," he said.
Since then the bank has sponsored two conferences to which it invited influential policy makers to discuss rural problems.
It also sponsored a report, released at the April conference, that concluded that because rural economies have diversified, new approaches are needed to stimulate rural growth.
Rural communities should find anchor businesses and institutions for development efforts, the report said. They should also strengthen ties with nearby cities and towns whose economies are livelier, it said.
