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Borrowers need CDFIs: The data proves it

The House Appropriations Committee’s approved Financial Services bill includes a top-line for the CDFI Fund at $190 million. This is a cut of $58 million below the FY17 level. This reduction may have been influenced by the inaccurate assertion in the president’s budget blueprint that “the CDFI Fund was created more than 20 years ago to jump-start a now mature industry where private institutions have ready access to the capital needed to extend credit and provide financial services to underserved communities.”

To pressure test this assertion, Credit Builders Alliance (CBA) asked its Community Development Financial Institution (CDFI) members to forward a quick survey to their borrowers. The results wholeheartedly disprove the contention that CDFIs are passé and that they are no longer needed. Here are the highlights from the report.

{mosads}When asked, why did you get a loan from us? Nearly 40 percent of respondents said they were unable to qualify at other lending institutions. And more than 20 percent said that the CDFI was the only affordable option in their area.

Beyond the ability to access credit, 57 percent of survey respondents also indicated that working with a CDFI helped them to increase their credit score. Why is this important? A higher credit score can make it easier and cheaper for people to get a loan in the future. 

In further proof of the vital role that CDFIs play in our economy, 57 percent of respondents said that their CDFI loan helped them to start or grow a business. Small businesses are responsible for 55 percent of all jobs and 66 percent of all net new jobs since the 1970s, according to the Small Business Administration. Reducing CDFI funding would hurt small businesses and in turn the American worker. 

These results confirmed what CBA has known all along, first, in many states the CDFI is the only affordable lender in close proximity, especially for those living in rural areas or in Indian Country. Of CBA’s lender members, 31 percent serve rural communities. Second, the “mature” market does not serve everyone. Many American households, particularly those that are low-income, require credit to weather economic shocks such as unexpected expenses (i.e. car repair) or a sudden loss of a job. The CDFI is oftentimes the only lender who will provide a loan to someone who is credit invisible (lacking a credit history) or has poor credit. According to the CFPB, 26 million people are “credit invisible,” meaning that they do not have a credit record at one of the three nationwide credit-reporting companies. Finally, borrowers think highly of CDFIs and almost 100 percent would be happy to recommend their services to family and friends.

Data is powerful but even more powerful are the individual borrower testimonials that were culled from this survey. When asked what they needed the loan for, here were some of the responses: “to retain 16 employees and create new jobs”; “to provide a useable kitchen for my wheelchair bound teenager”; “to get equipment I would otherwise not have been able to afford”; “to pay for a much needed vehicle”; and my personal favorite “to save my reputation, I would have been run out of town.”

Some might say that the CDFI field should be happy since the appropriation amount was $176 million more than the request in President Trump’s budget, which eliminated all grant-program funding and included just $14 million for salaries and expenses to operate the NMTC and CDFI Bond Guarantee programs. However, this allocation, while better than zero, is going in the wrong direction. CDFIs have proven their value and they deserve more money, not less.

When asked what he could do with an additional $1 million in lending capital, CBA Board member Andy Posner replied, “The Capital Good Fund would immediately be able to make loans to hundreds of people who otherwise wouldn’t qualify with traditional lenders. This money would then be recycled as it is repaid to assist more consumers.”

If Congress is truly committed to helping those who are struggling economically and suffering psychologically, they will not allow cuts to this valuable program. And, for members who represent communities that depend on CDFI funding, we encourage you to protect this vital source of safe and stable funding for your constituents and their families.

Dara Duguay is the executive director Credit Builders Alliance. Prior to joining CBA, she was the director of Citigroup’s Office of Financial Education and founding executive director of the Jump$tart Coalition for Personal Financial Literacy.

The views expressed by this author are their own and are not the views of The Hill.


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