On a recent chilly December day, I hopped on the train from Richmond to Washington, DC, to meet up with several CDFI leaders on Capitol Hill. Our goal was to relay support for the recent changes made to the CDFI certification application, provide information around the current cost of capital for CDFIs, and share how our industry is preparing in anticipation of major federal funding for climate solutions via the Greenhouse Gas Reduction Fund. We had the opportunity to spend time with key members of the Community Development Finance Caucus and other committee staff with oversight of legislation that impacts CDFIs. Here are four takeaways from my day on The Hill:
Changes to the CDFI Fund’s certification application have been well received by our industry.
Our first stop on our visit was the office of one of our industry’s most outspoken advocates, Senator Mark Warner. My CDFI colleagues and I expressed to the Senator’s staff our overall enthusiasm regarding the CDFI Fund’s recently updated certification application for renewing and aspiring CDFIs. The application had not been adjusted in roughly 30 years, and members of our industry anxiously awaited the revision.
Ahead of the release of the new application, CDFI leaders and trade organizations like Opportunity Finance Network (OFN) expressed their support for continued high standards for certification and a stronger focus on mission from applicants. I relayed our organization’s satisfaction with the new application, which was unveiled by the CDFI Fund earlier this month. As OFN breaks down in a recent blog post, the revised application includes more clarity around relevant community development products and services, provides space for CDFIs to explain their products’ community impact, and expanded “targeted populations” and “investment areas”. Overall, the changes reflect an evolving community development finance field and target markets.
CDFIs everywhere are feeling the impact of the current rate environment.
It’s well known that current interest rates are causing stress across financial institutions of all types – and their borrowers. What may not be as universally acknowledged is that, given our mission and the communities we serve, CDFIs are unable to pass down high rates of the capital we receive to our borrowers without hindering their growth. Our reliance on capital from banks, coupled with the rate situation, is having an impact on our ability to support the high-impact projects we were created to enable.
Our group shared with Senator Warner’s team that the availability of low-cost debt capital is crucial to CDFIs’ ability to increase equitable access to financing in underserved communities. This is nothing new to Senator Warner’s staff – the Senator was key to the 2021 creation of the Emergency Capital Investment Program (ECIP), a transformative $9 billion investment in CDFI depositories to enable crucial support of small businesses and consumers in low- to moderate-income communities. Locus was a recipient of this critical funding. Additionally, we continue receive low-cost dollars from the CDFI Fund.
While this federal funding is game-changing, we need an all-hands-on-deck approach to provide CDFIs with a variety of low-cost, flexible sources of funding until rates settle down. This means all partners – public and private sector alike – including federal and state government, financial institutions, corporations, and philanthropy. Our call-to-action was heard, and we were reassured of the Senator’s ongoing support for increased resources for CDFIs, particularly through his leadership of the Community Development Finance Caucus.
There is continued interest from lawmakers around CDFIs as a growing class of green lenders.
Locus got into the climate finance game in 2016, when we made our first solar loan to an existing real estate development partner. Since then, we’ve financed over 60 solar projects which translates into roughly $50 million in closings and 21MW of solar energy produced.
We also got the opportunity to speak with several other members and committee staff during our visit to The Hill. As the only climate resilience lender in the room, I was asked to share about our growing solar practice, which has expanded from Virginia to New York, Maryland, and DC. Their interest was piqued by our unique experience, especially given the anticipation surrounding next year’s awarding of funding from the EPA’s Greenhouse Gas Reduction Fund. I encouraged the staff to watch carefully as our field evolves to meet the growing need for green capital solutions, especially in low-income, frontline communities.
The unfunded guarantee is picking up steam as an under-utilized tool for impact investors.
If you know us, then you likely know that Locus is home to the Community Investment Guarantee Pool (CIGP), an innovative financing tool for intermediaries (like CDFIs) participating in climate, housing, and small business lending. Since its inception in 2019, CIGP has changed the way we think about how foundations and other mission-driven investors support high-impact, equity-focused community development projects.
CIGP is now fueled by 17 high-profile philanthropies and investors who have committed over $66 million in non-cash guarantees, and we are hyper focused on deployment in 2024. By sharing the impact and future of CIGP and our guarantee business – supported by a recent $12 million gift from MacKenzie Scott – with key Senate supporters, we hope to elevate this under-utilized vehicle for equitable community development financing.
As a diversified community development organization that is home to two CDFIs with over 2.2 billion in total impact, we take seriously our responsibility to use our collective voice on behalf of our industry, communities, and partners. We are grateful for the consistent and impactful advocacy of our industry by Senator Warner and his colleagues, especially over the last three years. We look forward to the Federal Government’s continued investment in CDFIs as essential community development catalysts.