CDFI Capitalization | Community Development Financial Institutions Fund

Wednesday, December 5, 2012

I. Capitalizing Your CDFI -- An Overview

CDFI Industry Analysis: Summary Report
Capital Markets, CDFIs, and Organizational Credit Risk: This new book by Charles Tansey, Michael Swack and Michael Tansey discusses the future of CDFIs in the lending business, how they can establish a meaningful niche for themselves, and ideas for greatly increasing the flow of capital to this sector.
Presentation for in-person course on “Raising Debt and Equity”

II. Types of Investors in CDFIs

Banks
- The Community Reinvestment Act and bank investments in CDFIs
  - CRA Resources: This document provides helpful links to understand the Community Reinvestment Act and research bank performance under the Act.
- National Community Reinvestment Coalition (NCRC) is a nonprofit advocacy organization that monitors and reports on the Community Reinvestment Act: http://www.ncrc.org/programs-a-services-mainmenu-109/policy-and-legislation-mainmenu-110/the-community-reinvestment-act-mainmenu-80/a-brief-description-of-cra-mainmenu-136
- Federal Financial Institutions Examination Council (FFIEC) CRA site – Find regulations, CRA ratings for banks, etc: http://www.ffiec.gov/cra/
- PolicyLink guide to CRA and how to use it (oriented toward community based organizations and advocates): PolicyLink guide to CRA
  - Overview of CRA: This document provides an overview of CRA as of 2001, from Covington and Burling.
  - CDFIs and the Federal Home Loan Bank system
    - FHLB Membership: This presentation from the Opportunity Finance Network Conference provides an overview of regulations for CDFIs to become members of the Federal Home Loan Bank System.
      - Regulations for FHLB Membership: This document provides the Final Rule issued by the Federal Housing Finance Agency (FHFA) governing CDFI membership in the Federal Home Loan Bank system.
- Loan Sales, Participations and Lender Consortia
- EQ2
Foundations
- Program-Related Investments
Religious investment funds
- Religious Investors
Government
- Federal Government Funding Programs
Individuals
- Raising Investments from Individuals

III. General Tools and Presentations on CDFI Capitalization

What Investors Want to Know About Your Loan Assets: This document provides a list of information CDFIs should consider assembling if they want to be able to answer a wide range of tough questions from prospective investors.

IV. How CDFIs Are Capitalized Today

Program-Related Investments
- Overview
- Examples and Tools
- Mission/Impact Investing
  - Examples and Tools
    - Connecting CDFIs to the Socially Responsible Investor Community: This Ford Foundation-sponsored document provides a thorough overview of barriers and opportunities for CDFIs to raise capital from socially responsible investors, and identifies approaches CDFIs can adopt that may increase their ability to connect to socially responsible investors.
    - Equity Advancing Equity: This document describes community foundations that are targeting some of their investment portfolio toward investments that advance racial and social equity.
    - Investing for Social and Environmental Impact: This report from Monitor reviews the growth potential of socially motivated investment (“Impact Investing”), and discusses barriers and recommendations to accelerate the growth of this space.
    - Compounding Impact: Mission Investing by US Foundations: This document from FSG Social Impact Advisors offers a “comprehensive look at the landscape of mission investing by US foundations.”
    - The Power of Strategic Mission Investing: This article from the Stanford Social Innovation Review offers a summary of the Compounding Impact study, and reviews the types of mission-related investments that foundations are making.
    - Trillium Asset Management MRI Primer: This document provides a primer for foundations interested in getting involved in making mission-related investments.
    - Responsible Endowments Handbook: This document from the Responsible Endowments Coalition discusses the potential for college and university endowments to be invested in local communities, including local community financial institutions.
    - Heron Overview: This document describes the activities of the FB Heron Foundation, including details on an investment it made in the Community Reinvestment Fund, a CDFI.
    - Heron Foundation Frontiers: This document, “New Frontiers in Mission-Related Investing,” discusses the Heron Foundation’s decision to engage in mission-related investing.
    - Religious Investors:
      - SIF Faith-Based Toolkit: This document from the Social Investment Forum provides an overview of religious institutions and their experiences with community investing. The document is targeted toward religious investors (rather than the recipients of their investments) as the audience.
    - Program Related Investors:
      - Investing in CDFIs webinar: This presentation by the PRI Makers Network provides a review of investment opportunities in the CDFI field for an audience of funders interested in making program-related investments.
      - PRI glossary: This document from the Annie E. Casey Foundation provides a glossary of terms often used in association with program-related investments.
      - PRI Makers Network Profiles: This document provides links and descriptions of foundations making PRIs.
      - PRI Primer: This document from the PRI Makers Network provides an FAQ on PRIs.
Debt Investments in CDFIs
- Examples and Tools
  - Enterprise Community Loan Fund Impact Note Prospectus: This file provides an example of an investment prospectus used to raise capital investments for Enterprise Community Loan Fund, which re-lends capital to affordable housing developers.
  - Forward Community Investments Prospectus, Application , Loan Subscription Agreement and Promissory Note: These files show the documents used by Forward Community Investments, a CDFI in Wisconsin, to raise capital for its lending activities serving nonprofit community-based organizations.
  - TRF Prospectus: This file shows a prospectus from The Reinvestment Fund, a CDFI, to raise Promissory Notes from investors.
  - Calvert Social Investment Foundation Prospectus: This file shows a prospectus from Calvert Social Investment Foundation to raise senior unsecured debt.
EQ2
- Overview
  - An Overview of EQ2 by Opportunity Finance Network: This file contains an article written by Beth Lipson of National Community Capital (now Opportunity Finance Network) that provides an overview of Equity Equivalent investments, an equity-like investment that banks and other investors can make in CDFIs.
- Examples and Tools
  - Sample EQ2 Agreement for a Housing Group: This file contains an investment agreement made between Funding Partners for Housing Solutions and an Investor for an EQ2 investment.
  - Sample EQ2 Investment Agreement – statewide loan fund: This document contains an investment agreement made between a statewide loan fund and an Investor Bank.
  - Sample EQ2 Agreement 1 from Opportunity Finance Network: This document provides a model agreement between a CDFI and an investor in which the CDFI will use the proceeds to support a micro-enterprise lending program.
  - Sample EQ2 Agreement 2 from Opportunity Finance Network: This document provides an agreement between NCCA (now Opportunity Finance Network) and an investor for an EQ2 investment.
Loan Sales, Participations, and Lender Consortia
- Examples and Tools
  - Loan Sale Model Agreement from Opportunity Finance Network: This document provides a model loan sale agreement between a CDFI and a loan purchaser, in a context in which the CDFI is working with multiple purchasers. The model document was created by NCCA (now Opportunity Finance Network).
  - Participating Loan Pool Agreement: This document provides a loan pool agreement in which several banks agreed to purchase mortgage loans made by a CDFI. The names of the organizations have been redacted.
  - NHS Chicago Mortgage-Backed Certificates: This document provides an overview of a CDFI that established a mortgage-back certificate program to sell loans to investors.
  - Manchester Loan Pool Winning Strategies: This document discusses the Participating Loan Pool set up by Manchester (New Hampshire) Neighborhood Housing Services. The loan pool is not currently operational, but the document provides some background on the process of setting up the pool and its structure.
  - Fannie Mae Selling Guide: This website provides an exhaustive (1,000 page+) guide to what is needed to be able to sell single family mortgage loans on the secondary market.
Raising Investments from Individuals
- Overview
  - Aspen Institute webinar: This document presents slides from an Aspen Institute webinar on how CDFIs can raise capital investments from individual investor.
- Examples and Tools
  - NHCLF individual investor handout: This document was created by the New Hampshire Community Loan Fund and provides an example of how a CDFI can communicate to prospective individual investors about an investment opportunity, as well as a model loan agreement between the individual investor and the CDFI.
Federal Government Funding Programs
- Examples and Tools
  - SBA Community Advantage Program participant guide: Provides an overview of how to apply to be a Community Advantage Lending Company, which allows access to SBA 7(a) loan guaranties for loans of $250,000 or less.
  - About Title I Home Improvement Loans: Provides basic information about the FHA Title I program, which insures home improvement loans.
  - FHA Title II Mortgagee Approval Handbook: Provides the rules and procedures governing approval of lenders to make FHA mortgages.

The compilation of these documents was funded by the CDFI Fund, under Contract TPD-CDF-10-C-0003, Task Order 0003. The curriculum and opinions expressed in these documents are those of the authors, who are solely responsible for the content, and do not reflect the opinions of the CDFI Fund or any other person, entity, or organization.