What makes a model CDFI tick?: The CDFI Connect interview
In June 2014, New Hampshire Community Loan Fund President Juliana Eades was interviewed by CDFI Connect on the topic of What Makes a Model CDFI Tick? Here are excerpts from that inverview:
New Hampshire Community Loan Fund has made its mark over the years for its innovative mission-driven financing and its record of success.
Its two founding principles are stated plainly on its Who We Are website page:
- “We believe that one of the barriers that keeps people with low incomes from achieving greater self-sufficiency is a lack of access to credit.”
- “We believe that people and organizations that have or manage financial resources would be willing to help their neighbors if they had a mechanism to do so.”
The Community Loan Fund has been around since 1983, and in 2009 it won a prestigious NEXT Award for Opportunity Finance for its innovative mortgage loans for buyers of manufactured homes in resident-owner communities or on their own land.
It offers a range of other financial products as well.
Executive Director Juliana Eades spoke recently with CDFI Connect.
Your website says you have more than 500 investors, nearly three-quarters of whom are individuals who have put in from $1,000 to more than $1 million. Do you really have $1 million individual investors?
Most of our individual investors have $5,000 to $20,000 with us; one has $1.5 million.
What do they get, monetarily speaking, in return?
What they get in return is a promissory note and our best Girl Scout promise to pay it back—with interest—on time. It’s not government insured or liquid. We have never failed to repay an investment in full, however. We pay up to 5 percent on investments 10 years and longer, up to 4 percent on 7- to 9-year loans, up to 3 percent for 5 to 6 years, up to 2 percent for loans of 3 and 4 years, and up to 1 percent for 1- and 2-year loans. We have institutional investors too. All of our money goes into an undifferentiated pool of funds and everybody shares the risk and glory.
New Hampshire Community Loan Fund is a notable proponent, and enabler, of Individual Development Accounts, or IDAs. How have those worked out?
First let’s remember what individual development accounts are: An IDA is designed to be a way for low-income households to build wealth. Government tax policy does that for rich and middle-class households; IDAs do it for low-income people. You use an IDA for homeownership or for higher education. It’s a matching-contribution program, where you’re encouraged to save up to a maximum of $500, and we match that with a maximum of $4,000 for a total of $4,500.
I’ll talk about how they’ve worked here on the home-ownership front. We’re mainly a lender, but we realize there’s also a role for equity in people’s lives, and that’s what IDAs offer. A little over 400 people have bought houses through our IDA program. They’ve saved, collectively, $800,000 that we’ve matched with $2 million. It’s down-payment money, and has functioned as leverage over time for homeownership worth $54 million for low-income households. Higher education is a growing use for IDAs too.
You’ve taken a serious stake in the “manufactured-home movement.” Can you tell us why that’s such a big thing in New Hampshire?
Manufactured homes are one of the most important forms of affordable homeownership in rural places. Many low-income people have some personal wealth in their manufactured home.
Manufactured-home communities haven’t always gotten the respect they deserve. Granted, there are some structural issues that come out of the history of manufactured housing—they were mobile homes once upon a time—but today they’re built to HUD code, they aren’t built to move, and they don’t move. The mortgage market hasn’t caught up to this reality. Manufactured-home parks are quite often wonderful little neighborhoods, and people want to stay in those communities. When a park comes up for sale as to who will own the land under those homes, that’s where we step in and help homeowners form a corporation and buy that land. Resident ownership of manufactured-home communities builds security.
In 2008 we helped create a social enterprise called ROC USA® that has become its own separate entity and has taken the resident-ownership movement national. Our focus remains innovation and scalability at the local level.
The other issue is lack of access to standard mortgage financing, which leaves residents vulnerable to unfavorable financing. For the past 12 years, we’ve been making real mortgages on manufactured homes in New Hampshire.
You also invest in child care centers, which of course isn’t something every CDFI does. Why are child care centers in your portfolio?
If you look at all the studies on what kinds of investments do the most community good, one thing that jumps out at you is that early learning is invaluable to low-income working families. The evidence is also overwhelming that early learning, which happens in preschool programs, has just about the biggest impact of anything you can do. It helps children live and thrive, it positions them for learning and growing in a way that children who miss out on early learning programs may not have. It also supports household stability in families who have working mothers and fathers. We’ve loaned to about 40 child care centers and their impact has been tremendous.
You have a trademark business-lending initiative called Vested for Growth. Can you explain?
That’s our newest big innovation. It’s based on “royalty financing”—more commonly known maybe as mezzanine—and it targets New Hampshire businesses that aren’t big enough to attract venture capital, or that don’t have growth prospects aggressive enough to attract venture capital, or that can’t get bank financing. What is does is infuse a business with growth capital without asking for ownership. They pay us back on the upside; as they make money, we get our money back incrementally. We call it “risk-tolerant” debt. It’s set up so the owners of a company don’t have to dilute their stake in the company, and they don’t have to sacrifice any decision-making authority. The whole idea is to get much-needed capital into promising businesses that can provide more good-quality jobs to people with a high school or associate’s degree.
New Hampshire Community Loan Fund recently got its fourth review from the ratings service CARS (now known as Aeris). How is that useful?
Yes, and I’m proud to say it was the very top rating for social impact and No. 2 for financial strength. As the CDFI industry reaches out to more investors, it helps for them to know that somebody else has “qualified” us. The fact that we went through that process is confidence-inspiring, especially to investors who aren’t familiar with CDFIs. I think what CARS, or Aeris, does is a service to the entire industry because it offers a process that adds credibility. As more and more of us get rated, we’re likely to see a critical mass of investors come in who are able to use those ratings to gain a better understanding of each fund and the industry as a whole. A ratings system will help drive the market for investors who want a diverse portfolio of CDFIs. It’s going to help get capital out to all kinds of places.
If you could say New Hampshire Community Loan Fund had a unique quality among CDFIs, what would it be?
What’s special about us is that we’re mostly private capital, and we’re unusually flexible about how we deploy that capital. Where traditional sources of capital have obstacles to investing, we’re able to find gaps and move into them, helping people create solutions that address unmet needs.
This interview was condensed and edited.