Opportunity for AllApril 28, 2014
Mark Pinsky is president and CEO of Opportunity Finance Network (OFN), a network of community development financial institutions (CDFIs) that play key roles in low- and moderate-income communities by providing funding opportunities that leverage loans from traditional financial institutions.
In a still-uncertain economy characterized by tight lending, CDFIs are increasingly filling credit gaps, serving small businesses and entrepreneurs, assisting affordable housing organizations, helping nonprofits address the healthcare needs of underserved families and providing financial relief to consumers stuck in credit deserts.
Community Connections periodically features regional and national leaders committed to community and economic development. OFN plans to observe its 30th anniversary Oct. 14-17, 2014, at its annual conference in Denver.
Mr. Pinsky provided his thoughts on the CDFI industry and the communities that CDFIs serve to Senior Community Development Advisor Ariel Cisneros, in the following interview, which was edited for space.
What are some of the key challenges facing community development financial institutions (CDFIs) today?
In 2003, Opportunity Finance Network (OFN) challenged the CDFI industry to “grow, change, or die” because we heard from our member CDFIs, bankers and economists that the growth path we were on was not sustainable.
CDFIs needed to improve their internal efficiencies, rethink their business models to become more sustainable, and identify and leverage opportunities for collaboration with other CDFIs, with banks and with other partners.
In addition, CDFIs needed to learn to think “outside in” rather than “inside out” so they could be better partners to new investors, funders, policymakers and others.
Grow, change, or die will always be part of the message OFN delivers—it really is nothing more than the understanding that every decision has consequences. But CDFIs today have made significant gains in all of the areas we were concerned about—operations, business models, collaboration and marketing.
The overarching challenge today is expanding CDFI coverage, where possible, in partnership with mainstream institutions.
The recession and its impact on credit markets has significantly set back the low-income, low-wealth, and other disadvantaged communities we care so much about. We need to reach more people in more places than ever before, and it is a big stretch. That seems to be driving even greater collaboration, bolder policy efforts and ambitious strategic planning.
What role did CDFIs play in the recent economic downturn? Do you see CDFIs shifting or changing their emphasis as the economy improves?
In early 2009, a major CDFI investor and I sat down to discuss whether CDFIs would survive the year. It seemed logical that CDFIs working outside the margins of conventional finance in markets that seem to hold greater-than-usual risk would be particularly vulnerable to deteriorating market conditions.
Instead, CDFIs did exceptionally well through the recession, filling credit market gaps, serving small businesses, affordable housing developers, nonprofits and consumers caught in a credit desert.
Jim Collins, the business writer, hypothesized that because CDFIs are used to lending in severely challenging conditions, we were well positioned to manage the recession. He was right. Although we saw a significant increase in “portfolio at risk” in 2009 and 2010, according to our CDFI Market Conditions Report, our strong balance sheets and on-the-ground ability led to low net charge offs (less than 2 percent). We came through the recession stronger than ever and playing an expanded role.Because credit markets remain tight, CDFIs are playing an expanded role today compared to pre-recession. OFN expects that CDFI roles will continue to expand for the next three to five years, and probably longer.
CDFIs have demonstrated their strengths and know their constraints. The greatest risk for the industry today would be overreaching, trying to do more than our balance sheets, our experience and our skill sets have prepared us to do well.There is significant temptation, as banks and government officials regularly ask us to take on new opportunities. Some—such as financing community health centers—are a great fit. Others may not be, however. The most important thing CDFIs need to do to ensure success is to stick to our knitting. We are tortoises as well as hares—the world needs both—and sometimes (the story goes) the tortoises come out ahead.
OFN is celebrating its 30th anniversary with the annual conference in Denver. Along with the conference, what are some major initiatives for 2014?
It seems remarkable that a small group of people sitting under apple trees at a converted convent 30 years ago planted the seeds for what has become a $40 billion-plus CDFI industry. When we get together in Denver Oct. 14-17, 2014, we will be laying the foundation for the next 30 years of innovation and production. In 2044, we will be as different then compared to now as we are now compared to our first meeting.
To that end, we are deeply engaged in developing talent for the industry. Our new Citi Leadership Program for Opportunity Finance is developing emerging, midcareer, and seasoned leaders. Still in its pilot stage, we hope to make it an institution in the industry.
We are ramping up our efforts to build the capacity of small business lenders through our partnership with Goldman Sachs’ 10,000 Small Businesses initiative, and supporting CDFIs providing financing to community health centers, which are more important than ever as a result of the Affordable Care Act.
We are also focused on two new efforts to bring talented people into the industry. Our partnership with the Stern School of Business at New York University is training undergraduates to prepare for CDFI careers, and the certificate program we recently launched with the University of New Hampshire is helping aspiring CDFI staff build skills to step into CDFI jobs.
OFN’s financing is expanding thanks to New Markets Tax Credits and the CDFI Bond Guarantee Program, which is the most transformational opportunity for the industry since Congress created the CDFI Fund 20 years ago. It will provide as much as $750 million in long-term, affordable financing to CDFIs this year, making possible financing opportunities that used to be out of reach.
OFN currently is one of three qualified issuers under the program, and we expect to expand our role this year and beyond. To that end, we are launching a capital strategies project to help identify and create financing approaches that work for all CDFIs.
Finally, in pursuit of our core purpose of aligning capital with justice, we are lifting up our megaphones with a new brand marketing effort to give millions of people the chance to be part of the work that CDFIs do.We believe in opportunity for all. And we want to help others learn, lead, and join us in our work.