WASHINGTON – This week, U.S. Sens. Mark R. Warner (D-VA) and Bill Hagerty (R-TN) introduced the Scaling Community Lenders Act of 2022, bipartisan legislation to unlock more sources of liquidity and support for Community Development Financial Institutions (CDFIs) to scale their activities and fuel more lending in low- and moderate-income (LMI) communities.

CDFIs play a critical role in providing responsible and affordable credit to underserved communities. During the pandemic, CDFIs demonstrated their ability to deliver billions in dollars to underserved businesses through the Paycheck Protection Program (PPP), at a large scale, to the tune of $34 billion. While Congress took significant steps to support community-based lenders over the last two years on a bipartisan basis, CDFIs continue to need more long-term patient capital, operating capital, and resources to modernize their systems to compete in an era of rapid financial innovation. The Scaling Community Lenders Act of 2022 authorizes new resources to activate and fund the long-dormant Section 113 of the Riegle Act of 1994 – the CDFI liquidity enhancement program – which would allow the CDFI Fund to fund demonstration projects within the industry, selected on a competitive basis, to provide liquidity to CDFIs.

“CDFIs and Minority Depository Institutions play an essential role in providing access to capital to underserved communities, which is why I’m so committed to supporting these institutions. I’m proud of the work I’ve been able to do with my colleagues across the aisle to secure historic investments in these community-based lenders, and to work with Sen. Hagerty on this innovative approach that supports new and innovative approaches in the industry and lays the groundwork for new ways to scale the industry’s ability to meet the needs in LMI communities,” said Sen. Warner. “There’s no silver bullet, and I’m for an all-the-above approach to support these vital community-based lenders. In my view, in addition to increasing the CDFI Fund’s resources we should make sure that CDFIs have every tool possible to do what they do best, which is supporting their communities and working to give everyone, regardless of zip code or background, a fair shot.”

“CDFIs can play a constructive role in driving economic growth in America,” said Sen. Hagerty. “I’m pleased to cosponsor this legislation with Senator Warner to establish a pilot program that will help provide a roadmap to leverage CDFI funding with private capital rather than Federal funds.”

CDFIs lend across a variety of categories or asset classes, including business loans, consumer loans, commercial real estate, residential real estate, home improvement, and home purchases. However, for many of these products there is no secondary market that can unlock capacity and take loans of CDFI balance sheets. The development of a secondary market or facility that could buy loans from CDFIs would allow the industry to build scale and prove the performance of their assets in the long-term. The Scaling Community Lenders Act of 2022 will encourage innovation and help determine the best routes for unlocking secondary markets for CDFIs.

Bill text is available here. A one-pager describing the bill is available here.

“CRF strongly endorses the Scaling Community Lenders Act of 2022 introduced by Senators Warner and Hagerty. We applaud their leadership and foresight to develop liquidity resources for CDFIs. As a pioneer of community development secondary markets and securitization, we understand the power of providing liquidity to CDFIs.  We were early supporters of section 113 of the Riegle Act and are gratified to see this section of the bill come to life,” said Frank Altman, Founder & CEO, Community Reinvestment Fund.

“CDFIs play a critical role in reaching business owners, families and communities that our capital markets have left behind. Our decades of work with CDFIs have clearly identified the challenges they face in accessing the capital they need to scale their lending. Building secondary markets for CDFI loans is an essential complement to the CDFI Fund’s direct support for these critical institutions.  We’re pleased to see this movement toward activating an important part of the original CDFI Fund statute,” said Joyce Klein, Director, Aspen Institute Business Ownership Initiative.

"New innovations to channel reliable liquidity to CDFIs are sorely needed. Supporting those efforts through activating and funding the CDFI Fund's liquidity enhancement program will pave the way for new scale in all parts of the CDFI industry, putting more capital where it does the most good." – said Brett Simmons, Managing Director of the EBA Fund.

“CDBA strongly supports efforts to build critical industry infrastructure that enable CDFIs and the communities they serve to thrive.  Access to liquidity is important to the functioning of financial institutions and this bill will help ensure that a diverse range of CDFIs have access.” – said Jeannine Jacokes, CEO of the Community Development Bankers Association.

“CDFIs consistently demonstrate an ability to support and reach historically marginalized and under-resourced communities. These community-centered organizations, built to promote economic inclusion and capital access, need their own capital tools to scale and break through barriers to their growth. Facilitating the development of a reliable secondary market for CDFIs will provide these lenders opportunities to leverage their existing portfolio as a financing tool, freeing up assets for additional community investment. Activating and capitalizing the dormant Section 113 of the Riegle Act is critical to building a secondary market for CDFI lending, ultimately giving them the liquidity to originate more high-impact loans and capital tools. The VA CDFI Coalition is excited by the possibilities these investments could create across Virginia and hope to see this pass,” said Leah Fremouw, Board President, VA CDFI Coalition.

“The Local Initiatives Support Corporation (LISC) thanks Senators Warner and Hagerty for introducing the Scaling Community Lenders Act.  Research has shown that Community Development Financial Institutions (CDFIs) loans are high performing, although in most cases they are nontraditional and do not meet the underwriting and collateralization standards required by conventional banks. As a result, there is not a vibrant secondary market where CDFIs can sell these loans to investors. This legislation will kickstart a CDFI secondary market so CDFIs have access to loan purchasers to obtain the capital needed to finance additional community and economic development activities for underserved people and communities,” said Matt Josephs, Senior Vice President for Policy, LISC.

“Each year, the 47 certified Tennessee Community Development Financial Institutions (CDFIs) create thousands of jobs, expand access to affordable housing, finance over 2 million sq. ft. in new or renovated real estate, improve energy efficiency, and make hundreds of millions in loans and investments into Tennessee businesses, nonprofits, and community facilities. The Scaling Community Lenders Act pilot program would provide CDFIs with new and innovative liquidity resources to explore secondary markets, unlocking more capital and expanding our ability to serve Tennessee communities. We commend Senators Hagerty and Warner for thinking outside of the box on this promising initiative,” said Hank Helton of Pathway Lending and Chris Miller of Three Roots Capital.

“The CDFI Coalition is pleased to add its voice in strong support for the legislation sponsored by Sens. Warner and Hagerty to establish a pilot program aimed at establishing a secondary market for loans made by Community Development Financial Institutions (CDFIs). The Scaling Community Lenders Act of 2022 amends the Community Development Banking and Financial Institutions Act of 1994 to authorize $100 million for funding up to 6 pilot programs, selected on a competitive basis, which would purchase CDFI loans and loan participations,  provide guarantees, loan loss reserves and lines of credit and other measure necessary to enhance CDFI liquidity. CDFIs emerged to provide financial services in urban neighborhoods and rural areas underserved by traditional financial institutions, particularly those with high rates of poverty and unemployment,” said Ceyl Prinster, President and CEO, Colorado Enterprise Fund and Chair of the CDFI Coalition. “By leveraging over $12 in private capital to every $1 in federal support, CDFIs are filling the widening credit gap encountered in many communities, creating jobs improving housing and community facilities and creating economic opportunity. Throughout the last economic downturn, CDFIs provided flexible and patient capital, rigorous risk management, and commitment to the projects in their communities and the sustainability of their borrowers. While traditional borrowers fled economically distressed communities, CDFIs stepped in and filled the void. Since the advent of the economic crisis prompted by the pandemic, CDFIs have been on the frontlines of providing technical and financial assistance to small and minority-owned businesses. CDFIs fill a vital niche in the nation's financial services delivery system by serving communities and market sectors that conventional lenders cannot - with the ultimate goal of bringing CDFI customers into the mainstream economy as bank customers, home owners and/or entrepreneurs. We believe that the Scaling Community Lenders Act will enhance the ability of CDFIs to support economic revitalization in economic distressed rural, urban, minority and tribal communities.  Establishing a secondary market for CDFI loans will be increase the availability of capital to CDFIs that will put it to good use in financing affordable housing, small businesses, and community facilities.”

To combat the hemorrhaging of jobs and economic opportunities during the pandemic, Sen. Warner has been a leader in Congress for CDFIs and MDIs. In July of 2020, he teamed up with then-Sen. Kamala Harris (D-CA), Sen. Cory Booker (D-NJ), and a bipartisan group of colleagues to introduce the Jobs and Neighborhood Investment Act.

Sen. Warner was later able to secure provisions from the bill in the Coronavirus Response and Relief Supplemental Appropriations Act of 2021, which was signed into law on December 27, 2020, providing an unprecedented $12 billion in funding for CDFIs. Last month, Sen. Warner led a bipartisan group of colleagues in introducing  legislation to support lenders that focus on underserved communities by creating a CDFI Tax Credit for private sector investors that make equity, equity-equivalent investments, or long-term patient capital available to CDFIs.  

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