WASHINGTON – Today, U.S. Sens. Mark R. Warner (D-VA) and Mike Crapo (R-ID), Co-Chairs of the Senate Community Development Finance Caucus, reintroduced the Scaling Community Lenders Act, bipartisan legislation to unlock more sources of liquidity and support for Community Development Financial Institutions (CDFIs). The legislation would allow 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. While Congress has taken significant steps to support community-based lenders since the onset of the COVID-19 pandemic, CDFIs continue to require more long-term patient capital, operating capital, and resources to modernize their systems and compete in an era of rapid financial innovation. The Scaling Community Lenders Act would authorize new resources to activate and fund the long-dormant Section 113 of the Riegle Act of 1994 – the CDFI liquidity enhancement program –allowing the CDFI Fund to finance projects within the industry, selected on a competitive basis, to provide liquidity to CDFIs.

“CDFIs can play a crucial role in driving economic growth and providing access to capital to underserved communities,” said Sen. Warner. “I’m pleased to reintroduce this legislation to that supports new and innovative approaches in the industry and lays the groundwork for new ways to meet the needs in LMI communities.”

“I am proud to support the Scaling Community Lenders Act, which will help provide access to capital in low-income, rural and underserved communities,” said Sen. Crapo. “CDFIs play an important role in our state and nationwide, and this bill will help them expand their lending activities.”

CDFIs lend across a variety of categories, 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 would buy loans from CDFIs would allow the industry to prove the performance of their assets in the long-term. The Scaling Community Lenders Act would encourage innovation and help determine the best routes for unlocking secondary markets for CDFIs.

Sens. Warner and Crapo have long been supporters of CDFIs and MDIs. Last year, the senators launched the bipartisan Senate Community Development Finance Caucus to serve as a platform where policymakers can coordinate and expand on public and private-sector efforts in support of the missions of Community Development Financial Institutions (CDFIs) and Minority Depository Institutions (MDIs).

Bill text is available here.

“During the Paycheck Protection Program, CDFI loan funds – for the first time – gained access to a Federal Reserve liquidity facility which allowed CDFIs to expand their lending to the small businesses in low-wealth communities hit hard by the Covid crisis. Opportunity Finance Network welcomes the piloting of other models for enhancing liquidity as outlined in the Scaling Community Lenders Act. Senator Warner, once again, is leading on initiatives to support and scale the CDFI industry,” said Jennifer A. Vasiloff, Chief External Affairs Officer, Opportunity Finance Network.

“The CDFI industry has proven its ability to expand access to financial services responsibly for unbanked communities, rural communities, and communities of color over the last few decades. It is time to bring new liquidity tools to the market to enable community lenders to scale to meet the enormous need for affordable credit. Without these tools, millions of Americans will not have access to income and wealth generating activities like small business and home ownership that expand opportunity and reduce the racial and gender wealth gaps,” said Beth Bafford, Vice President for Strategy, Calvert Impact.

“CRF strongly endorses the Scaling Community Lenders Act of 2023 introduced by Senators Warner and Crapo. 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 importance and power of providing liquidity to CDFIs. We were early supporters of section 113 of the Riegle Act and are delighted to see this section of the bill come to life. We are confident that these critical resources will enable CDFIs to deliver more impact in underestimated communities,” said Matthew Roth, CEO, Community Reinvestment Fund, USA.

“CDBA strongly supports the Scaling Community Lenders Act. Access to liquidity is an important tool for community development lenders to manage their portfolios and balance sheets, which in, turn gives them more capacity to serve their communities. The SCL Act will help build CDFI industry infrastructure that will expand access to capital in low income and minority communities,” said Jeannine Jacokes, CDBA.

“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,” said Leah Fremouw, Board President, VA CDFI Coalition. “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.”

“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.

“The Local Initiatives Support Corporation (LISC) thanks Senators Warner and Crapo for introducing the Scaling Community Lenders Act,” said Matt Josephs, Senior Vice President for Policy, LISC. “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.”

“CDFIs are always in need of new approaches to help deliver on the promise of increased scale. In the current interest rate environment, finding new ways to add liquidity is more important than ever. Supporting the Scaling Community Lenders Act is a critical step to leverage the CDFI Fund and drive innovation,” said Brett Simmons, Managing Director of the EBA Fund.

“The CDFI Coalition is pleased to add its voice in strong support for the legislation sponsored by Sens. Warner and Crapo 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.”

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