Consider the Institute for Community Economics (ICE)

In my research, I’ve been interested in banks, credit unions, and alternatives to banks. The Institute for Community Economics (ICE) in Springfield, Massachusetts, is one of the alternatives I’m trying to learn more about.

ICE is, among other things, a Community Development Financial Institution (CDFI). They are members of National Community Capital Association, the national association of CDFI’s. [News alert: As of January 2006, the national association of CDFI's is called the Opportunity Finance Network.] I’ve never heard of CDFI’s before, and want to learn more about them.

For starters, some info about ICE...

Founded in 1967, ICE is committed to the needs of low-income families, especially to the issues of locally controlled, permanently affordable housing and community economic development. ICE has a special affinity for community land trusts.

To meet their goals of creating permanently affordable housing, community land trusts, and locally controlled economic development, ICE established a Revolving Loan Fund. Sine 1979, ICE has loaned $42 million, making over 430 loans to community organizations in 30 states and helping with the development of more than 4,400 housing units. Typically, ICE uses loans to help buy land or to buy/ construct/ rehab housing. They also offer loans to buy office space for non-profits doing related work.

Here is how the Revolving Fund works, from what I can piece together:

About 400 individuals and a few "socially responsible" mutual funds (80% of the investors are individuals and those participating in mutual funds like Domini; 20% of the money comes from religious organizations and foundations) pool their money in the ICE Revolving Fund--the amount now comes to $13 million.

Then, “investors propose the size, term, and interest rate of their investments. Because many of ICE's borrowers require low-interest loans to adequately serve community residents, we encourage our investors to consider their actual need for interest returns in relation to the needs of those whom the Fund serves. ICE seeks investments of at least $1,000 for at minimum of one year. We ask that investors propose a fixed rate of return between zero and our maximum rate that is adjusted quarterly. Currently, ICE is able to offer interest rates of up to 3.5% for loans of five years or more, and up to 3% for loans of four years or less. We readily accept loan offers within these constraints, but we hope for lower interest rates to subsidize our work and that of our borrowers.”

So, it sounds like a person like me could put $1000 into the Revolving Fund for 1 year and negotiate an interest rate with ICE, up to 3%. Hey, I could even say --you can use this money interest free! ICE would get to loan out the $1000 to a community group who wants to buy land or develop housing and that group would return the borrowed money with the amount of interest agreed on. (Presumably, the community group would generate money by charging rent, or selling the units to people with low incomes.)

In terms of risk, ICE explains, "Although loans to the Fund are not insured, ICE has loss reserves and a pool of permanent capital as a cushion against potential losses. No investor to the Revolving Loan Fund has ever lost a penny. Loan losses to date have been less than 1.5% of total loans placed."

I wonder what interest rate ICE charges the community group borrowers --how does this rate compare to what a commercial bank would charge for a loan?

I'm tempted. Here is how to make a loan offer: "investors...should contact ICE's development office for a Loan Fund Response Form. Upon completion of this form, ICE will prepare a loan agreement in duplicate to be signed, according to individual needs and preferences..."

It sounds like the U.S. Department of Treasury offers support for CDFI funds like ICE's Revolving Fund. In 1998, the Department of Treasury's gave (or lent?) ICE $1.125 million to help ensure the long-term health of its Revolving Loan Fund. ICE also received a $405,000 award from the Treasury to create a 10- to 30-year long-term financing program for ICE's borrowers. (According to the national association of CDFI’s, "The House and Senate passed and the President signed into law spending legislation that would provide $55 million for the CDFI Fund in FY 2006, the same level as last year.")

Sounds like ICE is pretty cool --they are a founding member of the Social Investment Forum, a national non-profit trade association of socially responsible investment advisors.

So, what's up with CDFI's?

The ICE website says CDFI's are "financial institutions that have community development as their primary mission and that develop a range of strategies to address that mission."

They describe 5 kinds of CDFI's:

* Community Development Banks
* Provide capital to rebuild economically distressed communities through targeted lending and investment

* Community Development Credit Unions
* Promote ownership of assets and savings and provide affordable credit and retail financial services to low-income people with special outreach to minority communities

* Community Development Loan Funds
* Aggregate capital from individual and institutional social investors at below-market rates and lend this money primarily to nonprofit housing and business developers in economically distressed urban and rural communities

* Community Development Venture Capital Funds
* Provide equity and debt with equity features for community real estate and medium-sized business projects

* Microenterprise Development Loan Funds
* Foster social and business development through loans and technical assistance to low-income people that involved in very small business or self-employed and unable to access conventional credit

I checked the CDFI umbrella website and found a few CDFI organizations that are, in fact, credit unions. How exciting. Santa Cruz (Santa Cruz Community Credit Union), Ithaca (Alternatives Federal Credit Union) and Burlington,Vermont (Opportunities Credit Union) have CDFI credit unions...

There is at least one CDFI bank (Shorebank), though there may be more; it's not always clear from the names which ones are banks. Most have names like Economic Development Fund.

And, aside from ICE, I found another CDFI in Western Mass, the Western Massachusetts Enterprise Fund in Greenfield, MA: wmefcs@aol.com

Why arent there more CDFI's that are credit unions and banks--this seems like an appealing alternative to a commerical bank! And maybe even better than a typical credit union --who knows where their investments usually go.