Aforthcoming statewide coalition aims to leverage the effectiveness of Michigan’s community development financial institutions through a collaborative approach to lending and technical assistance.
Last June, the W.K. Kellogg Foundation awarded $150,000 to Detroit-based Invest Detroit to lead the development and implementation of a statewide coalition for community development financial institutions (CDFIs).
Jennifer Hayes, senior vice president of operations and policy at Invest Detroit, which operates a CDFI, is leading the initiative. Hayes says Michigan’s CDFIs are primed to benefit from more structured collaboration.
“Being in this space for five years and working with partners all over the country, Michigan CDFIs are some of the most collaborative in the country,” Hayes told MiBiz. “We all work together.”
Certified by the U.S. Department of the Treasury, CDFIs provide flexible financial products for underserved communities and individuals who are otherwise shut out of traditional lending opportunities. The lenders are an invaluable alternative to conventional lending and offer a solution to the most significant barrier that new and minority business owners face: access to capital.
According to Washington, D.C.-based trade group and financial intermediary Opportunity Finance Network, more than 1,300 CDFIs operate across the United States, with approximately 30 in Michigan. Some 60 percent of CDFI borrowers are people of color, 84 percent are low-income, and 50 percent are women.
According to a report by the Treasury Department’s CDFI Fund, CDFIs collectively served 4.62 million clients in 2020.
CDFIs also were on the front lines as COVID restrictions decimated business nationwide. For many small businesses, CDFIs were their only lifeline to surviving the pandemic. Many borrowers received principal and interest deferrals, emergency loans and modifications to existing loans.
“The biggest challenge through COVID was flexibility and assistance,” Hayes said. “Now, people are facing different challenges with employees and supply chain issues, and now there is fear of a recession. … We are trying to address current needs while being proactive about the future.”
With new challenges brought on by a rapidly evolving workforce and higher costs of capital, CDFI clients can significantly benefit from the institutions banding together to create solutions, such as loans that address the current economic landscape.
“We are looking at how to provide low-cost loans to allow for the restructuring of high-cost debt so that business owners can be successful,” Hayes said.
The group is on track to meet its timeline goals as stipulated by the Kellogg Foundation grant, which funded a year-long process to establish the coalition.
Kelli Smith, chief operating officer of GROW, a Grand Rapids-based CDFI and micolender, says that the forthcoming coalition will benefit the communities CDFIs serve.
“Working together as a group of industry professionals with a singular goal to increase the availability of capital, credit and financial services allows us to ensure that patient and flexible capital can reach the communities and businesses at the greatest risk,” Smith said.
Michigan CDFIs have already been successful in collaborating on a recent effort to secure capital. In October, state legislature created Michigan’s first CDFI fund, a $75 million grant award to distribute to qualifying CDFIs in the state to use as capital for the target markets.
Hayes says the award further reinforces that Michigan’s CDFIs are strong together.
“That is what spearheaded this desire to keep working together and grow together,” Hayes commented.
Elissa Sangalli, president of Marquette-based Northern Initiatives, said she looks forward to the coalition bringing more awareness to CDFIs.
Northern Initiatives is a Michigan CDFI that provided lending products exclusively to the Upper Peninsula when it was founded 30 years ago. Today, it serves 73 counties and deploys more business loans annually than any other Michigan CDFI.
“Most people are not familiar with CDFIs,” Sangalli said. “What we really want to do in working together is raise awareness for CDFIs and the key role we play in financing small businesses and affordable housing, and also to ensure that people who need access to that kind of capital know that we exist and how to find us.”
Hayes said another point of value that will come out of the coalition is data collection. As it stands now, the federal government provides extensive data on CDFIs, but it is usually two to three years behind. With up-to-date and robust data, communities and state leaders “can understand the impact.”
“It will give us the foundation to establish goals and speak to those goals eloquently,” Hayes said.