Community Development Finance (CDF)

Background Study: Community Development Finance (CDF) Victoria, BC April 2002 Prepared for:

This study was completed as part of the Urban Development Finance Pilot Project a partnership of CEDCO Victoria, New Westminster Community Development Society, and the Community Futures Development Association of BC. Prepared by Community Venture Development Services Ellie Parks Sandra Mark Frank Moreland With thanks to Shellie MacDonald Funding for this project was provided by BC Ministry of Community, Aboriginal and Women s Services VanCity Credit Union Coast Capital Savings Credit Union ii

Table of Contents Introduction to the Background Study...1 Purpose of the Community Development Finance (CDF) Background Study...1 Overview of Community Development Finance...2 History of Community Development Finance in the USA...4 History of Community Development Finance in Canada...6 Policy Issues facing Community Development Finance in Canada and BC...8 Introduction to the Community Development Finance Institutions Case Studies...12 Index of Case Studies:...12 Case Studies of British Columbia Community Development Finance Organizations...13 Community Futures Development Corporation of Central Kootenay...13 Community Futures Development Corporation of the North Okanagan...15 Nuu-chah-nulth Economic Development Corporation...19 Community Futures Development Corporation of Strathcona...22 Community Futures Development Corporation of the Okanagan Similkameen...27 Case Studies of Canadian Model Community Development Finance Organizations...30 BCA Investment Co-operative Ltd...30 Calgary Community Works...33 Human Resource Development Association...35 Quint Development Corporation...41 SEED Winnipeg Inc....44 Case Studies of American Model of Community Development Finance Organizations...48 United Durham, Inc. Community Development Corporation...48 Kentucky Highlands Investment Corporation...51 Northern Community Investment Corporation...56 The East Los Angeles Community Union...58 Community Development Finance Strategies: Providing Patient and Friendly Capital...63 Lessons Learned from the Case Study Research...64 iii

Introduction to the Background Study Purpose of the Community Development Finance (CDF) Background Study Community Economic Development (CED) strategies in BC have been emerging in urban centres in the lower mainland and southern Vancouver Island since the early 1990 s. These initiatives have been attempted in order to bring economic as well as social development tools to the fore in dealing with entrenched socio-economic issues resulting from shifts in the economy of BC and shifts in the effectiveness of the social safety net. Community organizations have been aware of the benefits of community economic development strategies from examples in rural BC, other urban areas across Canada, the US and Europe. CED has been recognized as a key strategy to assist the revitalization of rural Canada and has been provided with resources to support investment and development activities through the Community Futures program. Some provinces in Canada have created support programs to assist urban groups with operational funding. BC does not have such a program. This study has been conducted in order to provide information for the community economic development corporations (CDCs) in urban BC to consider as they create their development strategies. The questions that underlie this study are as follows: How do CDCs organize themselves to carry out comprehensive approaches to addressing local socio-economic issues? How do CDCs sustain their development functions over time? What role does a program to support CDF play as part of a comprehensive strategy and as part of a strategy for sustaining the development function of the CDCs over time? The lessons learned from this study will also assist funders of CDCs to develop a policy that will guide their approach to providing support so as to maximize the benefits of their socially responsible investments and increase their presence through community participation. Study Method: A review of the literature has been conducted to learn wisdom from thinking, discussion and debate regarding the potential of alternative approaches to creating investment as a strategy in the battle against poverty and dislocation in community life. A review of policy issues of concern to those promoting a reinvestment approach is summarized. Case studies of CDCs in BC, across Canada and in the USA have been chosen to demonstrate the challenges and barriers that CDCs face in their attempts to meet their mission and how they have strategized to overcome specific barriers. Themes, trends and issues are extrapolated from this material and set out as recommendations to the Community Development Finance Steering Committee and the Board of Directors of CEDCO Victoria and Board of Directors of the New Westminster Community Development Society (NWCDS) and our partners in this endeavour. Implications for funders supporting CED strategies are pointed out. Background Study: Community Development Finance (CDF) April 2002 1

Overview of Community Development Finance The Centre for Community Enterprise defines development finance as provision of investment capital (in any form of equity or credit) for the prime purpose of enhancing the socio-economic conditions of a specific location/community. Other kinds of financing, including traditional banking institutions, may have the effect or side effect of enhancing the economic status of a particular locality, but that is not their prime mission. The Centre for Community Enterprise notes three important factors of CDF as follows: A. The target locality of the financial effort may involve a network of communities and thus comprise an entire sub region. B. Development finance does not involve a particular organizational structure or context. Thus precisely the same structures might be established for different banking purposes and indeed have been so established. Further, a structure established for a non-developmental purpose (say, for the profits of it s organizers) may be modified so as to include one or more development functions. C. It is important to stress that the most successful Community Development Finance institutions (CFDI) are usually engaged in other activities relevant to their mission besides offering equity and credit resources. For example, in many cases the CFDI may provide technical assistance to potential or actual client projects; it may provide minor grant funds that are designed to help a potential client conduct activities that will eventually qualify it for equity and credit assistance; it may provide business/project mentoring; it may even engage in the initial design of projects funded. The aim of community development finance is to address the needs of local communities that cannot ordinarily be addressed by traditional models. Community development finance and investment has built on the micro-enterprise work of such institutions as the Grameen Bank in developing countries, and the Calmeadow Foundation here in Canada and abroad. To identify community investment assets, the Social Investment Organization conducted a comprehensive survey of socially responsible investment in Canada in December 2000. In regards to locally based community investment organizations, the survey included individual or institutional assets that in some way help to develop local communities through the alleviation of poverty, the evolution of community institutions or ventures meeting community needs, or th e development of new co-operative businesses. In their survey, the Social Investment Organization has included capital raised from individuals, charitable and civil society organizations. While donations of government capital haven t ruled out an organization for inclusion, community investment has not been included in the study if most of the capital has been contributed by government (e.g. the federal Community Futures Development Corporations). This is not to argue against government involvement in the community development sector. In fact, the Social Investment Organization recognizes that there is a legitimate place for government assistance for community organizations. Background Study: Community Development Finance (CDF) April 2002 2

The Social Investment Organization has determined the following categories of community development finance and investment in Canada: Micro-enterprise lending Community-based organizations providing capital for microentrepreneurs unable to obtain capital from conventional financial institutions. The borrowers usually show some element of hardship or low-income characteristics. Loans are usually less than $25,000 with typical loans in the $2,000 to $5,000 range. Community development venture capital High-risk loans or equity placements in locally based businesses meeting community or social needs. This sometimes includes non-profit development organizations but can also include venture capital companies. The focus here is on businesses with an emphasis on community building that meets local needs. Non-profit lending Lending to non-profit organizations pursuing a social mission that are unable to obtain capital from conventional financial institutions. Non-profit lenders usually do this. Co-operative development Funds making loans or equity placements in new co-operatives. Lending for social or affordable housing Risk mortgages or construction loans for housing targeted to low-income markets. Conventional co-op or social housing mortgages backed by CMHC guarantees will not be considered because of the business nature of the lending. Economically targeted investments (ETIs) These are community development investments made by pension funds or other institutions. Other forms of locally based investment targeted to meeting the needs of particular communities or groups. The Social Investment Organization surveyed forty-six community organizations obtained from lists of micro-credit providers from Industry Canada's Strategis website www.strategis.ic.gc.ca/ssg/so03121e.html and Community Micro-loan Funds in Canada, published by Calmeadow in March, 1999. They found a total of $85 million in community investment assets. Of the 46 organizations surveyed, they received responses from 24, including two that were dissolved. Most of the organizations reported that they used their community development finance investment assets for micro lending. A smaller number also reported they invested in community development venture capital, social housing and co-op development. Community development finance plays an important role in strengthening the economically distressed regions of Canada. The National Congress for Community Economic Development (NCCED) conducts national census surveys of US community based development organizations serving low and moderate- income areas. The most recent census findings are from 1994 to 1998 with 1200 organizations reporting. They report that the industry has grown to an estimated 3,600 organizations in the USA with 52 percent serving urban areas, 26 percent serving rural areas and 22 percent serving mixed urban and rural areas. In the 30-year history of Community Development Corporations (CDCs) in the USA there have been impressive achievements; including 71 million square feet of commercial and industrial space developed, 1.9 billion in loans outstanding (at end of 1997) to 59,000 small and micro businesses, 247,000 private sector jobs created and 550,000 units of affordable housing created. These measurable outputs are only part of the success story of CDCs. They are playing an expanding role in delivering services such as pre and post employment training and support, Background Study: Community Development Finance (CDF) April 2002 3

entrepreneurship training, homeownership counselling, family counselling, child care, health care, youth job skill development and transportation services. Organizationally most CDCs resemble a typical small business. The typical CDC takes three to four years between incorporation and the completion of the first development project. The findings of the National census showed 1400 more CDCs were counted in 1988 than in the 1995 census. Ninety percent of all CDCs received at least 50,000 dollars from Federal programs. The median age is fifteen years, and median staff size is six. Eighty two percent of CDCs have developed or financed housing units. The median annual budgets of CDCs are in the $200,000 to $399,000 ranges. But 26% had yearly operating budgets of less than $100,000 and 20% had budgets exceeding $600,000. Community Development corporations continue to use resources from public sources to leverage investment from the private sector. The American experience has been of strong Federal support in the form of HUD grants and more recently, the CDFI fund. Features of the Community Development approach are an indigenous process, born from need within the community they serve. There is a local focus, with a clearly defined geographic area with high concentrations of low and moderate-income people. Local area residents and local business and community leaders govern the CDCs. They employ a comprehensive approach, addressing more than housing, jobs and new businesses. The goals are not growth but development- to change the way people who live in poor communities perceive their opportunities and equally important, to change the way the outside world responds. NCCED Census. The CDCs produce tangible results, by undertaking projects that respond to the unique challenges of each community. CDCs have emerged as surrogate commercial lenders in underserved markets. They enhance their lending activities with technical assistance, which is critical to their success. In the area of business development, CDCs provide capital to business enterprises, own and operate businesses and provide technical assistance to entrepreneurs. The average size of the loan is $32,000, with the average loan portfolio values of CDCs engaged in business lending was $2.5 million. CDC lending activity reflects a general upsurge in entrepreneurial activity throughout the US economy. The majority of CDCs also provide technical assistance, which includes marketing assistance, entrepreneur training, accounting help and other business services. These combined business development activities, have resulted in job creation of approximately 247,000 private sector jobs, up from 67,500 jobs as of the 1995 census. The National congress for Community Economic Development concludes that CDCs have matured into a significant force for American renewal and CDCs are having a visible impact, particularly in the area of low-income housing. CDCs face challenges in funding and the role of government will continue to be important as a funding partner. 1 History of Community Development Finance in the USA Since the 1960s, community development corporations (CDCs) have struggled to address problems of social, economic and physical distress in low and moderate-income communities throughout the United States. Thousands of non-profit corporations have emerged as a local solution to poverty. By uniting neighbourhood residents, business leaders and government, CDCs have been able to build affordable housing, stimulate economic development, create jobs and provide essential social services in the disadvantaged communities they serve. Their fundamental mission is to build community leadership and empower low-income people to take charge of their neighbourhoods and their future. Despite great adversity, the field of community development has matured and grown 1 Sources: Community Development Finance Vehicles: A report to the Ministry of Community Development, Co-operative and Volunteers. Center for Community Enterprise, January 2000. Canadian Social Investment Review 2000: A comprehensive survey of socially responsible investment in Canada. The Social Investment Organization, December 2000. Coming of Age: Trends and Achievements of Community-Based Development Organizations. National Congress for Community Economic Development, 4 th National Community Development Census, December 1999. Background Study: Community Development Finance (CDF) April 2002 4

tremendously over the years. From this fertile field evolved the more specialized community development finance organization. Mark Pinsky notes that the history of the modern U.S. community development finance system involves public policy, social policy, economic trends, politics, and the American spirit. In 1962, author Michael Harrington argued that a significant share of U.S. citizens was structurally excluded from the economic mainstream and so from real opportunities to create wealth and opportunities. Harrington challenged the comfortable assumption that the post-world War II prosperity boom was inclusive. The coincident rise of the U.S. civil rights movement grounded the community development finance system in strategies to counter racial discrimination. President John Kennedy embraced Harrington's argument and joined it to the goals of the civil rights mo vement. Kennedy's strategy was an unprecedented effort to use federal dollars to combat social, political, and economic discrimination. This initiative became known as the War on Poverty. After Kennedy s death, President Lyndon Johnson's plan included the funding the community development corporation for renewal in urban and rural communities. Through creation of the Office of Economic Opportunity, Johnson financed a small number of CDCs to lead highly targeted, geographically centred community revitalization strategies. The United States Department of Commerce s, Economic Development Administration (EDA) began in 1965. They provide grants for infrastructure development, local capacity building and business development to help communities alleviate conditions of substantial and persistent unemployment and underemployment in economically distressed areas and regions. Many of the early organizations struggled and some failed. Yet the long-term impact and survival of a few early CDCs are the foundation for the community development finance system today. From a handful of organizations has grown a community development finance system comprising more than 4,000 community-based organizations; with a range of federal, state, and local financing programs; and the increasing involvement of conventional financial and non-financial corporations. CDCs realized that their work was hampered by lack of access to private sources of capital. By the early 1970s, a small number of what are called Community Development Financial Institutions (CDFIs) had surfaced to organize financial capital from diverse private sources. The primary sources of financing for these CDFIs were religious institutions. In the late 1960s and early 1970s, several denominations realized that the substantial financial resources they held could be aligned with their missions of faith. In the 1970s, two other social movements began to shape the community development finance system. The Equal Rights movement that began in the late-1960s and peaked in the 1970s broadened community development's counter-discrimination focus to include gender bias. At about the same time, the rise of the environmental movement introduced the concept of environmental justice as a community development priority. The campaign for disinvestments in companies doing business in South Africa, in response to the harsh racist policies and practices there, gathered steam throughout the 1970 s and 1980 s. This campaign added strength to the community development finance movement, by spotlighting the power of capital aligned with values. This was the beginning of the social investment movement in North America. In 1977, Congress passed, and President Carter signed into law the Community Reinvestment Act (CRA). CRA was the third leg of the financial services anti-discrimination stool, joining the Equal Credit Opportunity Act and the Home Mortgage Disclosure Act. The CRA is intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighbourhoods, consistent with safe and sound banking operations. The CRA requires that each insured depository institution's record in helping meet the credit needs of its entire community be evaluated periodically. That record is taken into account in considering an institution's application for deposit facilities, including mergers and acquisitions. Congress enacted the CRA to require banks, thrifts, and other lenders to make capital available in low- and moderate-income urban neighbourhoods, thereby boosting the nation s efforts to stabilize these declining areas. Concern over potential environmental and financial liability for cleaning up these sites has made lenders, developers, and property owners reluctant to finance Background Study: Community Development Finance (CDF) April 2002 5

redevelopment of these properties. Rather than reuse former urban industrial sites, businesses have instead moved to suburban or rural greenfields, which carry fewer perceived risks to development. The law provides a framework for depository institutions and community organizations to work together to promote the availability of credit and other banking services to underserved communities. Under its impetus, banks and thrifts have opened new branches, provided expanded services, adopted more flexible credit underwriting standards, and made substantial commitments to state and local governments or community development organizations to increase lending to underserved segments of local economies and populations. Pinsky notes the performance of CRA has not always matched its potential, largely due to uneven implementation. Over the past twenty-three years, banks under CRA have entered into more than 370 agreements with community organizations (such as CDCs and CDFIs), committing more than $1 trillion to minority and lower-income communities. But less than 2% of those agreements occurred from 1977-1991, and more than 98% since 1992. What changed, in 1992, was the election of President Clinton, who made CRA enforcement and CDFI expansion the basis for his community development strategy. The two came together in 1995 when new CRA regulations recognized CDFIs, for the first time making it easier for banks to finance CDFIs and, in turn, for CDFIs to finance community development projects. The number of CDFIs rose steadily through the 1970s and 1980s, but expanded considerably in the 1990s. In 1993, approximately 300 CDFIs managed slightly more than $2 billion. In 2000, more than 550 CDFIs managed $6 billion. The prime reason is stepped-up CRA enforcement. Another significant factor in the rise of CDFIs in the US is the CDFI Fund, a program within the federal Department of the Treasury that finances CDFIs and banks that invest in CDFIs. The Fund has committed more than $350 million to CDFIs, most of it as equity or capital grants and has provided more than $130 million in incentives to banks. The Fund is the largest single source of financing for CDFIs. It places a priority on equity or net worth financing to strengthen CDFIs and it emphasizes the use of government financing to leverage private financing. The CDFI Fund has brought credibility to a field that was ignored and undervalued until 1992. It is fair to say, the CDFI Fund has propelled the CDFI field forward. The New Markets Tax Credit (NMTC) was enacted in the US in December 2000. The NMTC will create a new incentive that CDFIs, CDCs, and other organizations that finance businesses in distressed markets can use to raise capital. The credit will be worth 30% of the net present value of an investment in a community development enterprise. The Bush Administration has stated strong support for the NMTC and has committed to implementing it in 2002. History of Community Development Finance in Canada Although the Canadian community development finance system is not as widespread as in the US, there are a number of Canadian Community Development Finance Institutions. While many organizations have been successfully established, their coverage is spotty as they are limited to and rooted in, a specific geographic area. The options for Canadian communities and entrepreneurs include: peer lending, community loan funds, community directed investment, community investment funds, socially responsible mutual funds and Labour fund venture capital. Early examples of community development finance institutions are located in the Cape Breton region of Nova Scotia. Since 1975, New Dawn Enterprises has focused on building an asset base in the housing sector and the creation and management of eight businesses and non-profit ventures. New Dawn also coordinates training programmes. A related effort, BCA Holdings was organized as a not for profit corporation and incorporated in 1989. BCA Holdings now has assets over $1 million. The company owes its financial success to good business practice, and particularly to the guidance and expertise of the Board of Directors, which is composed of some of the most experienced and successful business people in Cape Breton. BCA Investment Co-operative Ltd has been recognized as one of the most successful community finance ventures in Canada. BCA Holdings is responsible Background Study: Community Development Finance (CDF) April 2002 6

for approximately 300 jobs in Cape Breton, and has invested 1.3 million dollars, which levered a further 2.2 million dollars in local investment. Peer lending was a concept promoted by Calmeadow, a registered Canadian not-for-profit charity with over fifteen years of experience in micro finance. Calmeadow has participated in funding, advising, investing and operating a number of micro credit and micro finance initiatives in Canada, Latin America and Africa. From 1987 until Fall 2000, Calmeadow was involved in a number of Canadian micro lending experimental initiatives. Starting in 1987 they initiated the First Nations lending program, followed by a loan fund in Vancouver and concluding with two loan fund initiatives in Nova Scotia and Toronto, Ontario. Their experiments lead them to the conclusion that stand-alone, exclusively targeted microcredit operations are not commercially viable in fully developed countries. The huge volume of loans needed and the absence of other income make it impossible to cover all operating costs if offering a fair interest rate structure. While there is definitely a need for accessible and reasonably priced credit for low income self employed Canadians, Calmeadow believes that these services can best be provided by more traditional financial institutions, those that can absorb and manage the sustained cost and risk of micro-finance within a fully integrated and diversified operation. Calmeadow successfully transferred two of their domestic experiments to local credit unions, Metro Credit Union in Toronto and VanCity Credit Union. Community Development loan funds have been operating in Canada since 1990, the first was the Community Loan Association of Montreal. The overall performance record of community Development loan fund has been very strong. According to a US study, covering 1975 to 1993, the cumulative losses for all Community Development Loan Funds amounted to less than one percent of their portfolios. Community loan funds are well established in the US with over 73 million dollars in 40 different loan funds. Currently, Canadian loan funds include such funds as: SEED Loan Fund in the Kitchener Ontario area, the Montreal Community Loan Association, Edmonton Community Loan Fund, Toronto Community Loan Fund, WomenFutures Loan Guarantees Fund in Vancouver and VanCity Credit Union s Self Reliance loans. In early stages of development there are Community Directed Investments including Community Investment Funds and Socially Responsible Mutual Funds. One of the first examples of a Community Investment Fund was the Aquaculture Fund established in Isle Madame, Cape Breton in 1997. In 1996, the Nova Scotia provincial governme nt enacted legislation to encourage investment in Community Investment Funds. Those who invested in the Aquaculture fund received in addition to their 5 percent return, a 30 percent tax credit, a 20 percent government guarantee and their investments were RRSP eligible. Ethical Mutual funds have been in existence since the late 1980 s with phenomenal growth, even outpacing conventional mutual funds in the late 1990 s. In Aboriginal communities across Canada, alternative sources of financing were created to counter discriminatory practices. Mike Lewis notes there are at least one hundred and eighty development corporations in aboriginal communities. The First Nation tribal councils usually own these corporations, with their activities designed to build an economic base and job creation for the Aboriginal people of the region. Aboriginal communities or tribal councils own thirty-three Aboriginal Capital Corporations, with over $100 million currently out in loans and guarantees and another $70 million in additional capital committed. There are also thirteen native controlled Business Development Centres, which is a program option under the Community Futures Program. The most comprehensive network in Canada are the Community Futures Development Corporations (CFDC) or as they are known in the Atlantic Provinces, Community Business Development Corporations (CBDC). These CFDCs provide loans and technical assistance. They focus on debt financing, loans to entrepreneurs and often provide training and advisory support to their clients. In the late 1970s the introduction of the Community Economic Strategy (CES) signalled the beginning of innovative federal support for community economic development. This initiative, known as Local Employment Assistance Development (LEAD), offered local groups decision-making and Background Study: Community Development Finance (CDF) April 2002 7

responsibility for an investment fund and an operational budget to assist entrepreneurs in their communities to create or expand their businesses. In 1985, the Community Futures Program was developed to integrate the business development services into a larger process of strategic planning in the community, which led to the inception of Community Futures Development Corporations, except in Atlantic Canada where the Community Business Development Corporations primarily offered the business functions. Today CFDCs and CBDCs are locally driven not for profit corporations that foster and support economic development. This work is done through community development projects, and by providing services and financing to small and medium-sized business. In general, the Community Futures Development Corporation is an organization of committed volunteers and staff who provide leadership and act as catalysts, in order to improve the social and economic well being of communities within the region. CFDCs do this by providing planning for and implementation of community economic development, and providing training, counselling and financial assistance for existing and proposed small and medium-sized business ventures. The Community Futures Development Corporations have made a large impact in Western Canada, assisting 350,000 clients with the support of 10,000 volunteers. CFDCs make 2000 small business loans each year for a total of $60,000,000. In addition, 1000 jobs were created in 2000/2001 with 350 loans to youth entrepreneurs. Over 6000 jobs were created or maintained as a result of loans in 2000/2001. Some Credit Unions, as community owned and based financial institutions have been involved in community development finance. Particularly in the Atlantic region, Credit Unions have designed funds to make equity investments in community businesses. These investments are often connected to a system of networking, mentoring and support. In British Columbia, VanCity Credit Union and Coast Capital Credit Union, formerly Pacific Coast Credit Union have been involved in innovative programs to assist distressed communities and populations. 2 Policy Issues facing Community Development Finance in Canada and British Columbia The current Canadian policy landscape regarding Community Development Finance (CDF) is quite varied. Without a comprehensive policy framework, there is a mix of CDF with some federal and provincial policies designed to support local development. The Quebec Charter of Human Rights and Freedoms is the only human rights legislation in Canada that prohibits discrimination on the basis of social condition and recognizes social and economic rights, though many other provincial human rights codes provide protection from discrimination on the basis of receipt of public assistance or source of income. The Canadian Human Rights Act, unfortunately, provides no protection from this type of widespread discrimination. In his June 1999 policy paper on changes to financial institution laws, entitled Reforming Canada's Financial Services Sector, federal Finance Minister Paul Martin proposed elements of a Community Reinvestment Act (CRA) for Canada. Specifically, Paul Martin has proposed requiring federally regulated financial institutions to disclose the following things that relate to community development and affordable housing financing and service: small business financing initiatives and dollar amounts of small business lending categorized by loan size and region; examples of funding provided to local 2 Sources: Community Development Finance Vehicles: A report to the Ministry of Community Development, Co -operative and Volunteers. Center for Community Enterprise, January 2000. Calmeadow Canada webpage: http://www.calmeadow.com/canadian.htm Canadian Social Investment Review 2000: A comprehensive survey of socially responsible investment in Canada. The Social Investment Organization, December 2000. Coming of Age: Trends and Achievements of Community-Based Development Organizations. National Congress for Community Economic Development, 4 th National Community Development Census, December 1999. Taking Stock: CDFIs Look Ahead After 25 Years of Community Development Finance Mark Pinsky, National Community Capital Association, December 2001. Tools and Techniques for Community Recovery and Renewal (1 st Edition) Centre for Community Enterprise, 2000. Pratt Institute Center for Community and Environmental Development (PICCED) Oral History Project http://picced.org/advocacy/bldghope.htm Background Study: Community Development Finance (CDF) April 2002 8

government and voluntary agencies for community works; investments or partnerships in micro-credit programs; location of branches opened and closed; and initiatives to improve access to banking services for low-income individuals, seniors and people with disabilities. A government-run agency will be set up to audit such things as institutions' records on consulting with the public before closing branches and providing access to banking services. The Canadian Community Reinvestment Coalition believes while these are steps forward in terms of accountability for banks and other financial institutions in Canada, these proposals fail to require disclosure of the lending, investment and service record of financial institutions on a neighborhood by neighborhood level, fail to set up an adequate review and grading system for the institutions' records, and fail to impose sanctions or penalties for a poor record. As a result, banks and other financial institutions will be able to continue, without any accountability or penalties, to deny credit to creditworthy individuals, businesses and community development projects, to provide poor and discriminatory service, to withdraw financing and service unjustifiably in communities across the country. Federally, Bill C-8 is An Act to establish the Financial Consumer Agency of Canada and to amend certain acts in Relation to Financial Institutions. Bill C-8 was introduced in Parliament on February 7, 2001 and became federal law in Canada in June 2001, although many of its regulations will not be in effect until June 2002. Bill C-8 requires banks and other financial institutions with equity (shares) of $1 billion or more to publish an annual statement describing the contributions of the bank and its affiliate companies to the Canadian economy and society. The contents of the statement, which of a bank's affiliates will have to have a report in the statement, and how and when the statement will be disclosed to the public will all be defined by regulations. The government has publicly committed to setting up a comprehensive Statistics Canada program of data collection and analysis about small- and medium-sized businesses debt and equity financing. The government has also publicly committed to encouraging, but not requiring, financial institutions to reduce turnover of account managers, decentralize credit granting processes, make credit available to higher-risk borrowers with appropriate pricing and innovative financing packages. The government has also publicly committed to establishing a working group with financial institutions and First Nations to lower the barriers to financing Aboriginal businesses (e.g. the fact that onreserve property cannot be seized by banks, and so cannot be used as collateral for financing). The government has publicly committed to encouraging financial institutions to explore partnerships and other means of increasing micro-credit programs. The Canadian Community Reinvestment Coalition has analyzed Bill C-8 and has recommended a number of changes needed to close gaps in Bill C-8. They call for a more detailed Public Accountability Statements and a review, grading and sanctions system for financial institutions. The Canadian Community Reinvestment Coalition also tracks the federal parties positions on financial issues. The Liberal's election platform stated that, beyond increasing the capital base and lending capacity of Crown financial institutions such as the Business Development Bank of Canada and the Farm Credit Corporation (which focus on small business lending), the Liberals will "facilitate a dialogue between the non-profit sector and financial institutions on concrete ways to promote community economic development, including support for micro-lending initiatives. Legislation that has existed in the U.S. for twenty years is the basis for these proposals. The U.S. legislation currently requires detailed disclosure of mortgage, small business and community development lending patterns, and requires financial institutions to meet the credit needs of the communities in which they are chartered. Background Study: Community Development Finance (CDF) April 2002 9

Both the Toronto-Dominion Bank and the Bank of Montreal own bank subsidiaries in the U.S., which are subject to the U.S. legislation, and both banks, have projected ongoing profitable returns from their U.S. operations. A 1996 study by the Federal Reserve Bank of Kansas City (part of the U.S. government's Federal Reserve system) which involved a survey of 600 financial institutions across the U.S. found that 98 percent of the institutions that responded reported that their lending in response to the legislative requirements was profitable, and all reported that losses on these loans were comparable to losses on their conventional loans, that the loan default rates were comparable to conventional loans, and that overall their risk level on these loans was manageable. There is an effort, spearheaded by the Social Investment Organization Campaign, to encourage the Federal government to allow RRSP investments into independent community development loan funds. In a report on Community Development Finance vehicles, the Centre for Community Enterprise notes there is a rich array of institutional formats for community development financing, particularly in the US. Many of these are recognizable as more conventional private sector financing institutions, though they play a minor role in development financing in Canada. The following Canadian provinces have developed a range of policies designed to increase financial support to local economic development initiatives. In 1993, the Nova Scotia government introduced equity tax credit program, which offered a 25% provincial tax credit to individuals invested in existing corporations and co-operatives. This level was increased to 30% in 1995.In 1996, Nova Scotia enacted legislation that allowed individuals to invest in the growth and development of their community, through community economic development investment funds. This incentive includes a 30% equity tax credit that can be carried forward 7 years or back 3 years, RRSP eligibility and a government guarantee for up to four years on the last 20% of the investment. Seven funds had been established by 2000, having raised more than 3 million. This policy facilitated the creation of the BCA Investment Co-operative (see attached case study). In Saskatchewan in 1998, the Neighbourhood Development Organization (NDO) program began. This program is designed to provide organizational assistance and funding to support the planning, organizing and operation of multi purpose NDOs. There are three NDOs in Saskatchewan, including Quint Development Corporation. (See attached case study) The NDOs focus on community building activities rather than services to individuals. Low income neighbourhoods and regions form organizations that go through a process to be designated a NDO. The province provides funding to support the organizing and planning aimed at establishing a NDO. After the NDO is legally incorporated, it can apply for core operations funding. Manitoba has a Rural Development Bonds Program, known as Grow Bonds. This began in 1991 as a new approach to community development and economic diversification. This program provides a vehicle that assists rural entrepreneurs in attracting local investment capital while protecting the local investor with a Provincial Guarantee for every dollar invested. Prince Edward Island has not enacted legislation to support community development financing but has a community development fund and bureau. The bureau is made up of four Ministers, who meet monthly as a team. In 1998, in recognition that Islanders need to be involved in planning their economic future, the province launched a Community Economic Development planning process. They have also established a $2 million fund to support applications from the planning process. In Quebec, community development is well advanced, yet there isn t a specific legislation. Instead, integrated into policies of all departments there is some form of specialized policy statement and programs for community development. The previous British Columbia provincial government was investigating and consulting with Community Economic Development organizations about drafting legislation to support local economic development. In January, the Centre for Community Enterprise undertook a study on existing models in Canada and the US. With the government change in 2001, the Community Economic Development legislation groundwork was set aside. Background Study: Community Development Finance (CDF) April 2002 10

The current British Columbia government is developing a Community Charter to give communities the powers and resources to make local decisions locally. This Charter seeks to strike a partnership between municipalities and the province where municipal councils will look after community governance and the province will address the public interest of British Columbia as a whole. The Charter will give municipalities greater powers and new freedom to take action and make decisions. The Provincial government states that the Community Charter seeks to provide municipal governments with a level of autonomy and self-reliance unprecedented anywhere else in Canada. While the legislation is still being drafted, it is possible that the Community Charter will be a positive force to help meet local needs. 3 3 Sources: Canadian Community Reinvestment Coalition web page: http://www.cancrc.org/ Community Development Finance Vehicles A report to the Ministry of Community Development, Co-operative and Volunteers. Center for Community Enterprise, January 2000. Social Investment Organization Campaign http://www.socialinvestment.ca/ Background Study: Community Development Finance (CDF) April 2002 11

Introduction to the Community Development Finance Institutions Case Studies As part of the Community Development Finance Project, examples were sought of successful Community Development Financial Corporations (CDFIs). The purpose was to understand how they organize themselves to carry out comprehensive approaches to addressing local socio-economic issues. Also of great interest, was how do these CDFIs sustain their development functions over time. The organizations were chosen by geographical region, with five British Columbia examples, five Canadian examples and four United States examples. For the British Columbia examples, Garth Stiller of Western Economic Diversification suggested the five Community Futures Development Corporations profiled. Sandra Mark suggested the Canadian examples of successful CDFIs. Robert Leland, Vice president of the National Congress of Community Economic Development responded on to a query on self-sufficient CDCs in the United States with these four US examples. The process used to complete the case studies was to research the organization, primarily on the web wide web and compile as much detail as possible. Direct interviews with the Executive Directors, CEOs or Managers of these corporations were arranged. Genuine appreciation goes to all who contributed to these case studies. Index of Case Studies: British Columbia: Community Futures Development Corporation of Central Kootenay Community Futures Development Corporation of The North Okanagan Nuu Chah Nulth Economic Development Corporation Community Futures Development Corporation of Strathcona Community Futures Development Corporation of Okanagan-Similkameen Canada: BCA Investment Cooperative, Sydney, Nova Scotia Calgary Community Works, Calgary, Alberta Human Resources Development Association, Halifax, Nova Scotia Quint Development Corporation, Saskatoon, Saskatchewan SEED Winnipeg, Winnipeg, Manitoba USA: United Durham, Inc/Community Development Corporation, Durham, North Carolina Kentucky Highlands Investment Corporation, London Kentucky Northern Community Investment Corporation St. Johnsbury, Vermont The East Los Angeles Community Union (TELACU) Los Angeles California Background Study: Community Development Finance (CDF) April 2002 12

Case Studies of British Columbia Community Development Finance Organizations Community Futures Development Corporation of Central Kootenay (CFDC of CK) Contact Name: Paul Wiest or Mike Stolte Contact Info: 201-514 Vernon Street, Nelson, BC V1L 4E7 Phone: 250-352-1933 Fax: 250-352-5926 Date Started: 1992 Area Served: The Community Futures' service area consists of 23,237 square kilometres within the boundaries of the Regional District of Central Kootenay. There are 9 municipalities and 81 rural communities within the Regional District. In 2000, the population estimates for the Region were 61,787 residents. Location: Central Kootenay, British Columbia Background Info: Presenting need/ Opportunity/ Motivation: In the late 1970s the introduction of the Community Economic Strategy (CES) signalled the beginning of innovative federal support for community economic development. This initiative, known as Local Employment Assistance Development (LEAD), offered local groups decision-making and responsibility for an investment fund and an operational budget to assist entrepreneurs in their communities to create or expand their businesses. In 1985,the Community Futures Program was developed to integrate the business development services into a larger process of strategic planning in the community, which led to the inception of Community Futures Development Corporations (CFDC s), except in Atlantic Canada where the Community Business Development Corporations (CBDCs) primarily offered the business functions. Today CFDC s and CBDCs are locally driven not for profit corporations that foster and support economic development. This work is done through community development projects, and by providing services and financing to small and medium-sized business. Services provided include: Access to capital CFDCs provide loans, loan guarantees or equity investments to a maximum of $125,000 for new and existing businesses. All loans are fully re-payable and come with flexible terms. Business services Staff and volunteers provide services to entrepreneurs including: help with business plans; business information and counselling; export support; and entrepreneurial training. Community planning and development CFDCs assist with the preparation and implementation of economic development strategies and plans at the community level. Vision/Purpose/ Goals Vision and mission statements: Our mission is to facilitate and/or promote activities, which will enhance the economic environment of our communities through entrepreneurial development and the creation of small business initiatives. Community Futures brings together major players in the region to work toward the common goal of sustainable community economic development. The success of the organization lies in the community taking "ownership" of its programs. This is achieved through having a dedicated group of Central Kootenay volunteer representatives participate on the board and all committees. Background Study: Community Development Finance (CDF) April 2002 13

Model chosen and rationale: The Community Futures Development Corporation of Central Kootenay is a non-profit organization that assists new and existing small businesses, or individuals contemplating self-employment as a career option. Community Futures Development Corporations (CFDCs) take a grassroots approach to community and economic development with the primary focus on job creation in areas outside major urban centers. There are 90 CFDCs across Western Canada. They are non-profit corporations run by volunteer boards of directors, supported by salaried staff. The mandate of the corporations is community and business development. Each CFDC delivers a variety of services ranging from local strategic economic planning, technical and advisory services to businesses, loans to small and medium-sized businesses, self-employment assistance programs, and services targeted to youth and entrepreneurs with disabilities. How is success defined and measured: Since 1985, Community Futures has loaned more than $12,000,000 to over 450 businesses in the Central Kootenay Region creating or maintaining over 1400 jobs. They make 60 to 80 loans per year, with a total of $2 million in loans out this year. Starting the Organization Financial resources- how was financing acquired: The original source was HRDC. They provided grants to the community through the Kootenay Region Economic Development Organization (KREDO). KREDO provided loans and selfemployment programs. This program was rolled into the CFDC of Central Kootenay when it began in 1992. Western Economic Diversification now provides financial support for the CFDCs. Resources available in the community: Previously, CFDC of CK had a partnership with Forest Renewal British Columbia (FRBC), a provincial government initiative to revitalize the forest industry. FRBC provided 300,000 dollars with a matching amount provided by the CFDC. FRDC didn t pay any administration costs but the CF could keep the interest generated by the loan activity. Another partnership with the Columbia Basin Trust provided $2.5 million, later raised to $5 million, to the five CFDCs in the Columbia basin catchment area. The CBT required a rate of return of 5.5 percent, so the CFDC set an interest rate of minimum 10 percent. The WD underwrote up to 10 percent of the losses. Obstacles encountered/ overcome: The partnership with FRBC has ended, due to provincial government restructuring which resulted in canceling this initiative. The CFDA has created the Pooled Assets and Lending (PAL) fund to allow CFDCs to access more loan capital. Details of the PAL Fund are in the listings section of this report. Links to Community/ Network /Outreach Organization links: CFDC has informal links to other lenders, and to the Chamber of Commerce. Philanthropy: Occasionally, not a lot of activity. Background Study: Community Development Finance (CDF) April 2002 14

Future Plans Short and Long term goals: CFDC of CK plans to be self-sustaining. This can be achieved with a loan fund of 10 million dollars; the loan fund currently is between $5 and $6 million. As the loan fund has slow growth, CFDC of CK are seeking partners to increase their loan fund, thereby decreasing their dependency on the WED. Anticipated challenges: Building partnerships with other organizations to find more capital to loan out is the major challenge. Also there are limits to debt financing, need for more equity financing to local businesses, to avoid businesses relocating or starting in the Lower Mainland. Plans for expansion/ development: The plan is to continue with and expand the current loan programs. There are two Loan Programs available depending on the level of financing required. The standard Entrepreneurial Investment Fund offers loans from $5,000 to $500,000. Within this Fund, Community Futures has additional loan funds targeted to forest-based businesses, young entrepreneurs and entrepreneurs with disabilities. Community Futures also administers a Micro Enterprise Fund, which provides loans from $200 to $5,000. Interest rates are as low as prime plus 2%. Flexible repayment schedules can be created with no penalty for early repayment. Sustainability strategy for Development Finance (DF): Although there is a goal of self-sufficiency, there is not currently a formal sustainability plan. What role does DF activities play in the sustainability structure: Development finance is a key factor in their self-sufficiency plan. The target of $10 million for the loan fund would cover off the operating costs of the organization. Threats to sustainability: As CFDCs responds to local needs, each CFDC is different; this is strength and a challenge. All CFDCs provide loans and self-employment programs. Some go beyond into CED projects in the community, but the comprehensive planning function is not occurring. 4 Community Futures Development Corporation of the North Okanagan (CFDC-NO) Contact Name: Jean-Marc Lacasse Contact Info: #302-3105 - 33rd Street Vernon, B.C. V1T 9P7 Phone: 250-545-2215 Fax No.: 250-545-6447 info@nocdc.bc.ca Date Started: 1984. CFDC-NO was first established as a Local Employment Assistance and Development program under the federal government. CFDC-NO became part of the Community Futures program in 1987, and incorporated under the Canada Corporations Act on April 1st, 1995. Area Served: CFDC-NO serves the geographical region located at the north end of the Okanagan Valley, encompassing the communities of Armstrong, Cherryville, Coldstream, Enderby, Grindrod, Spallumcheen, Lumby and Vernon, as well as the Okanagan and Spallumcheen Indian Bands. The region comprises of approximately 7850 sq. kilometers, with 80% of the population concentrated within a 25sq. kilometer area. 4 Sources: Interview with Mike Stolte, March 2002. Community Futures Development Corporation of Central Kootenay webpage. Background Study: Community Development Finance (CDF) April 2002 15

Location: North Okanagan, British Columbia Background Info Presenting need/ Oppo rtunity/ Motivation: In the late 1970s the introduction of the Community Economic Strategy (CES) signalled the beginning of innovative federal support for community economic development. This initiative, known as Local Employment Assistance Development (LEAD), offered local groups decision-making and responsibility for an investment fund and an operational budget to assist entrepreneurs in their communities to create or expand their businesses. In 1985,the Community Futures Program was developed to integrate the business development services into a larger process of strategic planning in the community, which led to the inception of Community Futures Development Corporations (CFDCs), except in Atlantic Canada where the Community Business Development Corporations (CBDCs) primarily offered the business functions. Today CFDCs and CBDCs are locally driven not for profit corporations that foster and support economic development. This work is done through community development projects, and by providing services and financing to small and mediumsized business. Vision/Purpose/ Goals Vision and mission statements "...To assist the citizens of the North Okanagan to achieve significant improvements in permanent employment and sustainable development..." Provide a source of risk capital to organizations and individuals for economic and entrepreneurial development in the North Okanagan. Assist local entrepreneurs to access basic managerial, professional, and technical services necessary for the successful operation of their business. Participate in the financing of enterprises, which will provide relevant training, employment, and business experience to the community. Model Chosen and rationale The Community Futures Program is a federal government initiative, which was established in 1986 to assist rural communities in the development of strategies for dealing with a changing economic environment. The program is based on a philosophy that local decision-making and local development are the most effective means for communities to shape their future. CFDC-NO offers many programs to assist clients into employment and business development. (See attached appendix) Business Development Centre - Loans Business Planning Development Bladerunners CAP - Community Resource Connections Career Centre Entrepreneurial Assessment Futures International Job Action Jobwave Marketing Survey Workshop Progressive Employment Partnerships (PEP) Self Employment Benefit (SEB) Background Study: Community Development Finance (CDF) April 2002 16

How is success defined and measured: The Business Development Centre supports over 200 business loans and administers a total loan fund of 3.5 million dollars. The success of the CFDC-NO is measured by their impact within the community. Also they are ISO certified. ISO refers to the standards produced by the International Organization for Standardization. The Organization was established to develop and promote common standards for manufacturing, trade and communication worldwide. ISO is NOT quality control but rather a quality assurance system that focuses on preventing a non-quality product/service. Instead of certifying the end product, ISO focuses on the processes by which the goods and services are produced. The focus is on consistency of purpose and doing things well. Starting the Organization Financial resources- how was financing acquired: An initial grant of $1.55 million was given by the Federal Government to start an investment fund. This fund has grown to $3.8 million. Operating contributions are received through Western Economic Diversification. The CFDC also contracts with HRDC to administer the Self Employment Program. Other contracts, which fit their mandate, are done on a fee for service basis. Resources available in the community: There is a good roster of community volunteers to draw from in this community. Dollars for projects are limited and are sourced through HRDC, Western Economic Diversification and various Provincial Ministries. Obstacles encountered/ overcome: Finding the right people was cited as an obstacle. To create the right synergy between the volunteer board and the staff is a challenge. The CFDC-NO has addressed this by developing a strong board. By utilizing strict selection criteria for the board and the board then employing strong governance policies. Links to Community/ Network /Outreach Organization links: Many informal links to Industry, commercial Banks, Credit Unions, other EDO. Works to facilitate linkages in the community for private businesses. Philanthropy: The office participates in casual Fridays, with one dollar collected for each person who chooses to dress informally. Last year $1000.00 was collected and donated to a local good cause. The office also participates in the Paddle for Cancer fundraiser. Future Plans Short and Long term goals: Long term, is to fulfill the mission, the ongoing challenge is how best to fulfill that mission. Immediate goals are to provide training and resources to reattach people to the labour market. Also to support business development in the up to five employees size of business by providing services to those businesses in the form of loans, training and coaching. Anticipated challenges: An ongoing challenge is offering competitive wage and benefits for staff. Because of the non-profit nature of the corporation, the wages are under market. This creates difficultly in attracting and keeping key employees. Background Study: Community Development Finance (CDF) April 2002 17

Plans for expansion/ development: The last two years have been difficult; there has been general decline in the region. There are no specific plans to expand, just to continue doing what they do well. Sustainability strategy for development finance: CFDC-NO is striving to cover their core expenses. They estimate that when the loan fund is at 10 million dollars, the interest income generated will allow CFDC-NO to be self-sufficient. The loan fund has slow growth because of the social mandate. CFDC-NO contracts with many partners, including Western Economic Diversification, to deliver services. The core funding that they receive covers only 10% of operations. As they provide fee for services, they are always to alert to opportunities and funding sources. What role does development finance activities play in their sustainability: A major role but it will be a slow process. Making small loans is labour intensive and risky. To have a profitable loans portfolio the easiest course of action is to foreclose when people are in default yet CFDC-NO chooses to work with people to try to save the venture. This requires a high degree of management time and is costly. The CFDC-NO has a loan default rate of 5%. Threats to sustainability: A non-profit corporation has the problem of funding sources that do not allow retained surpluses, so there is no encouragement to save money. An external threat is an overall economic downturn within the limited region they serve. 5 5 Sources: Interview with Jean-Marc Lacasse CFDC-NO webpage: http://www.futuresbc.com/ CFDC-NO Annual Report 1999-2000 Background Study: Community Development Finance (CDF) April 2002 18

North Okanagan Current Activities http://www.futuresbc.com/ Background Study: Community Development Finance (CDF) April 2002 19