Understand this: South Shore, the grand dame of community development banks, makes a profit. They just do it differently.
"South Shore Bank is in the business of restoring markets and increasing opportunity in underinvested communities," explains Joan Shapiro, executive vice president, about the mission of the 23-year-old institution. "From day one, we had to meet dual objectives of profitability and development."
When South Shore Bank began lending money to low- and moderate-income homeowners and entrepreneurs on Chicago's South Side, the institution was the first federally regulated bank pegging community redevelopment as its primary reason for lending. It was also the first to recognize that lending money was not enough: The bank had to create a demand for its money.
In 1992, then-presidential candidate Bill Clinton got the message, and in 1994 created the Community Development Financial Institutions (CDFI) Fund in the Department of the Treasury. The fund has developed programs to encourage the creation of financial institutions dedicated to community re-development.
"We have $31 million for the Community Development Financial Institutions program [to encourage formation of community development banks] and $15.5 million earmarked for the Bank Enterprise Awards program open to banks and thrifts to encourage them to increase their investments in CDFIs," says Kirsten Moy, director of the Treasury Department's CDFI fund.
The difference between a community development bank and a traditional one is that the primary goal of the former is to invest in targeted low-income or distressed communities, says Jeannine Jacokes, senior policy officer with Moy. A CDFI typically also combines lending or investments with development assistance.
"The biggest challenge in community redevelopment lending is [cultivating] expertise on the part of the lender. There are good loans to be made, but it takes special skills to pull them together," explains Lucy Griffin, a former bank regulator and current owner of Falls Church, Virginia, bank regulatory compliance consulting company Compliance Resources Inc.
Although growth has been slow, the development bank concept has begun to take root. South Shore Bank has been instrumental in helping create institutions in Arkadelphia, Arkansas, in 1988; Cleveland in 1994; and Willapa Bay, Washington, in 1995.
Bank On Them
- Community Capital Bank in Brooklyn, New York, begun five years ago, makes loans to moderate- and low-income entrepreneurs, multiunit housing owners and nonprofit groups. (718) 802-1212.
- Community Bank of the Bay received approval in 1995 to raise $6 million in capital to serve low- and moderate-income entrepreneurs, multiunit housing owners and nonprofits in the Oakland-San Francisco metropolitan area. (510) 271-8400.
- Community First Bank of DC, N.A., received preliminary approval in 1995 to raise $7 million to serve low- and moderate-income business owners and home buyers in the nation's capital.
- Self-Help Credit Union, founded in 1980, specializes in small-business and home lending to women, minorities, rural residents and underserved low-income families in North Carolina. (919) 956-4400.
- Bank of America Community Development Bank focuses on financing construction of low- and moderate-income multiunit housing and lending for government-guaranteed small-business loans. (800) B-OF-A-055.
- Neighborhood Bank Corp. recently received a national charter to operate in 27 communities in Southern California, offering commercial and housing loans. (619) 544-1642.
- Community Development Bank in Los Angeles is in the early planning stages, with pledges of $430 million in federal money and $210 million from local banks. (800) 491-CITY.
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