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.
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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.
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