Pub. 6 2015 Issue 3

fall 2015 31 West Virginia Banker funding loan requests that normally would fall outside of the financial institution’s risk tolerance. For example, by entering into a loan participation agreement with a CDFI, as either a lead lender or a par- ticipant, risk can be spread over a larger group of lenders. Another method of risk mitigation would be allowing a CDFI to assume a junior lien position on collateral in order to provide adequate equity to the first lien holder. The traditional lender can also use real estate or other fixed assets as collateral, while a CDFI may take on the larger risk component by financing equip- ment or operating capital. Another support method that CDFIs often look to traditional financial institutions for is core deposits which are used by CDFIs for lending in a mission fulfillment capac- ity. If these deposits are made in FDIC-in- sured institutions, traditional insurance coverages apply. Deposits made in credit unions that are CDFIs are insured by the National Credit Union Administration. Provided the deposit is made into one of these institutions and within current limits, the deposit would be made with minimal risk. Other ways that traditional financial insti- tutions may successfully collaborate with CDFIs could include providing technical assistance to the CDFI. Volunteering for a CDFI’s board of directors or credit committee may help develop a mutually beneficial and valuable relationship. Alternative Lending in West Virginia Loan funds, part of the alternative lending sector, are thriving in West Virginia. For example, the West Virginia Loan Fund Collaborative (WVLFC) is a voluntary pilot effort of eight active lending orga- nizations that lend to businesses in rural underserved areas. WVLFC members are mission-driven nonprofit lenders who aim to put their clients in a position to receive future traditional financial institution loans. Three WVLFC members are CDFIs. Using data voluntarily provid- ed by the loan funds, the Richmond Fed mapped out WVLFC’s lending activity in West Virginia. The data demonstrated that there is a broad dispersion of lending ac- tivity across the state despite its challeng- ing topography and very low population density. Through July 2014, aggregated WVLFC active loans totaled $20.1 million in lent funds from 293 loans. n 1 The CDFI Fund’s mission is to increase economic opportu- nity and promote community development investments for underserved populations and in distressed communities in the United States by investing in and assistingCDFIs through a variety of programs, training, tax credits allocations, invest- ments, and bond issuances. 2 CDFI Fund. “Certified CDFIs (as of June 30, 2015)”. http:// www.cdfifund.gov/docs/2015/Cert/CDFI%20List%2006-30- 15.xls. 3 CDFI Fund. “Agency Financial Report FY 2014”. http:// www.cdfifund.gov/news_events/Agency%20Financial%20 Report%20FY%202014.pdf. The Richmond Fed Community Development depart- ment’s recent MarketWise Community publication pro- vides a brief history of WVLFC’s formation as well as an analysis of its capital deployment. The continued success of WVLFC hinges upon the ability of the individual loan funds to increase awareness among lenders, technical assistance providers, and small businesses that they are a viable source for credit as well as a trusted partner for traditional lenders to work with on financing deals. The developmentofWVLFCand itsongoingworkmayserveas amodel for other states to understand alternative lending activity within their borders. For more information, contact Jennifer Giovannitti, AICP, CEcD, jen.giovannitti@rich.frb.org; Shannon McKay, shannon.mckay@rich.frb.org; or Sean O’Hara, sean.ohara@rich.frb.org. Ask about FREE Equipment if you contact us TODAY!