A New Model for Community Economic Development:
CEDLI Celebrates its First Anniversary
By Susan Phinney Silver, Deputy Director, The Development Fund
Over the next year, 273 people will find jobs and nearly 1,000 people
will keep their jobs thanks to a new private-sector initiative in California.
CEDLI, or the California Economic Development Lending Initiative, was
launched in October, 1995, as the first program of its kind in the country.
It represents a new financing vehicle designed to help financial institutions
and corporations meet a broader array of community development needs more
cost-effectively than possible in the past. And it now has a one-year
So, what is CEDLI? Technically speaking, it is a statewide community
development corporation (CDC), with $42 million in commitments from a
collaboration of financial institutions and corporations, that provides
financing to serve a range of community economic development needs, including
small businesses, nonprofit lenders, and community real estate projects.
Perhaps the best way to characterize CEDLI, however, is through its results.
During its start-up year, CEDLI has committed 40 loans totaling almost
$7 million, and has leveraged an additional $9.5 million in new financing
from member banks, resulting in total financings of over $16 million.
At CEDLI's first-year anniversary celebration, President George Williamson
remarked, "Our mission at CEDLI in its first year has been proof
of concept. We are very pleased to report that all of CEDLI's loan programs
have been well received and have passed the test of the marketplace. With
a full pipeline, CEDLI is expected to increase its volume significantly
in the upcoming year."
Examples of CEDLI's loans show the breadth of credit needs served by the
program, such as:
Capital-starved small businesses
With a priority on minority and women-owned businesses as well as those
located in low income communities, CEDLI finances promising small businesses
that do not meet the criteria of banks or government programs. Its first
loan enabled a Korean-owned clothing manufacturer to double the size of
its operations and create 70 new jobs. Another loan helped a new translation
services company that employs disabled people working from home to make
good on a contract with a major long-distance telephone carrier.
Nonprofit and public sector lending programs
CEDLI provides much-needed financing to local community lending programs
that are facing the effects of government cutbacks. It has financed economic
development corporations and small business assistance centers in the
Central Valley, Los Angeles, Napa Valley and various rural areas of Northern
CEDLI makes real estate-based loans for community-sponsored projects
that serve local needs. Examples so far include an at-risk youth employment
center in Fresno, a small business incubator in Pasadena, an employment
training center in Visalia and a child care center in San Diego.
CEDLI is expected to become a national model because it enables private-sector
entities to serve a broad range of community needs that they could not
individually serve in a centralized and efficient way. Even better, it
enables banks and corporations to serve these needs while making a reasonable
rate of return on their capital and concurrently achieving financial safety
and soundness. These features enabled the program to garner significant
private-sector participation. CEDLI kicked off its operations in October,
1995, with commitments of $38 million in a $50 million loan fund and over
$4 million in equity from 37 banks and corporations. Creators and supporters
of "the CEDLI concept" hope that the model will help financial
institutions and community groups increase private-sector financing for
community development in other parts of the country.
The idea for CEDLI developed from a growing need for new types of community
financing vehicles to access private-sector capital. In the affordable
housing arena, the financing infrastructure has become increasingly well
developed nationally over the last ten years. A smaller number of programs
devoted to small business lending have been created around the country
in recent years. However, there exist few vehicles through which the private
sector can finance a broader range of community development needs such
as child care and employment centers in a safe and sound way.
The CEDLI model was created through a collaborative planning process
over a three-year period from 1992 to 1995. The planning effort was sponsored
and staffed by The Development Fund, a nonprofit organization that has
developed a number of innovative community financing programs nationally
with the guidance and support of the Federal Reserve Bank of San Francisco.
The planning task force was led by Rick Hartnack, Vice Chairman of Union
Bank of California.
Because CEDLI was the first program of its kind, it took more than two
and a half years to design and implement. Building on the knowledge and
experience gained from the creation of the CEDLI model, similar programs
in other states could be developed within one year.
CEDLI is designed to meet the needs of three diverse constituencies:
the community, financial participants, and regulators. To be successful,
the program must meet genuine community needs while fulfilling stringent
private-sector financial standards. Key design features that help the
program accomplish this include the following:
Working through partnerships
In order to meet a wide array of community needs, CEDLI works through
broad-based partnerships with its member banks and with nonprofit and
public sector programs. For example, under CEDLI's "Co-Lending Program,"
member banks bring small business borrowers to CEDLI that they are unable
to finance on their own. CEDLI and the bank "co-lend" to the
small business, with CEDLI taking the riskier portion of the financing.
In a classic "win-win" situation, CEDLI gains a distribution
channel through its member bank loan officer and the bank gains a tool
for expanding its reach to small businesses. Similarly, in CEDLI's "Loans-to-Lenders
Program," CEDLI partners with nonprofit and public sector lenders
by providing them with a flexible source of financing to re-lend. Through
this program, CEDLI's goal is to provide a centralized, efficient avenue
for member banks to meet needs in localities throughout the state.
Sharing risks and costs
Like all consortia, CEDLI provides a risk- and cost-sharing vehicle to
enable its participants to meet a broader spectrum of needs than any one
entity could undertake individually. CEDLI is able to serve small businesses
that are viable but not bankable because of risk factors such as lack
of equity, collateral, time in business, or credit history. CEDLI is also
able to serve nonprofit borrowers that require more staff-intensive underwriting
and special consideration.
Becoming financially self-sufficient
In order to become a permanent and revolving source of community financing
and to ensure long-term success, CEDLI needs to be a financially safe
and sound entity. The program is designed to become financially self-sufficient
by its third year and, to date, CEDLI's projections are on target to meet
this goal. In addition to its financial soundness, CEDLI offers a fixed
rate of return to member banks on the lines of credit they've extended
to CEDLI; the return to members is at a fixed spread over money market
rates. These financial features enabled CEDLI to secure large-scale commitments
from financial institutions, and also to break new ground in procuring
investments and loan capital from non-bank corporations.
CRA and other regulatory advantages for participants
The Office of the Comptroller of the Currency, followed by the three
other financial institution regulatory agencies, approved CEDLI as a statewide
CDC and member institutions receive CRA credit for their participation.
Carefully crafted organizational and legal documents ensure that CEDLI
meets other regulatory and legal requirements for its members including
favorable regulatory treatment of CEDLI assets on their members' books.
Offering technical assistance to borrowers
The availability of technical assistance to small business borrowers
is as critical as the financing. CEDLI operates hand-in-hand with its
nonprofit affiliate, California Resources and Training (CARAT) to provide
training certification and capacity-building for small business technical
assistance providers and community based economic development organizations.
In its initial offering, CEDLI recruited 34 financial institution members
of varying asset sizes. Insurance, telecommunications and health care
industry-based corporations also joined CEDLI. This investor diversity
allows CEDLI to offer a model for broadening partnerships between financial
institutions and an assortment of private corporations. With $38 million
in member loan commitments for its first year, CEDLI's longer range goal
is to achieve $50 million in lending capacity. Its next enrollment window
for new financial institution and corporate members will be the spring
George Williamson has been President and CEO of CEDLI since its initial
kickoff in July, 1995, and launched CEDLI's lending operations in October
of the same year. His leadership has made a critical difference in making
the concept a successful lending reality. "Our goal has been to become
an effective resource for community development in all parts of the state,
in both urban and rural settings, in communities of color, and in low-income
areas," says Mr. Williamson.
Potential borrowers and financial institutions interested
in CEDLI membership can reach George Williamson and his staff at their
office in Oakland at (510) 267-8990.
Susan Phinney Silver was the project director for the creation
of CEDLI, and is a six-year veteran of The Development Fund. Her background
includes undergraduate and graduate degrees from Princeton and Yale School
of Management, respectively. In addition to previous efforts in developing
community financing programs for The Development Fund, her professional
experience includes work as a program auditor in Africa with Catholic
Relief Services and as a business consultant with McKinsey & Company
in New York City.
What is the Development Fund?
Based in San Francisco since its inception in 1963, The Development Fund
is a nonprofit organization serving a unique role nationally in developing
private-sector financing vehicles to serve community needs. It has historically
been known primarily for its work in creating vehicles for affordable
housing. Between 1987 and 1995, The Development Fund, in partnership with
Federal Reserve district banks, established eight successful affordable
housing intermediaries throughout the country, with total commitments
of $575 million from over 200 financial institutions. These programs,
called "Community Reinvestment Corporations" or CRCs, are now
operational in California, Florida, Hawaii, Idaho, Nevada, New Hampshire,
Oregon, and Washington State. The Development Fund is currently working
with a group of bankers, public agencies, and nonprofit organizations
to create a new affordable housing CRC in the State of Maine and on a
new community reinvestment vehicle in California to finance brownfields
and other environmentally contaminated properties. The Development Fund
is led by its new Executive Director, Sidney Johnson, and its Deputy Director,
Susan Phinney Silver. Sid was previously President of SAMCO, and brings
twenty years of corporate and real estate finance experience to his new
position at The Development Fund.
Financial institutions and community development agencies interested
in establishing CEDLI or CRC programs in other states, please call: Sid
Johnston and Susan Phinney Silver, The Development Fund, at (415) 981-1070.