Rural CDFIs Give Voice to a Brighter Future in Rural Regions


Betsy Biemann and Keith Bisson, Coastal Enterprises, Inc.

Download PDF
(121 KB)

Volume 12, Issue 1 | September 12, 2017

In many ways, the current economic and social context of rural states and regions
has remained constant during this decade. Rural regions account for approximately
two-thirds of the nation’s land mass, yet only 14 percent of the U.S. population, or
46 million people.1
By most measures, these regions remain older, whiter, less well-educated,
and poorer than metropolitan areas.

That said, the context for rural community development has experienced significant
changes. Unemployment rates have decreased nationally, including in rural regions. Despite
the apparent decrease in the numbers of people looking for work, there are clear signs that the
lower unemployment rate is not yielding greater economic opportunity, as worker productivity
gains over the past two decades have not translated into higher wages. Increasing numbers of
people between the ages of 16 and 64 are out of the workforce, particularly middle-aged white
men. Opioid use and domestic violence are on the rise. Poverty rates and children qualifying
for free and reduced lunch have increased. And finally, rural voters vaulted their economic
frustrations onto the national electoral stage by voting in larger numbers for economic
populist candidates in 2016. Throughout the campaign season, the national conversation
was about how the U.S. economy was not working well for most people—and was particularly
not working well for people living in rural regions. These changes present new challenges,
as well as new opportunities, for community development financial institutions (CDFIs)
working in rural regions.

In her What Works essay on rural community development, Cynthia “Mil” Duncan,
research director at AGree, referenced the idea that people in underdeveloped economies
have three choices: exit, loyalty, or voice.2
Based on the work of economist Albert Hirschman,
the choices reflect the generalized notion that people in rural communities can leave for
opportunity elsewhere (exit), accept conditions as they are and uphold the status quo (loyalty),
or stay and speak up and act for change (voice). As a rural CDFI, Coastal Enterprises, Inc.
(CEI) has chosen to stay and be a voice for change. In this essay, we summarize some of the
lessons we have learned from working at the individual client level, the systems level, and
from related fields, and we reflect on the future of community development in rural regions.

Supporting Community Development in Rural Maine

CEI was incorporated in Bath, ME, in 1977 with no balance sheet and ambitious goals
for investing in communities in rural, mid-coast Maine. Today, CEI grows good jobs,
environmentally sustainable enterprises, and shared prosperity by integrating finance,
business and industry expertise, and policy solutions. It has almost $700 million in capital
under management across the United States.

Early on, CEI’s team realized that rural regions were not monolithic. Although relatively
racially and ethnically homogeneous, many of Maine’s rural towns have important differences
based on historical industries. There are also obstacles based on legacies of exploitation of both
the natural world and Maine’s first residents, the Wabanaki people. Some communities are
shallow economies, dependent on single industries and employers; others have more diverse
economies and a mix of residents who grew up there and others who come “from away.” CEI
approached this diversity by developing industry expertise and connections to communities
to meet the needs of businesses and people where they are. CEI’s fisheries and aquaculture
work in mid-coast Maine expanded to programs serving farmers, loggers, manufacturers, child
care providers, women, and immigrants. For example, CEI developed a seminar series for
women in business, with the participation of Maine’s technical college system, and continues
to manage a statewide Women’s Business Center, serving 850 women annually with one-on-one
advising and workshops. In addition to providing targeted services to women, CEI targets
similar services to immigrants and entrepreneurs in economically distressed parts of Maine.

CEI also built on its original natural resources-based programming. Since 1977, CEI has
channeled investment in natural resources-based industries, partnering with capital providers,
state agency and university scientists, food-system nonprofit organizations, and businesses to
support innovative farmers, fishermen, value-added food processors, and distributors. CEI
believes that the future of the Maine economy will continue to be fueled by growth in our
natural resources-based industries, as they are the state’s competitive and comparative advantage
economically. Natural-resources programming is core to CEI’s efforts to create opportunity
for people often left outside the economic mainstream in predominantly rural communities—
communities that rely on their natural-resources assets for economic productivity.

A hallmark of CEI is innovation, in both the products and services it uses to meet its
mission and the evolving needs and challenges of the communities it serves. In its food-system
work, CEI aims to support the creation of new food businesses. Its long-term strategy is to
help weave these individual enterprises into integrated value chains, whereby Maine producers
source raw inputs from Maine vendors, Maine value-added processors source ingredients from
Maine producers, and Maine distributors supply high-quality and traceable Maine-made food
products to local, regional, national, and international markets. This requires more than individual
transactions that add impact. CEI is now exploring more integrated approaches to
multiply impact. It is also working to fill infrastructure gaps, such as capacity to process and
add value, that constrain growth and profitability of small- and mid-sized businesses operating
along the food and beverage value chain, from the grower to the consumer.

A key lesson from CEI’s work is that the market on its own will not always provide
the products and services necessary to create and maintain healthy communities, especially
for low-income, underserved, or marginalized populations in rural areas. This “market
failure” creates a need for alternative strategies, such as community development finance.
However, transactions are not ends in themselves: investment is one of the most powerful
tools in CEI’s toolbox, it is often insufficient on its own. Looking beyond the transaction is
critical to having impact, which is why robust business advising and workforce development
partnerships remain central to our work. In addition, we engage in policy research and
advocacy to improve the systems that drive economic opportunity and strategic investment,
such as aligning training with the needs of growing industries to help people secure good jobs
and advance in their careers.

The Role of Innovation and the Emergence of Technology-Based
Economic Development

The Nobel Prize winning economist Robert Solow has estimated that innovation has
been responsible for 80 percent of job growth during the modern age. In Maine, two of the
three companies that earned over $1 billion in 2016 were WEX and IDEXX—companies with
information technology at their core. The third was L.L. Bean, the venerable sporting-goods,
clothing, and housewares company synonymous with Maine’s outdoorsy, Yankee brand. At
its founding in 1912, L.L. Bean itself was based on two innovations: a hunting boot with a
rubber bottom and a leather side, and the notion that marketing by mail to the list of people
who had bought hunting licenses would yield interested buyers. Today, the company has
global sales and retail outlets from Freeport, ME, to Tokyo, Japan. Most of its products are
manufactured outside of the United States, but its iconic boots continue to be stitched locally.

On the surface, rural regions appear to be at a disadvantage in the innovation and
technology arena. They have fewer large, wealthy research universities and lower rates of
patenting, a traditional measure of innovation. They often have higher concentrations of
industries that traditionally have invested less in research and development (compare the
biotech industry with the paper industry, for example). However, some rural regions have
invested intentionally in the ingredients needed to support a culture of innovation and
entrepreneurship; as a result, they are punching above their weight. They have learned that
it requires a long-term view; identification of their regional, industrial, comparative advantages;
investment in entrepreneurship, as well as technology; connecting the dots between
invention and successful commercialization; and, once a critical mass of activity is taking
place, the promotion of the region’s strengths in that industry cluster.

Oklahoma is one rural state that has taken this approach. According to Scott Meacham,
the CEO and president of i2e, a nonprofit partner of Oklahoma’s Center for the Advancement
of Science and Technology (OCAST), Oklahoma’s preferred direction is to “invest in
new companies that add homegrown jobs that take less state dollars per job to create and are more likely to remain in Oklahoma long-term.”3
Other examples of initiatives investing
in rural innovation include Minnesota’s Agricultural Utilization Research Institute, North
Carolina’s BioNetwork, and the Maine Technology Institute—all of which are pursuing innovation
as a strategy to grow good jobs and economic opportunity in less-populous regions.

The Business of Entrepreneurship

A region needs more than inventive ideas to translate new discoveries into economic
benefits. It needs the capacity to evaluate these ideas for their commercial potential. It
also needs people with the business skills and experience to develop them into marketable
products and—importantly—into profitable companies. To achieve this at a scale that generates
meaningful new jobs and wealth requires an ecosystem that fosters these connections,
provides early-stage capital, and nurtures a critical mass of entrepreneurs with the drive and
experience to succeed in running the gauntlet from high-potential invention to profitability.

The past decade has seen a proliferation of efforts to expand entrepreneurship in rural
states. Merriam-Webster defines entrepreneur as “one who organizes, manages, and assumes
the risks of a business or enterprise,” which sounds a lot like any small-business owner.
However, people use the terms in different ways. Small-business owners are seen as having
great ideas, but at a community scale, growing at an incremental pace. Entrepreneurs are
viewed as having big ideas, embracing risk, and focusing on big ideas and disruptive growth.
Small-business owners are seen as being committed to, or even sentimental about, their
companies. Alternatively, entrepreneurs are viewed as working to grow their companies fast,
with the goal of achieving an “exit”: selling all or the majority of the company to a larger
investor—a strategic partner that is usually a larger company with a complementary product
mix—or, in a rare instance, to the employees of the company through an employee stock
ownership plan.

Over the past decade, the interest in entrepreneurship development as a springboard
for economic growth and opportunity has exploded. Company accelerators and initiatives,
like StartUp Weekend, have proliferated across the United States and around the globe.4
National philanthropies, such as the Kaufmann Foundation and the Blackstone Charitable
Foundation, have funded research on entrepreneurship, supported entrepreneurship development
activity, and promoted public policies to catalyze entrepreneurship. This investment
in entrepreneurship as a strategy for economic development has even turned global. The U.S.
Agency for International Development’s Partnering to Accelerate Entrepreneurship initiative
was launched to build economies and create jobs in nations where high unemployment
contributes to poverty and hopelessness that might provide a breeding ground for radical
action. And leading universities have gotten into the game; for example, the Regional Entrepreneurship Acceleration Program of the MIT Sloan School of Management works with
cross-sector groups from regions and countries around the world to develop and execute
entrepreneurship development initiatives.

However, the popular image of an entrepreneur as a 21-year-old college-dropout-turned-billionaire
is belied in rural regions. Many individuals starting their first business in rural
regions are mid-career, not recent college graduates, and a higher proportion of these startups
are bootstrapped, meaning they don’t receive financing from venture capital sources, but grow
using their revenue base, savings, credit cards, friends, and family members. Where possible,
they also tap grants or investment from state, nonprofit, or private mission-investors, such
as CDFIs. Programs cultivating entrepreneurship have sprouted not only in Boston and San
Francisco, but also in Portland and Bangor, ME (Top Gun), Mountain Village, CO (Telluride
Venture Accelerator), and Danville, VA (The Launch Place).

Often ignored in this debate is that regions have and depend on a diversity of small-business
In a recent paper, Karen Mills, former administrator of the Small Business
Administration and now a faculty member at Harvard Business School, described the
different types of small businesses and the different roles they play in the U.S. economy.6
Twenty-three million are sole proprietors; they provide income to their owners but don’t
have employees. Four million are “Main Street” companies that serve consumers and other
local businesses. They are the local pizzerias, dry cleaners, and auto repair shops that make
up the fabric of our communities. Most focus on maintaining or boosting profitability more
than expansion and significant jobs creation. One million are suppliers to other businesses in
the trades sector. And approximately 200,000 are fast-growing, innovation-driven businesses.
The latter two categories of small businesses focus more on growth and have a disproportionate
effect on the U.S. economy by anchoring and nourishing supply chains in the United
States and by contributing to job growth.

CDFIs that focus on small-business development have typically dedicated their financing
and business advising activity to the first two categories: sole proprietors and steady-growth,
“Main Street” companies. Data increasingly show the importance of extending supply
chains, adding value, and boosting value chains to grow industry clusters, boost productivity,
and increase wages and job quality. Rural CDFIs have an opportunity to leverage their
industry knowledge to identify industry-wide barriers, partner with industry leaders and trade
associations to find industry-wide solutions to barriers that are constraining growth, and
advocate for policy and regulatory changes that can help these industries to grow.

A recent example was an effort organized by CEI and its partners in the Maine Woods
Consortium, an open association of nonprofit organizations, businesses, and government
agencies dedicated to advancing a “triple bottom line” approach (economy, environment,
community) to development and conservation in the Maine Woods region. In 2015, the Consortium conceived of legislation to create Rural Destination Areas and a criteria-based
process for rural regions to develop plans and secure this designation. The Consortium also
proposed the delivery of targeted technical and financial assistance to Rural Destination
Areas. The idea was to direct the Maine Department of Economic and Community
Development to lead an interagency initiative to identify, develop, and deliver a package
of targeted technical and financial assistance to leverage private investment and accelerate
development of high-quality, marketable Rural Destination Areas.

After discussions with legislative and relevant agency leadership, the state committed to
supporting the concept with existing resources and creating a position that can work with
rural tourism businesses on destination development. This was a good outcome that aligned
with the original goal of expanding economic development through a network of marketable
Rural Destination Areas where clustered amenities—natural attractions, trail systems, water
access, service-oriented businesses, transportation infrastructure, and vibrant downtowns—
attract visitors, businesses, and new residents.

From Transactions to Rural Business Growth: The Role of Workers and
Workforce Development

As a rural CDFI that channels $15-20 million annually into micro- and small businesses
in Maine, CEI has a front-row seat in the process of job creation. Companies come to us
seeking financing when they are poised to invest in their operations and grow. This is the
very same time when these businesses often need to hire additional front-line workers and
middle managers. Yet the average small-business owner or entrepreneur does not have a deep
bench of human resources staff, networks with organizations that provide skills training or
employment-related supports, or knowledge about public resources available to fund apprenticeships,
training stipends, or English as a Second Language programs. CEI’s Lending and
Investment team can reach out to our Workforce Solutions staff to assist individual companies
or coordinate training resources in support of multiple employers in a region.

One of CEI’s wholly-owned subsidiaries, CEI Capital Management LLC, is a New
Markets Tax Credit Financing CDFI that financed the addition of a new tissue paper
machine at Woodland Pulp and Paper, adding over 80 new papermaking jobs in Baileyville,
ME, a town of approximately 1,500 near the Canadian border. The company needed new
employees with both hard skills to operate state-of-the-art papermaking equipment and softskills,
such as teamwork and communication. Woodland Pulp and CEI, as well as partners
that included Washington County Community College, Maine Department of Labor, and
other organizations, came together to launch a Maine WorkReady “soft skills” training
program and a 20-week, fully paid High Performance training program. Washington County
Community College delivered the training in standardized skill blocks, which instilled a
uniform set of pre-operational vocational competencies among all workers. Entry-level
positions at the company pay higher-than-average wages and benefits, and workers receive
increases in their hourly pay as they complete subsequent training modules.

CEI has also coordinated the Portland Jobs Alliance, a partnership of service providers,
employment practitioners, educational institutions, and businesses building a coordinated
approach to providing employment services that help low- and moderate-income job seekers
find work. This initiative, funded by the John T. Gorman Foundation and a Community
Development Block Grant from the City of Portland, helps Portland companies to meet their
hiring needs by creating an integrated and customized job training, referral, and retention
support system.

As unemployment rates have fallen, companies are more and more willing to partner
with others to solve their workforce needs and hire workers from new populations. CEI
has increasingly served as a bridge to populations with higher unemployment, such as new
immigrants and refugees. When equipped with language and skills training, mentors who
can provide assistance with job applications or transportation solutions, or internships to
build experience in a new type of workplace, these new entrants to the labor force can
become highly productive employees. Supporting these workers requires us to collaborate
with practitioner partners and to develop and advocate for policy solutions that help build
ladders to good jobs and economic opportunity, such as a liveable minimum wage, public
funding for skills training, and other employment-related support.

The Lure of Impact Investing: Mirage or Accelerant?

Pioneers of the community development finance field motivated by the civil rights movement
and the War on Poverty were the early mission or triple-bottom-line investors, although
the term “impact investor” was coined more recently. Community development pioneers in
the 1960s and 1970s saw economic empowerment as a fundamental driver of social justice
and viewed community development finance as a battering ram to break down systemic
disinvestment and other barriers that keep people of color, women, immigrants, and other
underserved groups from fully participating in American society.

Over the past five years, the field of impact investing has grown and evolved, as people
and institutions have increasingly sought to invest their resources more consistently with
their values. According to the Global Impact Investing Network (GIIN), survey respondents
dedicated over $15 billion to impact investment in 2016. These investments are financing
companies and social enterprises whose activities span community development, as well as
the fields of education, social enterprise, health and wellness, climate-change mitigation,
energy, and water. For the past five years, a constant theme within community development
finance circles has been how CDFIs can better tap these investment dollars and channel
them into investments in their communities—to yield a financial return, help low-income
people earn a better livelihood, or boost environmental sustainability.

In 2016, with the help of a graduate student from Yale University, CEI interviewed investors,
consultants, and foundations to understand how the impact investment industry views
CDFIs, what hurdles exist in terms of further CDFI investment, and what roles CDFIs
fulfill in the impact investment environment. Challenges that surfaced during these interviews included: 1) the lack of large-scale investment tools and portfolios that hinder CDFI
growth; 2) an understanding of risk and impact that limits investment flow, particularly at
the advisor/intermediary level; 3) the growing need for blended funding, which, without
playing a role in meeting this demand, will limit CDFIs’ ability to secure capital; and 4)
impact metrics that are not sufficiently standardized, with the corollary that standardization
may not be possible or easily accomplished.

These challenges are magnified for CDFIs working in rural regions. Large-scale investment
opportunities in rural regions are less common and more geographically dispersed. Risks are
sometimes higher—and are often perceived as being higher—both of which deter investment.
There are fewer available and sophisticated investors, so building a capital stack of investments
with varied risk and return thresholds can be more difficult. That said, CEI and other CDFIs
that specialize in rural community finance have developed specialized knowledge (which
can mitigate risk) about natural resources based industries, such as agriculture, fisheries, food
manufacturing, nature-based recreation, and bio-based and renewable energy.

Until larger flows of impact investment from foundations, banks, and other investors are
channeled to businesses in smaller towns across America, capital from federal agencies, such
as the Community Development Financial Institution Fund, the Economic Development
Administration, the Department of Agriculture, and the Small Business Administration,
will remain critical sources of community development financing in rural regions.
Similarly, the New Markets Tax Credit Program and other financial tools will continue to
be needed to leverage private capital—both impact and traditional. CEI’s subsidiary, CEI
Capital Management LLC, has deployed New Markets Tax Credits in rural states, including
Maine, Georgia, and Hawaii, yielding good jobs with benefits, contributing to thriving arts
institutions that then attract tourism as well as new residents, and retaining families in small
communities that otherwise would have suffered from depopulation.

The Evolution of Metrics

In the movie It’s a Wonderful Life, Clarence the angel shows George Bailey how his
Bedford Falls neighbors’ and community’s destiny would have been different if his savings
and loan had not existed. This alternate reality is stark. The Savings and Loan has closed,
Bedford Falls is a dark place full of poverty and pain, and relatives and neighbors have been
in prison and mental institutions. Why? Because the pople of Bedford Falls are unable to
access the capital they need to pursue opportunity. The challenge facing CDFIs is to show
how their investments, partnerships, business counseling, affordable housing development,
and policy advocacy make a difference in the lives and communities they serve. The old way
of raising investment and grant dollars based on stories and trust is no longer sufficient. The
diverse group of investors in CDFIs are demanding better, more credible metrics that show
how CDFIs are translating their dollars into impact (i.e., improving livelihoods through
affordable housing and quality jobs) rather than outputs, like numbers of loans made to
small businesses, or units of affordable housing built or maintained.

Rural CDFIs are often playing multiple roles to address the diverse needs in rural
communities, so the activities and impact they need to track are varied. The needs in their
communities require financial and nonfinancial assistance, as well as harder-to-quantify
activities, such as convening partners, workforce intermediation, informing public policy
and regulatory reform at the state level, startup support, and capacity-building of new
organizations. Tracking the impact of these functions in ways that are accurate and can help
connect the dots along a theory-of-change logic model requires investment in information
systems, metric development, staff capacity, and communications skill. We have seen
firsthand how difficult—and expensive—it is to collect, aggregate, analyze, and communicate
credible impact data that demonstrate the value of our work, but that also inform our
work as practitioners. CEI’s strategic priorities for the next three years are to grow good
jobs, environmentally sustainable enterprises, and shared prosperity in Maine and—through
our regional and national subsidiaries—in rural communities across the United States.
Developing internal data management capacity and information technology infrastructure
to measure and communicate our impact will be the next step in our journey. We are
confident that it’s possible.

Looking Forward to a Brighter Future for Rural Regions

The future is not a zero-sum game between urban and rural America. Rather, the future
will depend on rebuilding and recognizing the connections and interdependence between
the two and the continuum of communities that grade from urban to rural. As we continue
to remind ourselves, the 2016 election season emphasized the chronic reality that the
economy is not working for everyone. Also, as Kentucky-based writer Wendell Berry reminds
us, without prosperous local economies, the people have no power. We can argue over
the definition of “local,” but the important reality is that healthy economies are diverse in
size and scale and need to work for everyone, not one socioeconomic class or one scale of
community. In addition, economies must ultimately work within the constraints imposed
by Earth’s natural systems—another topic ripe for further exploration by the community
development field.

1. D.J. O’Brien and M.C. Ahearn, “Rural Voice and Rural Investments: The 2016 Election and the Future of Rural Policy,” Choices 31 (4) (2016).

2. Cynthia Duncan, “Community Development in Rural America: Collaborative, Regional, and
Comprehensive.” In Investing in What Works for America’s Communities: Essays on People, Place, & Purpose,
ed. Nancy Andrews et al. (San Francisco: Federal Reserve Bank of San Francisco and Low Income Investment
Fund, 2012).

3. Scott Meacham, “Innovation Can Boost Oklahoma Economy from Within,” The Oklahoman, January 24, 2017.

4. StartUp Weekend ran in over 1,000 cities around the world in 2016. Globally, GUST surveyed 387 accelerators that worked with 8,836 startup companies, investing over $190,000,000 in their growth

5. The Small Business Administration defines small businesses as firms with fewer than 500 employees.

6. Karen Mills, “The 4 Types of Small Businesses, and Why Each One Matters,” Harvard Business Review, April
30, 2015.

Betsy Biemann is the chief executive officer of Coastal Enterprises, Inc. (CEI). Before joining CEI, Betsy
led “Growing Maine’s Food Industry, Growing Maine,” a project of the Mossavar-Rahmani Center
for Business and Government at Harvard University, and advised businesses, nonprofit organizations,
and social enterprises in Maine and nationally. From 2005 to 2012, she served as president of the
Maine Technology Institute, investing in Maine companies and initiatives seeking to grow high-potential
sectors of Maine’s economy. Prior to her move to Maine, Betsy was associate director at The Rockefeller
Foundation, where she managed a portfolio of grants and investments aiming to increase employment
and boost skills training in low-income neighborhoods across the United States. She joined Rockefeller in
1996 after working in international development, principally in Eastern and Southern Africa. Betsy is
a graduate of Harvard College and the Woodrow Wilson School at Princeton University and serves on
the board of the Elmina B. Sewall Foundation and the advisory board of the Alfond Leaders program.

Keith Bisson is the president of Coastal Enterprises, Inc. (CEI). Prior to that, he was the senior vice president
for Program Management and Development, where he managed CEI’s small-business counseling,
natural resources, and workforce development programs. He was also responsible for developing and
managing CEI’s $12 million Northern Heritage Development Fund and $5.5 million Working Partners
Initiative, winner of the 2011 Wells Fargo NEXT Award for Opportunity Finance; monitoring
and participating in federal rural development policy; and developing and managing foundation and
investor relations. A graduate of McGill University and the Yale School of Forestry & Environmental
Studies, Keith is active in the community and currently serves on the Board of Directors of the Opportunity
Finance Network, the CDFI Coalition, and the Family Focus Early Learning Center. He also
serves on the advisory board of Four Directions Development Corporation, a CDFI serving Maine’s
four Native American tribes.