CDFI Fund Small Dollar Program: Does It Add Up?

Dear Colleagues: if you are still considering applying for this program, there are a few things you should know before the SF-424 deadline on Friday. 

The SDL Program provides (1) grants for Loan Loss Reserves (LLR) to enable a CDFI establish a loan loss reserve fund in order to defray the costs of a small dollar loan program established or maintained by such institution; and (2) grants for Technical Assistance (TA) for technology, staff support, and other eligible activities to enable a Certified CDFI to establish and maintain a small dollar loan program. 

SDL Program funding is intended to expand consumer access to financial institutions by providing alternatives to high cost small dollar lending. The SDL Program funding is also intended to help unbanked and underbanked populations build credit, access affordable capital, and allow greater access into the mainstream financial system. 

The SDL Program was included in the Dodd-Frank bill in 2010, as part of an overall effort to combat predatory lending practices. However, it had gone unfunded until Congressman Gregory Meeks (D-NY) led an effort in 2019 to get an appropriation. So, here we are now; $13.5 million available for existing and new programs. And then we get the phone calls and emails. "What's the scoop, Jason? Should we apply? is it worth it?"

I really didn't have an answer. But while I was waiting for my Margarita on a beach in Cancun recently, I decided to find out. Here's what we learned:

Of the 572 certified CDFI loan funds, about 50 (no typo) offer an SDL .We didn't look at CDFI Credit Unions, primarily because we consult with just loan funds, and there are some big brains on that side that are advising their clients appropriately (more on that in a minute).

• "About" 50 means that some organizations are vague or silent on their websites about the size and requirements of their "small dollar' loan and we didn't count them.
• About 35% of the identified programs are operated by Native CDFis. This obviously makes sense for reasons that if I have to explain, then you may be in the wrong discussion group. 
• Many of the 50 are very small or small CDFIs. 

Why so few? It's about systems, scale and sustainability. Only a handful of CDFIs loan funds have built the systems to be able to scale up so these programs can be sustainable.

As far as CFDI Credit Unions, my original, uninformed and somewhat arrogant conclusion is that they were going to take the bulk of the awards. Well, we've heard anecdotally that CUs are not applying over concerns that they might exceed the 2% regulatory requirements on defaults, thus triggering a call from the regulators. How does that play out in terms of applications?

Finally, the program will fund new programs. Well, my suggestion is that you take a hard look at the "Priorities" for SDL programs in the NOFA.  Meeting just one of them simply won't do. Hint: can you turn around a check in 24 hours from the time the materials are received?

Bottom line: if you are one of the relatively few CDFI loan funds that operate an SDL Program with a good track record and prospects for growth, go for it.  A TA grant will help subsidize the cost, and more importantly, this may be the most predictable source of ongoing public funding for the foreseeable future.