Kresge makes record $10 million loan commitment to community lenders working in underserved communities
Support for NEXT Awards for Opportunity Finance encourages strong community-based lenders to expand in low- and moderate-income communities.
TROY, Mich. – The Kresge Foundation will provide $10 million to a loan fund that makes financing available to small businesses and nonprofit organizations in low- and moderate-income communities.
The largest in Kresge’s history, the loan represents a milestone in the foundation’s move to augment its grantmaking with a more aggressive use of program related investments, loan guarantees, and other forms of social investments.
The Troy, Mich.-based Kresge joins Wells Fargo Foundation and the John D. and Catherine T. MacArthur Foundation to fund as many as five community development financial institutions per year through the NEXT Awards for Opportunity Finance. Those awards are administered by Opportunity Finance Network, the leading national network of community development financial institutions.
Community development financial institutions are private-sector financial institutions that make low-interest loans to organizations typically not served by commercial lenders.
Often referred to as CDFIs, community development financial institutions provide capital for housing, community facilities, such as day care centers or charter schools, small businesses, and other enterprises that fill needs and create jobs in underserved communities.
For example, one community development financial institutions working with Opportunity Finance Network financed a new preschool for special needs children in Maine; another helped a food co-op move from a church basement to a storefront in a shopping center in Minneapolis; still others extend financing for health centers, affordable housing and other community facilities and services.
The NEXT Awards program recognizes performance and potential.
Over the last two years, Kresge has intensified its effort to help nonprofits gain access to nontraditional forms of capital.
“We’re identifying the barriers that lack of access to capital presents for nonprofits and others working to create opportunity and improve the quality of life for low-income people,” says Kresge Foundation President Rip Rapson. “We want to make capital available to help propel organizations that are, or can be, community assets along the path of long-term sustainability.”
The foundation’s social investment practice makes capital available in several ways. In addition to direct loans, like the one to the Opportunity Finance Network, Kresge:
- Guarantees loans, providing the foundation’s credit to an organization financed by a bank or other agency.
- Makes linked deposits, placing assets with an FDIC-insured lender so that the institution can more readily provide financing for desirable activities.
- Is prepared to make equity investments, taking an ownership stake in a for-profit entity.
These commitments are made in support of the goals of Kresge’s seven programs and commonly described as “program-related investments.” While the foundation assumes risk on behalf of a social good, the expectation is that the loan principal will be repaid with modest interest.
For example, the interest rate on the 10-year Opportunity Finance Network loan is 1 percent.
“Given market conditions following the economic crisis and the continuing credit crunch, more organizations are turning to community development financial institutions so their capital needs are increasing,” says Kimberlee Cornett, director of Kresge’s Social Investment Practice.
At the same time, there’s less money from the federal government, which in the mid-1990s began funding individual community development financial institutions, says Cornett.
Kresge will participate in a new round of NEXT Awards that is focusing on areas without well-established community-based lenders.
“We’re interested in transplanting strong capacity,” says Cornett.
A previous investment provides a blueprint: In 2008, Kresge made a $2.5 million loan and a grant to the Illinois Facility Fund, which then operated only in its home state. The investment helped the community development financial institution expand. It now does business in five states.
“That’s similar to what we hope will happen with this investment,” says Cornett.
As part of the round of NEXT Awards, planning mini-grants will be available to community development financial institutions interested in exploring expansion into new geographic areas.
Information about grant applications is available now from the Opportunity Finance Network.
Established in 2007, the NEXT Awards awarded $41.7 million to community development financial institutions from 2007-2011. The awards recognize excellence among financial institutions that responsibly serve low-income and low-wealth people and communities, and were established to spotlight how the lenders increasingly benefit the nation’s economy.