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WASHINGTON – A study conducted by the National Community Capital Association (NCCA), an association of 127 of the largest Community Development Financial Institutions (CDFIs), shows that money invested in community development efforts is ad safe as money invested in other lending which is considered more “mainstream.” The study reported on almost $4 billion of financing by 107 CDFI’s, including six credit unions, in the year 2001. The institutions invested in distressed urban and rural markets across the United States. The findings indicate that loan portfolios with high-perceived risk had net charge-offs of 0.5%, which compares favorably to 0.9% for all commercial banks, and 0.5% for commercial banks with less than $100 million in assets. “We now have persuasive and powerful evidence that there is no justifiable reason for banks and other institutional players to keep sitting on the sidelines when it comes to community investing, said Self-Help Credit Union Vice President Deborah Momsen-Hudson. Momsen-Hudsen also serves as Chair of the Social Investment Forum Community Investing effort. “These data up-end the conventional wisdom that community investing loans to low-income people and the businesses that serve them carry high risks,” said Mark Pinsky, CEO of the NCCA. Overall, since their founding, the CDFI members of the NCCA had a loss record of 2.3%, Pinsky said, but in that number CDFI losses have steadily dropped as the institutions became more experienced in their work. CDFI’s serve as “tugboat” financial institutions, Pinsky said, since they can guide larger capital efforts into markets where they might otherwise be afraid to go, in part by having gone into those markets first. The study found that no investor in the study period lost any of their principal and that the 107 surveyed CDFIs had sufficient equity capital bases and loan loss reserves to absorb any losses in their portfolios. Further the institutions studied were found to have high overall portfolio quality. Not only were the charge off rates low, as previously indicated, the 90+ day delinquency rates for the institutions in the NCCA sample was 3.3%. As of the end of the fiscal year 2001, total capital was nearly $2 billion and a strong 81% of CDFI capital was deployed in community development projects in economically disadvantaged communities, the study found. Pinsky noted that since the majority of CDFIs are not federally insured depository institutions, their high reserve requirements meant that 81% of capital deployed “essentially represented full deployment.”

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