WASHINGTON – The Treasury Department’s Community Development Financial Institution Fund has proposed a new method for measuring the performance of organizations that receive money from the CDFI Fund, including credit unions, but CDCUs and other CDFIs do not expect the new method to change their work significantly. The proposed new ranking will rate CDFIs according to overall financial strength “and their potential for creating community development impact” on their communities, the Fund said. The rating system will look at four areas of CDFI activities: community development impact, financial strength, portfolio quality, and management. The rating will come in the form of an overall score that would include four components: Performance effectiveness; Leverage, liquidity and solvency; Underwriting; and Management (PLUM). These four scores would be combined in an overall PLUM rating in a fashion similar to the way overall ratings are assigned under the CAMEL system, the Fund said. In fact, the CDFI Fund is up front about wanting to base the L, U and M component scores on regulated institutions’ CAMEL ratings. “We were aware of this coming out but don’t expect it will have too much impact on CDCUs,” said Clifford Rosenthal, executive director of the National Federation of Community Development Credit Unions. Rosenthal pointed out that the Fund had consulted CDCUs and other CDFIs about the proposed new standards and pledged they would recognize that CDCUs are already federally regulated. “The issue may be how the data that the NCUA already collects can be provided to the CDFI Fund in a way that helps the Fund and CDCUs,” he said. The Federation plans on submitting a letter to the Fund about the new proposal, Rosenthal said, but he added that the Fund continues to push for an increase in federal support for the Fund. Jennifer Vasiloff, executive director of the CDFI Coalition, an organization of CDFIs and Fund supporters based in Arlington, Virginia, reported that her organization would also likely make a comment as well. But she refrained from speculating on the Coalition’s position pending a meeting of the Coalition’s board. She explained that the Coalition and Fund will have to measure the proposed new standard carefully because providing standardized data about CDFI’s was liable to be difficult. “We don’t expect it will be too much of an issue for credit unions,” she said, “because credit unions are already regulated depositories. But it may be a much bigger deal for the others, the loan funds, and other non-depository CDFIs.” Vasiloff explained that there are a variety of different types of community development organizations that the Fund supports and that this variety is going to make it hard to standardize data for them. “There is a significant difference between a credit union that is a depository and is going to offer IDAs,” she noted, “and a loan fund that will not take any deposits but which will do a lot of lending into the community.” The Fund offered its proposal against a background of the Bush Administration’s reduction of its requested budget and its shift away from the traditional model for funding CDFIs, under which a lot of credit unions were supported, and a model that would reward banks and other for-profit companies for supporting CDFIs directly. Criticism of the Fund and in particularly how difficult it was to prove that money invested in CDFIs actually resulted in community development has been widely seen as feeding into the Bush Administration’s reduced funding request and Vasiloff acknowledged that the Fund’s proposal may be part of the Fund’s attempt to answer its critics. [email protected]

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