BEDFORD, Ind. — The $313 million Hoosier Hills Credit Unionfound that loaning another cooperative money has paid a variety ofdifferent dividends.

Two years ago, Hoosier Hills stepped forward to partner with acooperative development organization and provide a $336,000 loan tothe Lost River Market and Deli, a new grocery and restaurantcooperative which opened in the nearby town of Paoli, the largesttown in one of Indiana's counties with the lowest income. HoosierHills is the lead lender on the loan but a participation from theNational Consumer Cooperative Bank meant that only 50% of the loanremained on the CU's books.

According to statistics from the state, Orange County hadIndiana's second highest unemployment rate and the lowest averagehousehold income in 2004. The county's industrial base has beenfarming and some light industry and it ranks in the bottom 25% interms of adult education.

So when a group of residents from Orange county and surroundingcounties approached the credit union with a plan to start a foodcooperative in Paoli that would compete with both an establishedsupermarket and a Wal-Mart Super Center, credit union executiveswere skeptical, according to Steven Hawkins, Hoosier Hills seniorvice president of lending.

“I think there was a level of concern about it being a grocerywhen there were already some established food stores there,”Hawkins said. “We were also concerned about it being a cooperativein the sense that a cooperative doesn't have any individualguarantors of the loan and of course we like to see those,” headded.

Individual cooperative board members could not guarantee theloan, Hawkins explained, only the cooperative itself which was,after all, a start up business. The credit union had been doingmember business lending for about eight years and, according toNCUA records, the CU had 411 member business loans worthapproximately $37 million on its books at roughly the same time itwas considering making the loan.

There was also a level of concern about the willingness of alower income community to back a cooperative grocery committed toselling what might seem like higher cost food. To try to keep LostRiver attractive to as large a segment of the community aspossible, the cooperative has introduced member coupons and madesure that the inventory reflected more standard food brands inaddition to the locally grown or raised and organic fare.

“When we first heard about the project we weren't sure we wantedto be involved in a grocery store,” remarked Doug Pittman, seniorcommercial lender for the CU. “But then you meet the people and seehow dedicated they are to this project…Plus, it just makes goodsense: one co-op helping another co-op.”

On the plus side, Lost River's organizers had a strong visionfor what they wanted to form and experience with supplying the sortof food that they believed the people in Orange and surroundingcounties wanted and would pay for, according to executives withcredit union and Lost River.

“The cooperative got underway when a group of people who hadalready formed a local farmers' market, Orange County Homegrown,had an idea that there was enough interest to make somethingpermanent from it,” explained Brad Alstrom, general manager of thegrocery and restaurant. “The existence and growth they had seen inthe market and the interest on the part of both consumers andproducers helped them see the co-op as real alternative,” Alstromsaid.

Lost River opened its doors in late October 2007 and almostimmediately saw that vision put to the test only two months lateras the JayC Supermarket in Paoli announced it was pulling out. JayCis a branch of the Kroger supermarket chain and operates fivestores in Indiana, according to the company. The departure of thestore left residents of Paoli with a Wal-Mart Super Center as theironly source of groceries unless they wanted to drive an hour in anydirection, Alstrom said.

“Not only did we offer a different, fresher and healthier sourceof food than Wal-Mart,” Alstrom said. “We now became the only otherreasonable alternative for a place to shop.”

Since it started actively recruiting new members about a yearago, Alstrom reported Lost River had signed up its 500th member, alandmark. Members agree to allow only members of their household toshop at the cooperative on their membership for a one-time fee of$90, refundable should they decide to leave. The cooperative alsorecently saw 75 of its members show up for its second annualmembership meeting where, among other things, they established ascholarship fund to help provide memberships to lower incomeresidents and collected money to help fund it.

One thing that Hoosier Hills and Lost River have not discussedis an arrangement through which members of Lost River could becomeeligible to join the credit union. Alstrom explained that LostRiver would be open to such an arrangement, but Hawkins saidHoosier Hills had not focused on the question because Orange Countywas already part of the CU's community field of membership.

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