By Mike Beall
The NCUA and Community Development Financial Institutions Fund recently announced that the NCUA’s streamlined certification process would no longer be supported. This process had been a source of frustration for many credit unions. Ultimately, many great CDFI credit unions would never have been granted this important status if they stopped with the denial letters that resulted from their attempts to use the “streamlined” process.
While the streamlined platform proved useful for the credit unions that ticked all the specific boxes of certification, like any one-size-fits-all program it rejected credit unions that are CDFI-qualified. Credit union executives told “no” by the NCUA thought it meant they weren’t eligible at all. Over and over credit union leaders would tell us they didn’t qualify based on a rejection by the agency’s streamlined program, but CU Strategic Planning was able to get them certified as CDFIs.
How? Because the certification, like serving the underserved, is more than hard data. It’s about expertly designing the certification in a way to support future grant applications and reporting requirements.
Data is Critical
Don’t get me wrong, data is critical to the application process. CU Strategic Planning has more than a decade’s worth of experience in CDFI certifications and has partnered with TransUnion and others to cultivate a formidable data warehouse. But there’s more than one way to get certified by the CDFI Fund, and knowing the best approach requires deeper research, analysis and application management by experts with sophisticated experience in documentation.
Aside from a basic loan analysis, which was what the NCUA’s automated process performed, four other (more nuanced and difficult) paths to certification exist:
- 60% of membership is low- to moderate-income
- 60% of membership that has been traditionally disenfranchised
- Serving a low-income geographic area
- Blended approach
Worth Trying Again
Even if your credit union was already turned down through the NCUA’s process, you likely can become CDFI-certified, because credit unions have a unique mission to serve people of modest means.
There is no streamlined method to “free money from the government,” as the elimination of the NCUA’s platform suggests. CDFI certification is far more than an approval or denial. The type of certification your credit union receives dictates your future grant application strength in ways that cannot be demonstrated by data alone.
The NCUA didn't have bench strength to address this, which is why it decided to terminate the streamlined process.
In addition, the CDFI Fund is developing changes to the CDFI certification application process later in 2022. Currently, your credit union’s certification application might take up to nine months to be approved or rejected. It’s critical to choose a partner with the right experience or risk missing out on an entire million-dollar grant round.
The Path to Becoming Certified
Primarily, CDFI credit unions are seeking the right to apply for CDFI Financial Assistance Grant funds for up to $1,000,000 per cycle, and over multiple years. The path to become certified is important as a foundation for future reporting requirements for winning grants. We advise credit unions on available options to use the funds as part of a comprehensive business plan submitted for the grant application. CDFI FA grant applications for loan loss and/or capital reserves are popular and needed, so credit unions can maintain regulatory support for the business plan when it calls for increasing lending to people with lower credit scores, deploying enhanced products or serving new populations.
Criteria for CDFI Certification
- Have a primary mission of community development
- Provide both financial and educational services
- Serve and maintain accountability to one or more defined target markets
- Maintain accountability to a defined market
- Be a legal, non-governmental entity at the time of application (with the exception of Tribal governmental entities)
Documentation & Expertise
Fortunately, most credit unions are close to these requirements—but it takes proper documentation and expertise to apply. To become certified as a CDFI, credit union applicants must submit a CDFI Certification Application to the CDFI Fund for review.
The application documents how the organization meets the certification requirements, including:
- Submitting a charter to show that the applicant is a legal, non-government entity and not be under the control of any government entity at the time of certification application. Tribal governments are typically excluded from this requirement.
- Submitting a mission statement documenting a primary mission of promoting community development.
- Conducting a loan analysis, mapping and other documentation to show the applicant primarily serves one or more “target markets.” A target market can be either a historically distressed investment area, a low-income population, or an “other targeted population” (OTP). OTPs are vulnerable or underserved populations that have historically been denied credit or lack adequate access to capital.
- Demonstrating that the organization is accountable to its designated target markets through the makeup of its board of directors or an advisory board, where the members are representative of the target market. Documentation of this requirement is typically difficult for those inexperienced with the CDFI Fund or organizations using technology driven applications.
- Demonstrating that the applicant must be a financing entity. Regulated certification applicants, including CDFI credit unions, are deemed to automatically meet the financing entity criteria.
- Documenting the “development services” the organization provides in conjunction with its financing activities. Development services include technical assistance or training activities that prepare borrowers to access the institution’s financial products. There must be a direct link between the institution’s development services activities and its financial products.
'Intense & Involved, But…’
Once a credit union has been approved, it must report annually to maintain its certification and eligibility for CDFI Fund grants. If you miss it, the process starts all over again!
CDFI Certification is not for every credit union. It’s intense and involved, but if you have the collective will and heart to serve economically distressed areas and the hardworking people in them, it makes all your credit union’s effort worthwhile. There is no automated shortcut.
Mike Beall is chief strategic and policy officer with CU Strategic Planning, Tacoma, Wash. Mr. Beall can be reached at mikeb@custrategicplanning.com.