Last week, I blogged about the efffectiveness of economic gardening programs. Today, I’m continuing with more good news—this time about a recent study of the Community Development Financial Institutions (CDFI) program. A recent Federal Reserve Bank of Cleveland working paper, by Kristle Romero Cortes and Josh Lerner (who has been a strong critic of many publicly-backed capital access programs) examines the impact of CDFI support of community credit unions.
The researchers find that the programs have been quite effective. The CDFI review process does a decent job of keeping politics out of the decision-making process. Even more important, CDFI support helps create larger local capital pools. Within a year of receiving CDFI funds, credit unions typically lend out an additional 45 cents for every dollar of investment. Over three years, these numbers jump–with $1.60 in new investment for every dollar invested. CDFI funds work! This research shows that, when done right, publicly-backed programs can have an important impact in generating new funding opportunities for local businesses.