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Community success challenged by local government/banking partnership.

There is a significant and growing level of dialogue occurring between cities and financial institutions. No longer is community investment perceived as federal dollars flowing into communities. Nor is it perceived as banks making loans. Instead, community investment today is based on a true partnership between financial institutions, local government and non-profit organizations.

All parties are approaching community investment as partners - with a stronger understanding of local needs, a willingness to collaborate, and a commitment to designing programs that work. There continues to be a great deal of work - and opportunity - ahead.

If you asked bankers and community leaders in the 1980s what "CRA" meant, chances are they would respond" Affordable Housing." Today, increasingly the likely response would be "economic development."

The Community Reinvestment Act addresses the obligation to meet the credit needs of the entire community - low and moderate income areas. Furthermore, it does not specify the type of credit, only that it should be consistent with safe and sound operation of the financial institution. Economic development credit needs fall within that purview.

How can banks and local governments build sound economic development partnerships?

Communication, Trust,

Homework and Flexibility

An ongoing dialogue must be established between local governments and their financial institutions. This dialogue is the first step to developing a long term relationship based on trust. Local governments must do their homework, defining specific local needs and understanding their local lender's performance. All parties need to flexible and creative in their approaches and strategies.

Local governments can do a number of things to help financial institutions meet their CRA obligations and local economic development needs.

* To ascertain the community's credit needs, local governments can facilitate dialogue between the city, the not-for-profit interest groups, the financial institutions, and other interested parties about unmet capital needs.

* Local governments can provide financial institutions with uniform demographic data which highlights the population mix of the community, including age, race, gender, income and employment statistics.

* Document community credit needs by sponsoring, underwriting, or supporting a community credit needs assessment.

* Prioritize needs and define specific goals and objectives for each need identified.

* Initiate discussions about solutions to unmet community and economic development needs, financial and otherwise.

* Develop a community investment strategy, in cooperation with local financial institutions, that maximizes public and private sector resources to meet specific local needs.

* Build consensus among all interested local parties about community and economic development needs and potential responses.

* Serve as a partner in community investment, developing financial intermediaries that facilitate bank participation in community economic development.

What do local governments look for in community reinvestment agreements?

Clearly, each community is different, but the two principal areas are small business lending and affordable housing. Following are some of the typical economic development credit needs found in many communities which can be addressed in a community investment strategic plan:

1. Equity, working capital, lines of credit for small, women and minority-owned businesses. 2. Small loans for micro-enterprises. 3. Financial support for community-based development organizations. 4. Investment in large-scale economic developments projects. 5. Support of small business, including: small and minority business development loans, specific dollar allocations, below market interest rates, shared risk programs, elimination of minimum loan amounts or reduction of fees, liberalization of loan to expense ratios, gap financing, specific geographic targets

These represent traditional financing roles. Cities and financial institutions should be as creative as possible when designing community investment strategies and programs. Financial institutions and communities are increasingly turning to different vehicles, such as bank community development corporations, revolving loan funds and others. The vitality of our communities depend on these thoughtful, collaborative efforts.

What is a Community

Investment Strategic Plan?

A Community Investment Strategic Plan is a clear statement of the capital needs within a community and a set of strategies to meet those needs. It is:

* A Strategic Process for identifying community credit needs and defining specific local goals and objectives;

* It is a Blueprint from which the community's investment programs will be developed.

* It is a business plan which addresses policy.

The Community Investment Strategic Plan should accomplish three things: clearly define the community's capital needs and available resources; set forth a plan of action, both short term and long term, for meeting those needs; and define the roles and responsibilities of the public and private sectors in carrying out this action plan.

New loan program helps

Hispanic entrepreneurs

A new venture in Philadelphia is the Hispanic Chamber of Commerce Micro-Business Loan Fund. The first of its kind in the area, the fund will provide $1 million in below-market-rate loans to Hispanic entrepreneurs not eligible for commercial loans.

The fund is the brainchild of Hispanic Chamber of Commerce President Gualberto Medina who enlisted the support of Provident National Bank to present the idea to area banks. In addition to Provident Fidelity Bank, Mellon PSFS, Meridian, CoreStates PNB and Continental Bank have each committed $100,000 to the fund. The Hispanic chamber must raise an additional $400,000 from foundations and corporations.

The fund will begin taking applications in January. To be considered, applicants must be members of the Hispanic Chamber of Commerce (which includes non-Hispanics), their place of business must be located within a designated Hispanic community (in North Philadelphia and Olney-Oak Lane) and they must be "socially and economically disadvantaged" as defined by the Small Business Administration.

The term "Micro-Business" refers to firms that are smaller than what is normally considered "small business." Of the approximately 787 Hispanic-owned businesses in Philadelphia, only 18 percent have paid employees. The fund expects to provide loans averaging $50,000 to approximately 20 businesses. Besides helping to set up and expand minority owned-businesses, the goal is to provide employment within the Hispanic community. "The major problem than inner-city neighborhoods have is the unavailability of good-paying jobs," said Medina.

At the fund's kick-off meeting in September, Provident Bank CEO Richard L. Smoot called the Loan fund" a significant step toward improving the vitality of our community."

It was Provident's community outreach effort that put the bank in touch with City Councilman Ortiz and Gualberto Medina of the Philadelphia Hispanic Chamber of Commerce," said Smoot." they effectively made the case that a special loan fund was needed to meet the credit needs of disadvantage small business owners. They had also identified a model for the Chamber, banks and small business development centers to work together to respond to this credit problem. This program represents good community reinvestment."

For more information, contact Gualberto Medina, president, Philadelphia Hispanic Chamber of Commerce, 125 N. 8th Street, 4th Floor, Philadelphia, PA 19106; (215) 629-9841. Or, contact Donald C. Kelly, Community Reinvestment Manager and Assistant Vice President Provident National Bank, Broad & Chestnut Streets, Philadelphia, Pa. 19101; (215) 585-7659.
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Title Annotation:Special Report: Overcoming Banking Hurdles; National League of Cities
Author:Mayer, Virginia
Publication:Nation's Cities Weekly
Date:Jul 27, 1992
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