FROM THE OFFICE OF PUBLIC AFFAIRS

Chairman Leach, distinguished members of the Committee, it is a pleasure to speak with you today about the PRIME Act (H.R. 4179), which has been introduced by Senators Kennedy and Domenici in the Senate, and by Representative Rush in the House. The bill authorizes the Treasury Department's Community Development Financial Institutions (CDFI) Fund to provide valuable support to micro-enterprise organizations and micro-entrepreneurs. I am pleased to be joined by Ellen Lazar, the Director of the CDFI Fund.

Overview of The CDFI Fund

Before discussing the PRIME Act, I want to give you some background on the CDFI Fund. The CDFI Fund is a critical component of our strategy to promote private sector growth in economically distressed areas, and to help bring low income Americans into the economic mainstream.

CDFIs are specialized financial institutions that meet the needs of underserved communities and populations. They include credit unions, microenterprise funds, development banks, and equity or loan funds that share this common mission: providing financial services to people and communities typically overlooked by traditional financial providers. For many years, institutions such as these have defied conventional wisdom by making loans to people that could not get financing elsewhere, and these borrowers have repaid with interest. CDFIs are often pioneers in their local banking community because they make financially sound loans to the homeowners, small business, and nonprofits that do not fit conventional lending norms. CDFIs make these pioneering loans based on their intimate market knowledge and intimate customer knowledge; they simply choose to focus on the particular market segment of underserved borrowers. In so doing, CDFIs demonstrate to traditional lenders that these are viable markets. CDFIs literally expand the reach of the private sector marketplace.

With CDFIs, we have a new, more market-driven approach to community development. By filling market niches and drawing mainstream financial institutions into low income communities through partnerships, CDFIs help to make our financial system work better for all of us.

The role of the CDFI Fund is to strengthen these institutions and to help new ones to grow. The CDFI Fund runs several programs: the core CDFI program, which provides equity, loans and grants directly to CDFIs; the Bank Enterprise Awards (BEA) program, which funds financial institutions that increase their lending and other financial services in distressed communities; third, a technical assistance program aimed at bolstering the capacity of CDFIs themselves; and finally, the Presidential Awards for Excellence in Microenterprise Development. In addition, the Fund will soon also provide a training program directly to microenterprise organizations. The CDFI Fund's approach is to help foster the formation and growth of permanent local institutions that provide development finance. These programs are complementary and mutually reinforcing. By working through local institutions, these programs respond to communities' individual needs, rather than imposing a one-size-fits-all solution.

Thus far, in its Core Program, the Fund has awarded nearly $80 million to 81 CDFIs around the country. The Fund expects to award over $40 million more by the end of this month. The leveraging of the Fund's investment is strong, requiring at least a one-to-one match with non-Federal dollars. And the CDFIs, in turn, further leverage these federal dollars by raising deposits, or partnering with other lenders in any given loan.

The program is still young, but we are already seeing signs of success. For example, the CDFI Fund's $3 million investment has already enabled Self Help of North Carolina to effectuate $24 million in home mortgage and commercial loans. Over the next five years, Self Help estimates that the CDFI Fund's award and matching funds will enable Self Help to provide more than $100 million to finance affordable housing and small business loans over and above what Self Help could have done without the Fund's investments.

Under the Bank Enterprise Awards program, more banks and thrifts than ever before are reaching out to their communities and investing in CDFIs, and a number of banks have focused on micro-enterprise strategies. This year, the Fund received 104 applications, a 40 percent increase over last year's applications. The Fund's $30 million in BEA investments have already leveraged $273 million in bank investments and support.

Though the CDFI Fund has accomplished much in a short time, as with any new organization, there have been some growing pains. In my judgment, we have dealt with those problems thoroughly and effectively, and they are behind us. With important insight and advice gained from the Subcommittee on Government Oversight of this Committee, the Fund significantly strengthened itself over the last year. We are moving this program forward with the leadership of Ellen Lazar and her team, who bring to the job many years of experience in community development, dedication, discipline, and energy.

In sum, Mr. Chairman, the CDFI Fund has a strong management team in place with the necessary skills and experience to ensure high standards of accountability and performance, the Fund has strict awards procedures and sound infrastructure in place, and the Fund is well-positioned to serve low-income communities across the country. As you know, the Subcommittee on Financial Institutions and Consumer Credit has reported out the Fund's reauthorization bill, for which we are grateful to Chairwoman Roukema and her colleagues, and we look forward to working with the full Committee on that legislation.

The CDFI Fund's Support For Micro-enterprise

Let me turn now to ways in which the Fund currently supports micro-enterprise. As mentioned, under its core CDFI program, the Fund provides grants, loans and technical assistance to strengthen the capacity of CDFIs, including micro-enterprise organizations whose primary mission is to provide financial assistance to low income borrowers or in low income communities. CDFI has provided approximately $8.3 million to micro-enterprise organizations thus far. For example, last year, the Fund provided a $250,000 grant to PPEP Microbusiness and Housing Development Corporation in Tucson, Arizona, which focuses on low income entrepreneurs in rural areas.

In addition, the Fund plays a leadership role in the micro-enterprise field through its Presidential Awards for Excellence in Microenterprise Development. These non-monetary awards highlight best practices in key areas, including innovation, access to credit, poverty alleviation, and public or private support for micro-enterprise development. The first awards were made to seven organizations in January, 1997. One award winner, for example, Cascadia Revolving Loan Fund in Seattle, Washington, has made over $7 million in loans, with losses under 1 percent annually, and 90 percent of the businesses it has financed are still in existence. Cascadia is now financially self-sustaining and a permanent resource in its community. The Fund will make a second round of Presidential awards this fall.

Finally, the CDFI Fund, by Executive Memorandum, has been charged with the coordination of micro-enterprise programs across the federal government. The Fund has begun that effort, which we believe will further strengthen support for micro-enterprise and will bring increased benefits for micro-entrepreneurs in the years ahead.

The PRIME Act

I will turn now to the PRIME legislation. In our judgment, the PRIME Act fills a critical gap in funding for training, primarily for low-income microentrepreneurs and also for training microenterprise organizations. We support the goals of the PRIME Act and believe that technical assistance is needed by the industry. As Director Lazar will explain more fully, we believe that the PRIME Act could leverage the CDFI Fund's strengths in building the capacity of local institutions to serve local communities. The PRIME Act would give authority to the CDFI Fund to build the capacity of micro-enterprise development organizations that primarily focus on providing training and technical assistance to micro-entrepreneurs.

As you know, while capital is critical for any small business to grow, it is not enough. Often, the difference between success and failure for any business is the availability of sound business advice, particulary for low-income microentrepreneurs. And such assistance is hard to find. As Senator Domenici said, on introducing this legislation in the Senate, "Starting one's own business is a part of the American dream, and, as every entrepreneur knows, it takes extraordinary dedication, creativity, and connections. There are sometimes overwhelming obstacles for would-be small business owners, but we believe a well-placed federal investment could go far in terms of encouraging more people to make the American dream a reality."

The top priorities for the Fund for the next two years are to assure that its basic programs are running smoothly and effectively, and that the Fund has satisfactorily addressed the issues raised in the oversight committee's report and last year's audit. I think the Fund has made enormous progress in all of these areas. We would not want the Fund's management to be diverted until we are completely comfortable that we have achieved these priorities. Should Congress enact this program, however, we feel confident that the CDFI Fund would be prepared to take on additional activities.

Conclusion

Mr. Chairman, the Fund's vision for stimulating private sector investment in distressed areas makes sense, and the Fund's investments are beginning to make a difference in people's lives. Since its inception, CDFI has enjoyed bipartisan support. I look forward to working with all of you to enact the CDFI Fund's reauthorization so that CDFI can help more local communities across the country rebuild neighborhoods, create jobs, and restore hope. CDFI is a solid investment in the long-term economic well being of not only those communities, but all of us.

Thank you very much.