For the past twenty-five years, Frank Altman has been transforming community development finance in the US by creating new incentives for mainstream financial institutions to funnel capital into low-income communities across the country. While Community Development Financial Institutions (CDFIs) are mandated to serve the needs of these communities, they often do not have access to the capital needed to respond to the demand for community development loans.
The New Idea
A true bridge-builder between the financial mainstream and CDFIs, Frank has pioneered a number of policy changes and industry norms that reduce risk and increase the attractiveness of investments for private capital. Through Community Reinvestment Fund USA, the 501c3 he founded in 1988, Frank created the first secondary market for community development loans; was instrumental in the creation of the New Markets Tax Credit (NMTC), and successfully lobbied Congress to pass it into law through the Community Renewal Tax Relief Act of 2000; and most recently, introduced the idea of creating Community Development Bond Guarantees as a new source of long-term capital for CDFIs, which passed Congress in 2010 and is currently under consideration by the US Department of the Treasury.
Since 1988, CRF USA has funded more than $1.47 billion in loans to small businesses and affordable housing in low-income communities in 47 states and the District of Columbia; created or retained 69,000 jobs; and directly reached more than 610,000 low-income people. It is also one of the largest recipients of NMTC allocations in the country at $749.5 million. Since 2000, NMTCs have brought in more than $36 billion of capital to CDFIs across the US.
Through these significant financial innovations Frank is transforming the way mainstream financial systems can interact with and invest in low-income communities. One of his main contributions to the field has been as a visionary—one who challenges others to think big and to begin to knock down the barriers that keep money from flowing into low-income communities across the country.
A growing gap exists between the financial services available to the economic mainstream and those offered to low-income people and communities. That’s where CDFIs come in. They bring capital and financial services to underserved communities, giving them access to small business loans, housing loans and to capital to develop community infrastructure. CDFIs are typically funded through grants, private investment and Treasury and Small Business Administration financing, and provide loans at favorable rates.
CDFIs emerged largely as a result of the lack of incentives for mainstream lenders to invest in riskier markets. Wall Street firms have increasingly consolidated, grown in size, and streamlined their operations over the last century, thus significantly diminishing their connections to local communities. Citizen organizations (COs) and small businesses in low-income neighborhoods often do not have enough collateral to meet conventional banking standards or do not have the capacity and resources to borrow from banks because those banks deem the borrowers too risky (i.e. greater risk of defaulting on a loan, higher administration costs related to small business loans, and high technical assistance costs). In addition, when it comes to access to equity capital, venture capital firms are driven overwhelmingly by their financial objective of maximizing returns for their investors, so the industry focuses only on those markets it perceives as most lucrative.
Though CDFIs are meant to fill that gap, they too have had trouble accessing the capital needed to support the demand of loan requests received from the community—particularly as public resources have been tightening. This is why Frank has been realigning incentives for private, mainstream financial institutions to invest in low-income communities and increase access to capital for community development lenders.
Frank has grown CRF from a small Minnesota-based organization into a national leader in channeling resources from the capital markets to support community development financing activities. CRF’s mission is to improve lives and strengthen communities through innovative finance. Through its financing activities it creates long-term sustainable jobs, expands the supply of affordable housing, and strengthens the social ecosystem that supports low-income communities.
CRF is best known for operating the first secondary market for small business and affordable housing loans to provide liquidity to CDFIs and other community-based lenders. Equally important, Frank pioneered the development of securities collateralized by the community development loans CRF purchases to help mainstream institutional investors (banks, pension funds, and insurance companies) provide capital for projects and businesses that revitalize distressed communities.
Throughout the mid-1990s, Frank and his team demonstrated the viability of using asset-based securities for community development loans, with the aim of increasing access to capital for small businesses in low-income communities. Frank sold these pools of loans to big insurance companies and pension funds and got them rated by Standards & Poor so that traditional investors could assess the level of risk associated with this financial tool. Thus he was able to achieve greater liquidity, lower funding costs, more efficient use of capital and more sustainability for community development organizations. Frank was successful because he understood how traditional investor markets worked, was diligent with legal requirements, and pursued this strategy for a long time. Unfortunately, with the 2008 financial crisis, this strategy became less viable as secondary markets were severely crippled. Thankfully, Frank did not put all of his eggs in that basket. As a true entrepreneur, he bounced back and adapted.
Frank played a critical role in developing and promoting the concept of a tax credit to foster job growth, community facilities, and neighborhood revitalization. He had witnessed the success of the Low Income Housing Tax Credit to spur quality affordable housing, but it was limited to housing units. With the support of a coalition he led, Frank wanted to create a similar public-private partnership to inspire investment, but use a more flexible vehicle to rejuvenate entire communities. To overcome the perception that low-income areas are not the place to invest, Frank thought a flexible tax credit would help reduce the risk to an investor. The group’s work and advocacy led to the launch and successful implementation of the NMTC program in 2000.
Today, the NMTC program attracts capital to low-income communities by providing private investors with a federal tax credit for investments made in businesses or economic development projects located in some of the most distressed communities in the nation.
In 2001, Frank served as the first president of the NMTC coalition, and has been a program advocate and Board Member ever since. CRF is one of the largest NMTC allocates in the country, receiving more than $749.5 million in allocations, and investing $52.5 million on behalf of other allocatees. These resources have been used to make flexible loans for small- and medium-sized business and nonprofit borrowers located in low-income communities. Since 2003, CRF has funded 370 NMTC loans totaling $679.4 million in 34 states. In total, the credit has injected more than $36 billion into disadvantaged communities and deserving businesses.
In addition, CRF and its affiliates have delivered more than $1.4 billion in capital to small businesses, community facilities, and affordable housing projects located in more than 785 communities. In partnership with 161 local lending partners, it has funded 2,400 loans in 47 states and the District of Columbia. Working through its local lending partners, CRF has directly assisted more than 610,000 people, including financing 18,000 units, 3,400 childcare slots, 9,800 slots at educational facilities, financing over 1,300 small businesses, creating or retaining 69,000 jobs and funding community facilities that serve over 500,000 people.
While access to capital increased thanks in large part to CRF, Frank and his team identified a new gap in the sector. Community-based organizations did not have the internal know-how or capacity to effectively service their own loans. Noticing this gap, Frank resolved to close it. In 2007, CRF became a Standard & Poor’s Select Loan Servicer, and in 2012 CRF was selected as one of the only 14 nationwide non-banking institutions to offer the US Small Business Administration’s 7(a) loan program. CRF is also an approved Fannie Mae servicer and is rated AA in Impact Performance by the CDFI Assessment & Rating System.
Frank has become an influential leader in the CDFI sector as well as among policymakers. He serves on the Advisory Committee of the Center of Community Development Investments at the Federal Reserve Bank of San Francisco. He has been a key member of the Opportunity Finance Network and the International Economic Development Council. He is also an advisor to the Financial Innovations Roundtable, Wall Street Without Walls, and the Forum for Sustainable and Responsible Investment and the US SIF Foundation.
Frank’s continuing influence is exemplified by the fact that the Department of Treasury is rolling out a piece of legislation passed through the Small Business Jobs Act of 2010 by Congress. This legislation will create a community development bond guarantee that will offer access to capital in the billions to community organizations and is based on Frank’s concepts. The community development bond guarantee will aggregate, pool, and spread risk while providing a market for these relatively small community-based lenders who serve people otherwise not served.
Frank was born in Minnesota into a family that preached service. He attributes the fact that he is a visual learner and creative thinker to his father who was an artist. When Frank was in high school, his father had a massive stroke, leaving him disabled and his family with no income. Frank’s mother carried the family out of this crisis against nearly impossible odds. She fought not to lose their house, was a feminist before the concept existed, and always did what had to get done. She taught Frank about grit and the experience served as an important lesson for him that one can quickly go from being on the giving end to the receiving end, and vice versa.
In high school, Frank was deeply influenced by the civil rights and anti-war movements and wanted to be part of it. He helped organize one of the first fundraising walks in the country, bringing more than 30,000 students together in Minneapolis. The walk—sponsored by the American Freedom from Hunger Foundation—raised money for community and economic development domestically and internationally. Frank led his school’s participation because he was drawn to engaging people in a purposeful, proactive way to rally around community.
Frank is first person in his family to go to college, and had to figure out how to finance it. He received a full ride to Brown University, which he chose because it would allow him to create his own degree.
In the late 1980s Frank worked for the Minnesota governor in a variety of economic development roles and was asked to explore alternative options for financing economic development as traditional sources of funding continued to shrink. He began investigating options to sell loans for the states then the Department of Trade and Economic Development. Frank and his team determined that by selling existing loans, they could help recapitalize economic development entities rather than having them go back for more appropriations and taxpayer dollars. The impact to communities would be greater and faster because money could be reinvested sooner.
When Frank left state government, he used this concept to lay the foundation for CRF. The idea resonated with Twin Cities-based foundations such as the Northwest Area Foundation, US West Foundation and the McKnight Foundation, whose grants helped launch CRF in 1988.
Frank has become a key architect for the social finance sector in the US. Though CRF has developed many new financial tools for the citizen sector to use, Frank’s main contribution has been to help the field envision new ways that the marketplace can become productively involved in community development. He has created a series of new value chains that are both market and impact driven.