Book review by Matt Cropp, republished from geo.coop
Democratizing Finance: Origins of the Community Development Financial Institutions Movement
Clifford N. RosenthalFriesen Press, 2019
For those of us working to build the co-op economy in the U.S., Community Development Financial Institutions, or CDFIs, are strategically vital players in making more cooperation happen. Here in Vermont, knowing that the Cooperative Fund of New England (CFNE) can step up with a loan to low-wealth workers seeking to convert their employer to a worker co-op without requiring personal guarantees makes starting down that path feel possible to folks for whom business ownership has always seemed out of reach. Similar roles are played elsewhere in the country by the likes of Shared Capital Cooperative and the Local Enterprise Assistance Fund (LEAF). Though tiny compared to more traditional (and highly regulated) financial institutions (together, the trio of co-op-centric CDFIs boast about $50 million in assets), they nonetheless form a key foundation for so many possibilities for the solidarity economy.
While being
keenly aware of the importance of CDFIs, I had only the barest inkling
of their origins, and so I was thrilled to recently have the opportunity
to read Clifford N. Rothensal’s newly published Democratizing Finance: Origins of the Community Development Finance Movement.
The first section of the book is a masterful examination of
the origins and development of the variety of types of grassroots
financial institutions that eventually came together into an alliance
around the CDFI idea. Credit unions, development banks, loan funds,
micro-lenders, and other players get a thorough and well documented
treatment that shines light on both broad trends and key institutions,
many of which are significant players in the present day.
As
a student of credit union history in particular, I was excited to find
Rosenthal’s work filling significant gaps in the existing credit union
historiography. Especially post-WWII, most available credit union
historical work has focused on the “maturation” of the main-line credit
union movement into a professionalized industry. By contrast, Rosenthal
highlights both the successes and challenges the continued use of the
credit union model in the “populist” (as the late credit union historian
Ian MacPherson put it) mode, examining lessons learned from the
low-income credit unions created during the War on Poverty, the tensions
over the creation of the National Credit Union Share Insurance Fund’s
impact on marginal credit unions, and the emergence of the Community
Development Credit Union identity.
With the pre-history
covered, the book’s second half reads almost like a political thriller,
as it chronicles the political maneuverings around the creation of the
Federal CDFI Fund in the 1990s and its tenuous first years in existence.
One of the key takeaways from the experience of the War on Poverty
credit union experiments was that forming cooperative financial
institutions in low-income communities needed more than a few years of
subsidy for administrative expenses. In capital starved places, the
retained earnings from that short a runway were grossly insufficient to
reach organizational sustainability. Instead, what was needed was
equity.
The tale of the path to getting that consistent
source of that sort of equity is a study in coalition building,
concession extraction, and occasional luck. Bill Clinton, having been
inspired by the since-problematized microlending experiments of the
Grameen Bank in Bangladesh, had made support for community development
finance a major campaign plank in 1992, and his administration pushed
hard for the creation of the fund in the first years of his Presidency.
Further, the fortunes of the framework were tied to greater and lesser
extents to reforms to the Community Reinvestment Act (CRA), which put
the CDFI coalition in a delicate spot between CRA-focused community
activists and banks, which saw investment in CDFIs as a potential
vehicle for efficiently making the required CRA tribute.
In
the end, after much wrangling, the CDFI fund was established and funded
with $50 million in its first year, which, while a far cry from the
levels Clinton pitched in his campaign rhetoric, nonetheless made a
significant impact for a number of institutions. Furthermore, after a
first few years in which the existence of the Fund remained in peril, it
has become institutionalized to the point where it has been
consistently funded since, and has distributed over $2 billion in grants
in the last 25 years.
The history that Rosenthal documents in Democratizing Finance
is vital knowledge for those of us engaged in grassroots economic
organizing today. Not only does it put many existing institutions, like
CFNE, in a richer context that has deepened my understanding of their
origins, but it also conveys many lessons learned by previous
generations that we can build, if only we can manage to maintain the
Long Memory. As one small example, his discussion of the strategy of
creating closely allied non-profits and lenders such as in the case of
Self-Help Credit Union has inspired me to consider the role of
participatory grant pools as potentially powerful and useful parallel
structures when forming new co-op investment clubs. There are many such
dynamics and cases, large and small, in Rosenthal’s narrative that will
inform many readers’ work in surprising and exciting ways.
In all, Rosenthal’s book is a well-written, well-researched, profoundly informative read, and I highly recommend it to anyone interested in understanding the past and possibilities of democratic finance.
Matt Cropp has an MA in history from the University of Vermont, where he focused on the history of the credit union movement. He currently works as Co-Executive Director of the Vermont Employee Ownership Center, serves as chair of the Vermont Solidarity Investing Club (which invests exclusively in co-ops), and is involved with a number of co-op start-up and cross-sector initiatives including Full Barrel Co-op, social.coop, and Cooperative Vermont. He lives in Burlington, VT.
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