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October 06, 2008

Book Review-Good Policies For a Great America, published by Opportunity Finance Network
    by Anne Moore Odell

A new collection of essays on the impact and possibilities of the opportunity finance industry is a guidebook for the next President and Congress. -- Congress and the President have their hands full with the current economic meltdown that is threatening to drown Wall Street and possibly deluge Main Street as well. Much has been made about the subprime mortgages and bad lending practices have helped create the current economic crisis. At the same time, however, the finance industry and community development finance institutions (CDFIs) are drawing up a roadmap to economic stability.

Please support
our sponsorsFor the last thirty years, people working in the opportunity finance industry have helped low income and low wealth people, communities with little or no access to traditional banking services and small businesses gain economic stability and freedom. The new book "Good Policies For a Great America," published by Opportunity Finance Network and edited by Sandra Kerr and Cheryl Neas, offers essays by some of the leading minds of the opportunity finance industry with specific recommendations for domestic policies designed to create new opportunities for economic growth.

CDFIs have successfully been lending to the low-income markets where traditional institutions and subprime lenders have failed. The foreclosure rate on mortgages made through CDFIs is incredibly low, under 1% for most CDFI mortgages. This compares with the 20% of mortgages offered by subprime lenders which have been defaulted on.

The Opportunity Finance Network (OFN) is the national organization for CDFIs. OFN notes that CDFIs have brought over $25 billion in financing to under-banked communities over the past three decades. Using the market to help create opportunities, OFN points to the success of CDFIs' use of federal funding. The US Treasury Department reports that every dollar of federal money invested with CDFIs leverages between $19 and $27 in new private sector investments.

Although the demand for loans from the federal CDFI Fund has increased rapidly, showing a 122% increase in 2008, the level of federal funding has been lowered 46% between 2001 to 2006. One of the top policy recommendations in "Good Policies For a Great America" is increased funding for the US Treasury Department CDFI Fund, with a minimum of $250 million a year.

Another of the book's strong recommendations is making the New Market Tax Credit (NMTC) permanent. The NMTC allows individual and corporate investors to claim a tax credit worth 39% of their initial investments in Community Development Entities (CDEs). The tax credits are distributed over seven years. CDEs make loans and capital investments in communities underserved by traditional banks.

The collection of essays covers many topics concerning the opportunity finance industry, including small businesses, nonprofits, homeownership, rural revitalization, the environment, and asset accumulation and protection. While the book was written before the current financial crisis and the shake-up at Fannie Mae and Freddie Mac, much of the CDFI community was well aware of what was on the economic horizon, with calls throughout the text for greater regulation and oversight of mainstream and federal banking.

One of the strengths of the diverse essays included in the book is that instead of pointing fingers, every one of the essays offers specific and concrete steps for the federal government to take to strengthen communities all over the United States. Every essay also includes a case study of how an individual, small business or non-profit was able to prosper with the help of a CDFI.

Two goals of many of the policies presented the book are, first, encouraging the Federal government to make public markets more inclusive and, second, developing assets to make the assets "market ready." For example, public markets can be more inclusive by fully funding the Federal CDFI Fund and within the Fund, creating a research program that would work to create new financial products to help poor communities.

According to Kerr and Neas not only poor communities gain from strengthened policies regarding funding for opportunity finance; the entire US population is made stronger. The book states: "Markets are the mechanism for wealth creation in our nation and determine which people, places, and assets get included. Economics is not a zero-sum game-when one person gets richer, it does not mean that another must get poorer. Having more people and places participate in the market economy contributes to the country's overall economic condition. As long as significant numbers of assets are left out, the market economy is not performing to its potential."

The opportunity finance movement is not asking for handouts or special deals for only certain sections of the population. It embraces the market and calls instead for the federal government to help make the market more inclusive. For people inside and outside government, "Good Policies For a Great America" is a both primer to the current federal funding sources that support opportunity finance, and a guide for the directions the opportunity finance industry could help lead the economy in upcoming years

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