Our next 2014 prediction comes from John Berdes, President and CEO of Craft3, a nonprofit CDFI working in the Pacific Northwest, and also a Calvert Foundation portfolio partner. Craft3 strengthens economic, ecological and family resilience in the region by providing loans to entrepreneurs, nonprofits, individuals and others who don’t normally have access to financing.
Berdes identified four trends to keep an eye on in 2014.
Craft3 is focusing on building a regional institution, one that seeks to define new terms of engagement between urban and rural. By using climate change as the uniting challenge, they see the potential for rural communities to produce renewable energy to feed into urban centers.
They also see potential for rural landscapes to offset greenhouse gas emissions. Urban centers produce 72% of greenhouse gas emissions, and rural landscapes have the potential to capture value generated by the evolving market for ecosystem services--carbon offsets and conservation easements, for example.
Craft3 plans to put boots on the ground in eastern Oregon and WA to assess the potential for community-based clean energy projects to deliver environmental and economic benefits across the board.
Main street banking is changing
Berdes also recognized that regulatory, earnings, and consolidation pressure is changing the role of main street banks. As a result, CDFIs have an opportunity to step in and expand their product offerings and serve more people, offering commercial and consumer loans, for example. And how those products are delivered will evolve as well.
It speaks to the fact that Craft3--as well as other CDFIs--are confronting the limits to growth for the traditional community lending model, and thinking creatively about how to continue scaling.
Another way Craft3 is evolving its model is by moving into off balance sheet lending that can absorb and deploy larger amounts of capital. They launched Craft3 Capital last year, and this year plan to launch Craft3 Clean Energy Investments to develop renewable energy production capacity, commercial energy efficiency programs, and clean energy manufacturing.
Next gen leadership
Berdes comments that the community lending movement is still vulnerable because it is only one generation old and hasn’t yet experienced true leadership succession.
Craft3 is embedding core values in their staff, but in a flexible way that recognizes that the next generation may tailor those values to fit their aspirations.
Small to medium CDFIs are facing liquidity pressure and operating constraints and will begin to shrink their lending programs, unless they can grow their net asset base.
Craft3 is therefore exploring how they can support smaller CDFIs. One example is bringing together the balance sheets of smaller CDFIs to create more lending efficiencies. This would enable smaller CDFIs to continue serving their markets while leveraging the assets of a group of CDFIs.
Going beyond collaborations, Berdes envisions a “shared center” for CDFIs in the region. The collaborative could provide centralized liquidity and infrastructure that would enable them to respond more holistically and effectively to big challenges.