FROM THE OFFICE OF PUBLIC AFFAIRS

Chairman Leach, Ranking Member La Falce, members of the Committee, it is an honor to appear before you today. I will speak in support of reauthorization of the Community Development Financial Institutions (CDFI) Fund and the enactment of the Program for Investments in Micro-entrepreneurs (PRIME) Act, which authorizes the CDFI Fund to provide valuable support to micro-enterprise organizations and micro-entrepreneurs. I am pleased to be here with Ellen Lazar, the Director of the CDFI Fund and Maurice Jones, the Deputy Director for CDFI Fund Policy and Programs.

I want to thank Representatives Vento and Roukema for introducing the CDFI Fund Amendments Act, Representative Rush and Chairman Leach for introducing the PRIME Act and the members of this committee who have co-sponsored the Act. Both bills have received significant bipartisan support, and the Administration strongly supports their enactment. I also want to acknowledge the important role of this committee in bringing our attention to the areas in which the program could be improved.

OVERVIEW OF THE CDFI FUND

The CDFI Fund helps to promote private sector growth in economically distressed areas. In so doing, it helps to bring low income Americans into the economic mainstream. CDFIs are specialized financial institutions that meet the needs of underserved communities. They include credit unions, microenterprise funds, development banks, and equity or loan funds. Their mission is to provide financial services to those who are typically overlooked by traditional financial providers. CDFIs make financially sound loans, based on local market and customer knowledge, to homeowners, small businesses, and non-profit organizations. In so doing, CDFIs expand the reach of the private sector marketplace to the underserved communities. In addition, they demonstrate to traditional lenders that these are viable markets.

The role of the CDFI Fund is to strengthen and grow these institutions. The Fund pursues this strategy through a series of programs. The CDFI program provides equity, loans, grants and technical assistance to CDFIs. The Bank Enterprise Awards (BEA) program funds financial institutions that increase their lending and other financial services in distressed communities. The non-monetary Presidential Awards for Excellence in Microenterprise Development stimulates interest in micro enterprises and highlights best practices in the field. The Fund's training program will develop curriculum and deliver training to CDFIs to help them increase their capacity.

These programs are complementary and mutually reinforcing. By working to build the strength of local financial institutions, these programs respond to the needs of small businesses in individual communities, and establish local sources of development finance.

So far, the CDFI program has made over 200 awards in excess of $135 million to CDFIs around the country. The Fund expects to award over $60 million more to CDFIs this summer. The leveraging of the Fund's investment is powerful. We require these CDFIs to match our dollars at least one-to-one. CDFIs, in turn, further leverage the Fund's investment by attracting additional sources of capital, attracting additional deposits, partnering with other lenders, or co-investing with other equity investors. A survey of the Fund's first year of awards in 1996 showed that $34 million in federal dollars helped to stimulate $565 million in community development loans and investments.

Under the Bank Enterprise Awards, banks and thrifts are increasing investments in CDFIs. The Fund's $58 million in BEA awards have already leveraged $983 million in bank investments and support, 17 times the Fund's awards.

With important insight and advice gained from the Subcommittee on Government Oversight of this Committee, Ellen Lazar and her team have undertaken the necessary improvements to the Fund's financial and program management, reporting systems, internal controls, operating procedures, and awards monitoring. This year, the Fund received a positive audit from KPMG Peat Marwick, LLP, and the audit verified that the Fund had successfully corrected all material weaknesses identified in last year's audit. In sum, the CDFI Fund has a strong management team in place, with a sound infrastructure. It is well-positioned to serve low income communities in the years ahead.

THE CDFI FUND'S SUPPORT FOR MICRO-ENTERPRISE

CDFIs are part of the Administration's broader effort to help bring greater capital and investment into America's economically distressed areas. The President's FY2000 budget provides $125 million for CDFI programs, including $15 million for implementing the PRIME Act. It also increases funding for the SBA micro loan program and other similar programs that stimulate micro entrepreneurial activities in communities throughout the nation.

The Fund currently supports micro-enterprise in many ways.

First, as part of the 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.

Second, the Fund plays a leadership role in the micro-enterprise field through the Presidential Awards for Excellence in Microenterprise Development. The Awards reflect an on-going commitment by the Administration to advance the role that microenterprise development plays in enhancing economic opportunities of all Americans, especially those that lack access to traditional sources of credit such as women, low income people, and minorities.

For example, in 1998, the Northeast Entrepreneur Fund, Inc. of Minnesota received the Presidential Award for Excellence in Microenterprise Development for providing training and technical assistance to 2,700 people. They also made $1.2 million in loans to 123 businesses, of which 84% were owned and operated by low income entrepreneurs from seven rural counties in Northeastern Minnesota. In fact, over 60% of businesses they financed were start-ups, and 85% of these businesses survived over two years.

Third, the President, by Executive Memorandum, has charged the Fund with the coordination of micro-enterprise programs across the federal government. The Fund has been leading that effort along with the Small Business Administration (SBA). We believe these efforts will help the micro-enterprise field in the years ahead.

THE PRIME ACT

The Microenterprise field in the United States has grown significantly over the past ten years. However, we believe that there is more that can be done. PRIME is an essential component of the Administration's broad micro enterprise strategy. Its unique features are that it funds training for low income entrepreneurs and that it provides targeted assistance to the most vulnerable and lowest income entrepreneurs. It also complements other microenterprise efforts like the SBA micro loan program, which we believe Congress should fully fund in FY2000.

The PRIME Act would authorize the CDFI Fund to support micro-enterprise development organizations that provide training and technical assistance to micro-entrepreneurs, complementing the Fund's existing authority to support micro-enterprise organizations whose primary focus is financial assistance. We believe that the PRIME Act will help maintain and strengthen the capacity of local microenterprise development institutions to serve impoverished areas. The CDFI Fund has demonstrated strength in building strong local institutions to develop economically distressed communities.

While capital is critical for a 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, and that is particularly true for low-income micro-entrepreneurs. But such assistance is hard to find. The PRIME Act will help micro-businesses develop the expertise that they need to succeed. And these successful small businesses can help low income families increase their income while improving the local business climate.

CONCLUSION

Mr. Chairman, the Fund's vision is practical and thoughtfully developed. The Fund's investments are making a difference. Enactment of the CDFI Fund reauthorization would ensure that the Fund can continue to be a stable and reliable source for local CDFIs to help grow small businesses, build affordable homes, and strengthen communities in the years ahead. Furthermore, the enactment of the PRIME Act would bring critical technical assistance to micro-enterprises and help strengthen the capacity of the field.

Thank you again for your support and we look forward to working with you in enacting the CDFI Fund's reauthorization, and the PRIME Act.