A woman (Wendy Green Daniels) standing before Beechwood Residential building located in Baton Rouge, Louisiana

LIIF’s Black Developer Capital Initiative provided capital to Beechwood Residential in Baton Rouge, Louisiana. Pictured is Wendy Green Daniels, Beechwood Residential’s President and CEO. 

LIIF Changes Its Lending Game so Racial Equity Wins

Kimberly Latimer-Nelligan, LIIF President, with Eliisa Frazier, LIIF Director, Racial Equity and Impact Lending

OFN member LIIF launches a Black Developer Capital Initiative to move the needle on racial equity in lending.

Read time: 7 minutes

Founded in 1984, Low Income Investment Fund (LIIF) has been at the forefront of the community development industry for 40 years. The CDFI recently committed to prioritizing communities of color and becoming a fully anti-racist organization, identifying four principles to guide the work: Seek out and listen and respond to the voices of communities and people of color; institutionalize the internal and external changes it makes; develop and implement precise mechanisms for accountability; and collaborate, contribute to, and learn from others’ anti-racism journeys. 

In this third post in OFN’s series focused on diversity, equity, and inclusion in lending, LIIF President Kimberly Latimer-Nelligan traces the CDFI’s journey toward advancing equitable programs, products, and practices. LIIF Director, Racial Equity and Impact Lending Eliisa Frazier contributed to the post. 

Read more about LIIF’s work in OFN’s Operationalizing Racial Equity, Inclusion, and Accessibility (REIA) into Lending Practices toolkit. The resource, part of our Career Meets Purpose professional development initiative, aims to help CDFI practitioners and partners expand the knowledge and skills they need to achieve the greatest impact in communities they serve.  

In the late 1990s, I ran credit training for the North American corporate and investment bank within a large, global financial institution. Like others, we were still teaching the Five Cs of credit: capacity, capital, conditions, character, and collateral.  

This universal lending criteria demonstrated a grain of truth in the adage, “A bank is a place that can lend you money if you can prove that you don’t need it.” Balance sheet strength and liquidity (i.e., plenty of cash on hand), demonstrated ability to repay a long list of previous loans, and collateral or security for a loan are fundamental to this approach. The approach, however, has unfortunately perpetuated endemic, systemic racial inequities. 

Time to Change the Game  

I joined LIIF in 2008, before the “Great Recession” financial crisis, and now serve as the organization’s president. At that time, banks were the primary source of capital for LIIF and most CDFIs. So, I should not have been surprised that LIIF, and indeed most of the sector, relied on some form of the Five Cs as a construct for assessing risk and lending capital within low- and moderate-income communities.  

The difference was that, as a CDFI, we “stretched” those standards beyond what banks would or could do based on their regulatory capital requirements. For example, rather than lending against real estate at 70% to 80% loan-to-value, we lent at 90% and sometimes even higher. Plus, rather than requiring $10 million or more in liquidity, for example, for a large construction loan, we required only $5 million.  

The flaw in this concept—and I would argue a contributing factor for why, as a sector, we have not moved the needle far enough on advancing an equitable society—is that we failed to change the rules of the game. Instead, we moved the goalposts.  

LIIF decided it was time for us to contribute to changing the game’s rules. 

In 2020, we launched a new strategic plan to advance racial equity in lending. Knowing the inherent need for CDFIs to be intentional in this commitment, LIIF specifically stated we were serving Black, Latino, and other people and communities of color.  

As a CDFI, capital (and, in our case, loans) was our primary tool for impact in historically excluded communities. That led us to scrutinize how we approached lending and credit risk, from business development to credit standards and underwriting to establishing policy.  

After taking a hard look at our practices, we recognized that we needed to make some significant changes in how we do business. We focused on two areas: measurement and lending. 

Creating a Framework to Measure How Each Loan Advances Racial Equity 

To translate intent into action required someone to steward this work and measure deeper impact. We created a new position embedded in LIIF’s lending business: director of racial equity and impact lending. And we promoted our then senior loan officer, Eliisa Frazier, to this role.  

To date, one of the most significant impacts this team has had on how LIIF lends is creating our Impact-Risk-Profitability (IRP) framework. This comprehensive framework includes our newly created Impact Scorecard.  

Eliisa has been leading an ongoing process, bringing in an outside consultant to determine what factors LIIF wanted to emphasize in our lending to advance racial equity.  

We chose an approach that focuses on the power and agency of the borrower and the community while accounting for other dimensions of impact.  

The Impact Scorecard translates qualitative factors into quantitative ones to ensure consistency across all LIIF’s products and markets. The impact score is triangulated with the loan’s risk, as measured by our Risk-Rating Model, and its profitability, as measured by our Loan Profitability Model, so we can intentionally allocate capital.  

While in its pilot phase, the IRP is already shifting how LIIF does business. 

Eliminating the Five Cs of Credit, Launching the Black Developer Capital Initiative

One example of our organizational lending shift is our innovative Black Developer Capital Initiative (BDCI). LIIF launched BDCI, a special-purpose credit program, with our affiliate, National Affordable Housing Trust.  

We developed the program understanding that traditional approaches to credit are rooted in systemic racism. It acknowledges that balance sheet strength and the accumulation of assets are often effective indicators of intergenerational wealth and not the capacity of the actual sponsor and borrower.  

Under the BDCI product, we changed our underwriting requirement to center on borrowers’ successful track records in developing affordable housing rather than their assets. BDCI is also an unsecured product with loan limits three times our standard unsecured product, and its pricing is materially below market, offering much-needed flexibility to borrowers.  

Out of the initial $20 million BDCI pool, 10 Black developers have accessed financing for 25 projects to date, in more than 15 different locations. We have just added another $20 million, expanding our geographies served to include the West Coast.  

Accelerating Progress to Normalize Equity  

While some days it feels like we aren’t moving fast enough, I remain energized by our progress.  

As I write this blog, I’m heading to meet LIIF’s chief credit officer for breakfast. We will be joined by the consultant who’s conducting a formal review of potential racial biases in LIIF’s credit products, policies, and processes. The goal is to recommend changes to how we lend so products such as BDCI will become the rule rather than the exception.  

It’s been almost 25 years since I was teaching and advancing the use of the Five Cs. I now see them starting to be dismantled. That’s why I am hopeful that I will be around to see the CDFI sector create products that serve as solutions, with racial equity in lending becoming the norm. Together, our industry can lead the way. 

Learn More

Download the Operationalizing Racial Equity, Inclusion, and Accessibility into Lending Practices toolkit.

Watch OFN’s CONNECT+ Webinar on Designing Loan Products that Advance Racial Justice.

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