There is a special class of credit unions, CDCUs (Community Development Credit Unions) which are a type of CDFIs (Community development Financial Institutions) to which we belong. CDFIs operate under two principles: 1) that low income communities can be developed through self help and 2) that this development effort can be self sustaining.

Alternatives was started by a group of small businesses that were successful on their own terms. They weren't successful as in ready to make a killing at a public offering. They were mom and pop businesses, cottage industry, self employment start-ups. They were successful because the people in them were doing what they want to do and making a living.

Though they were financially sound, they got no respect from the banks. They made deposits but couldn't get loans. The banks were looking for middle market borrowers, they looked for middle market documentation and performance. Our first members decided to start their own financial institution.

We saw other areas where low income members weren't given their due. A family renting one house for ten years couldn't qualify for a mortgage because their rent payment didn't count as a credit record. Recent immigrants couldn't get loans until they were full citizens. Banks underwrote and sold their mortgages on the secondary market. All their loans had to meet standards designed for suburban, white, middle class, family lending. Our members didn't fit that pattern. We felt that we could develop new lending standards that fit our members but that did not expose us to additional default risk.

Over the years this vision has been confirmed. Loans to low income borrowers do not have a higher default rate. Loans to small businesses are repaid. Reinvestment does result in sustainable, self help community development.

The analysis that makes these principles work is that low income communities are NOT low income simply because there is not enough money in them. One of the poorest counties in the country is in North Dakota, an Indian reservation. For every dollar that comes to members of that community as income, only 10 cents is spent in the community. What makes this community poor is that capital is continually drained from the community.

The vision of CDFIs is that an institution could sit right in the middle of a poor community and provide a way to stop capital outflow. What CDFIs do is recycle money locally.

Our institutions starts with simple principles that go a long way. For example, we decided that once our institution reached a break-even point (measured as an asset size) that allowed us to pay reasonable salaries and provide a reasonable range of services, we would not need to have growth as a strategic goal. This is a profound change from everyday business practice.

When you don't need to grow, every member is important. If you're willing to stay small, developing small markets is enough. We don't have to satisfy mass markets. We've developed a stay small marketing strategy called "referral marketing". We reduced mass media advertising and instead spend the same funds educating our members how to appreciate our Credit Union and talk to their friends about us.