Finance Fund President and CEO James R. Klein
This summer, I was honored to be included among banking and finance industry leaders in Columbus Business First’s “People to Know in Banking and Finance” feature and subsequent roundtable. As President and CEO of a nonprofit community development financial institution, my perspectives were unique.
Like most traditional for-profit banks, Finance Fund Capital Corporation manages risk, identifies opportunities and raises capital. Unlike them, we serve a double bottom line – producing a traditional capital return on investment as well as a social ROI to catalyze economic and environmental change in struggling communities.
A lot of our work is focused on locally owned and operated small businesses, health care facilities improvement and expansion, and healthy food retail projects in food deserts. In addition, our portfolio includes commercial real estate projects, fueled by New Markets Tax Credit financing, that drive economic growth on a larger scale. Time and again we see our loans and grants generate an economic development ripple effect that helps transform struggling communities into healthy, vibrant places to live, work, go to school and raise a family. Our case studies and interactive map tell the story of the breadth and geographic spread of our work.
In case you missed the Columbus Business First feature, here’s the link and we’ve included the interview content herein. Thanks as always for your interest in our work.
James Klein: People to Know in Banking and Finance 2014
Katy Smith, Print Editor
How did you get into this industry? I was recruited to become Finance Fund’s first executive director in 1989 based on my education and experience in finance, business and community development as director of a local community-based economic development organization and two public housing authorities in Minnesota. Since then, we’ve made steady progress. Assets under Finance Fund’s management have grown from the original $50,000 investment made in 1987 to $296.4 million in 2013, leveraging over $1.2 billion. This growth resulted from strategic planning and partnerships, managed risks and strong belief in facilitating change by enabling the flow of capital to distressed communities. Today, our work is focused on economic development, health care and community facilities, small business, commercial real estate and housing.
How will the Dodd-Frank Wall Street Reform and Consumer Protection Act affect the businesses and individuals who are your clients? Finance Fund Capital Corp., which is the community development financial institution affiliate of Finance Fund, is not a bank or traditional large financial institution. As a statewide, nonprofit financial institution, the corporation occupies a separate but important space in the financial world. We provide financing to businesses that typically do not qualify for a traditional bank loan on their own and operate in low- to moderate-income Ohio communities. With our help, our clients will often qualify and apply for additional financing from traditional sources such as larger, regulated banks and financial institutions. Further regulation, oversight, information and transparency in the financial world will provide borrowers with even greater confidence to move forward in the future.
Do you think the U.S. banking system has been safeguarded from too-big-to-fail threats? Our government has taken positive steps in this direction, but the success of these safeguards ultimately remains to be seen.
What is the best way to attract investors (such as venture capitalists) to Ohio startups? Bank investors as well as community development financial institution investors all look for the same thing – value. If they can find value in an investment, there will be interest. There are various ways to add value. Banks’ primary value-add is capital yield. An investment has the expectation of producing a yield and capital return. The return on investment is the bottom line. A community development financial institution may have a double or even a triple bottom line. Characteristically, in this market segment, there is a social return on investment in addition to the ROI. Some segments of the investor market are attracted to opportunities that include a social return on investment. Some investors are interested in seeing some type of environmental return such as energy savings, clean air or alternative energy sources. This is considered the third bottom line. A key source of funding for our work is through public programs such as federal and state New Markets Tax Credits. We strongly encourage further action from Congress to support extension and permanency for this proven-effective credit and other incentives to attract private investment to underserved communities.
What would you change about the industry? We are still living in the aftermath of a dramatic crisis in the financial markets. There have been a number of changes after 2009 that affect the industry, not the least of which were banking regulations. In my opinion, the changes themselves were based in reasonable logic and intent. The way that they were applied, however, did not follow the same path. As a result, there are some rough spots in the application of regulations. Movement away from the one-size-fits-all approach to regulation toward something that allows all levels of the industry to function effectively in the market would address a barrier to basic functional performance for small and medium-sized banks.