Community Mobilization and Credit : The Impact of Nonprofits and Social Capital on Community Reinvestment Act Lending

The last decades have witnessed an increased interest in community-development policy implementation processes, emphasizing bottom-up, or community-based, solutions to urban problems. Two lines of research have focused on: (1) the non-profit sector as a vehicle for using policy to connect poor communities with the government; and (2) the formation of social capital as a way of empowering low-income communities to help themselves. The effectiveness of these approaches is tested by examining how one particular policy, the Community Reinvestment Act, designed to stimulate mortgage and small business lending, can be used by non-profits and communities with social capital to gain the benefits it has to offer. To test the non-profit hypothesis and the social capital hypothesis, aggregate home mortgage and small-business lending data for each census tract in Washington, D.C. (1998) is used. The dependent variables include the total number of conventional and refinancing mortgage loans and loans to businesses--including small businesses--made in each census tract. The independent variables come from several different sources (such as data collected by the National Center for Charitable Statistics in 1998). Findings suggest that a high non-profit presence and high levels of social capital in a community can influence the way in which a neighborhood benefits from the devolution of public policy. The findings also suggest that a comment on the Community Reinvestment Act (CRA) is in order, as the CRAcontinues to be an important piece of public policy. Nevertheless, although the CRA is working, it is not working uniformly. It is recommended that the CRA be commended for promoting non-profit involvement and helping to generate social capital, but an inequality of performance outcomes should remain an issue of concern for lawmakers and practitioners. Also, partnership with localities and communities is important, as the CRA is dependent on neighborhoods to make use of the processes it provides in order to be effective. However, given the limited benefit of non-profits and social capital in the revitalization of urban neighborhoods, it is recommended that researchers and practitioners should be careful in choosing when to rely on them.(CBS)