Behind the headlines: The critical role of credit unions in deploying $27 billion in federal…

After Hurricane Maria ravaged Puerto Rico in 2017, leaving $139 billion worth of damage in its wake, the island’s surviving residents were left without communication, power, banking systems or assistance from the mainland. Many bank branches didn’t re-open for months following the storm, but, within just two days, mission-focused financial cooperatives, or “Cooperativas,” which operate similarly to member-driven credit unions, were open and creating workarounds to keep cash-strapped locals afloat.

Today, there are 94 state-chartered financial cooperatives and five federal credit unions on the island. Puerto Rico’s financial cooperative system has nearly $12 billion in community owned assets and over 1.1 million member-owners (about one-third of the island’s population).

Those numbers can be at least partially attributed to post-Maria investments made by Inclusiv, a New York-based Community Development Financial Institution (CDFI) intermediary and Mastercard Strive USA grantee. Inclusiv set out post-Maria to equip Cooperativas with the financial tools to assist low-income Puerto Ricans, while bolstering Puerto Rico’s financial system and its climate resiliency initiatives. Ninety-eight percent of the financial cooperatives and credit unions in Puerto Rico are members of Inclusiv today.

Armed with decades of experience in the continental U.S., where it had assisted some 20 million residents in low-income, rural, urban and reservation-based communities by providing capital, technical assistance, webinar programs, and vital networking connections for its 500-member credit unions, Inclusiv aimed to get Cooperativas certified as Community Development Financial Institutions (CDFIs) through the U.S. Treasury Department. This would unlock access to funding opportunities and government grants, like the CDFI Fund. At the time, many of these Cooperativas were effectively operating as CDFIs, but lacked the process and certification required to do so officially.

Since Hurricane Maria, Inclusiv has helped the Cooperativas access more than $308 million in CDFI grants, allowing many to create or expand community development lending, including clean energy lending programs to help residents purchase solar power kits, or retrofit homes and businesses. Prior to Inclusiv’s intervention, no Cooperativa had received CDFI funding.

Building a Trusting Foundation

This growth stems from both trust — Coopertivas came to the aid of Puerto Ricans when almost no one else did — and Inclusiv’s wealth of experience, but it wasn’t easy.

It took Inclusiv’s Director of the Puerto Rico Network, Rene Vargas Martinez, and this team five years of trust-building, including visits with Coopertivas to talk to their CEOs and boards, meetings with community leaders and the Department of Treasury to talk about the CDFI Fund, before the needle finally started moving.

“This concept of having a fund to give you money to do what you need to do sounded really weird,” Martinez said on the Next City podcast earlier this year. At first, there was skepticism, Martinez added, due to some traditional barriers, such as language, and a general distrust of federal agencies, that made Cooperativas nervous to partner with an outside organization. But the educational component Martinez brought to the table eventually gave way to success.

The Greenhouse Gas Reduction Fund in Action

Inclusiv’s experience building trust in Puerto Rico, as well as its 50-year history working with Community Development Credit Unions (CDCUs) throughout the continental U.S., will likely serve as a critical backdrop as it moves forward with its recent $1.87 billion Greenhouse Gas Reduction Fund Clean Communities Investment Accelerator grant.

This opportunity will put Inclusiv firmly on the forefront of advancing racial and economic equity in U.S. climate finance by creating tools to help community lenders finance clean-energy solutions in low-income communities, which are often overlooked in the climate conversation.

The $27 billion Greenhouse Gas Reduction Fund (GGRF), which is part of the Inflation Reduction Act (IRA), marks a historic influx of federal funding for small businesses and communities to participate in and benefit from the nation’s transition to a clean-energy economy. The funding was dispersed via three grant opportunities: the National Clean Investment Fund, Solar For All, and the Clean Communities Investment Accelerator, which together aim to combat climate change by mobilizing financing for greenhouse gas- and air pollution-reducing projects in communities across the country, with a significant portion set aside for low-income and disadvantaged communities.

The grant awards, announced by the Environmental Protection Agency in April 2024, put nonprofits like Inclusiv on the frontlines of the GGRF due to their expertise in mobilizing financing and private capital to transform markets, and ultimately, the grant dollars will be funneled through small, local businesses, such as installers of solar and other energy efficient equipment as they execute thousands of clean-energy projects at the ground level.

In total, 68 organizations received funding through the GGRF’s three grant programs, ranging in size and scope. Appalachian Community Capital, another CDFI in the Strive USA network, received $500 million through the GGRF to launch the Green Bank for Rural America, a future hub for investment and technical assistance to community lenders, local leaders and workforce development partners across the U.S. Its grant will be leveraged to finance $2.25 billion in 2,750 clean-energy projects, creating 18,000 jobs in rural communities.

The Climate United Fund, a coalition headed by Strive USA advisory board member Beth Bafford, will use the $6.97 billion grant it received from the Clean Communities Investment Accelerator to invest in distributed power generation and storage, building decarbonization and electric transportation through consumers, multi-family housing, community infrastructure, small businesses and farms, schools and minority-serving institutions, and stand-alone generation and power.

A Critical Link to the Local Level

For Inclusiv’s part, over the next six years, it will pass along 90 percent of its $1.87 billion GGRF grant to hundreds of community development credit unions (CDCUs) — at up to $11 million per lender grant — to create new or expand existing green loan programs, or provide financial assistance for clean energy projects to low-income and disadvantaged communities, through a variety of loan products.

Of that, $180 million will be set aside for technical assistance grants to help CDCUs build their capacity to provide financial assistance to Clean Communities Investment Accelerator-approved projects, which must meet established U.S. climate goals and be located in low-income and disadvantaged communities. Technical assistance includes training, market analysis, technical support, hiring staff, developing new financial products and supporting predevelopment activities such as energy audits, feasibility studies and design, engineering, and permit support.

Through the grant, Inclusiv will scale its Solar & Green Lending training program to help build local and national markets for clean energy lending. These 5- to 9-week online sessions for community-based lending institutions cover the knowledge and skills needed to engage in solar and green lending, including market assessment, product development, working with solar installers and developers, underwriting and deal structuring, and program and asset management.

Since 2019, Inclusiv’s Center for Resiliency and Clean Energy, in partnership with the Carsey School of Public Policy at the University of New Hampshire, has trained close to 400 community-based financial institutions in how to design affordable and accessible clean energy loan products. The results have been impressive. Reporting from just a sample of 70, these lenders have made $3.38 billion in green loans in the past five years.

Reaching Community Through Credit Unions

Credit unions are uniquely positioned to mobilize at this moment given their deep community roots, particularly in low-income and disadvantaged areas, where trust can be difficult to earn.

Credit unions differ from traditional lending institutions in that they’re member-owned and often community-minded, with a history of investing in communities that traditional lenders view as too risky. They often offer a broader range of products at a cheaper cost, and focus on development and technical assistance services such as financial education, credit counseling, development assistance to address qualification challenges, and help borrowers use their credit and capital effectively, and ultimately improve their financial health.

Their membership base is also quickly growing — before the pandemic, in 2019, credit unions in the U.S. served 121.7 million members, according to statistics kept by the Credit Union National Association; by 2023, it had grown to 140.6 million, as credit unions were quickly able to access and deploy pandemic-era funding. With the GGRF and other government funding on the horizon, demand is expected to continue growing. In the federal reserve’s 2023 CDFI study, credit unions reported an increase in services of 71 percent in the 12 months prior.

But, they face challenges in meeting that demand, such as adequate staffing, technology, operational funding and lending capital, expertise to answer borrower questions around clean energy products in non-technical, clear language, and importantly, building trust in a diverse set of communities.

The Road Ahead is Paved in Trust

While there will certainly be tactical challenges involved in implementing the GGRF, Inclusiv and other organizations charged with deploying the funds know the key to success is trust, a sentiment repeatedly shared by leaders at the Mastercard Strive USA Summit in April.

Solid relationships with community credit unions, like those Inclusiv has formed over decades, will be paramount in ensuring unprecedented federal dollars earmarked for energy efficiency, electrification, solar access and reducing carbon emissions flow to the right local businesses with the expertise — and trust — to support their communities in a time of economic transition.

And Inclusiv won’t be alone as it looks to leverage its grant dollars to touch as many low income and disadvantaged communities as possible. Inclusiv is on the board of the Justice Climate Fund, which was selected for $1 billion to equip its network of some 1,000 U.S. CDFIs with new tools, skills and relationships to advance affordable, green lending in communities across the country, particularly those that are low income and disadvantaged.

With proven programs already in place, and Inclusiv’s deep well of knowledge of other opportunities available, now it’s time to ramp up quickly in response to crisis, just like it did seven years ago in Puerto Rico, this time armed with the rare resources to truly strengthen the nation’s small-business ecosystem while steering a transformation whose impacts stand to reshape the nation’s economic future.