Faculty Scholarship 1994 - Present

The CRA and Capital Formation for SME's: Financing the Future - A Trend Analysis

Congress enacted the Community Reinvestment Act (CRA) in 1977. The CRA which essentially requires banks to lend and invest a portion of their assets in the communities from which they solicit deposits, has been a lightening rod of controversy. As a source of capital the CRA has been underutilized by entrepreneurs. Analysis shows that investment provisions have been utilized primarily for residential lending rather than business. Enhanced use of this mechanism would solve liquidity issues for small businesses and provide compliance outlets for intstitutions. This comment draws on a more extensive preliminary assessment of the CRA, reviews the history of the CRA, and proposes solutions for the controversies surrounding outlines. It begins with an examination of what the CRA was intended to accomplish, and then describes the impact of its utilization in capital formation for SME's.