Revolving Loan Funds – Private Sector Concept for Urban Repair

I was present recently to hear Jeff Patchin, CEO of The Children’s Museum of Indianapolis, talk about how important the surrounding neighborhoods are to the safety, security, and marketability of the museum’s patrons. Crime and blight in an area is of course an issue for safety and security, but even more important is often the marketability of such a venue. So with this issue in mind in 2001, the museum committed $2 million to a revolving loan fund that continues to be used today for neighborhood projects. In 2009 alone, this fund leveraged the construction and sale of six new homes and supported repairs to 13 owner occupied homes. This program is a variant of previous such loan funds, including Citizens Gas, Clarian Hospital, and Conseco’s loan funds that have been used throughout the city for years. The most notable application of this tool locally was in the UNWA neighborhood on the former River Side Amusement Park on the West Side of downtown Indianapolis.

Much like micro-banking, this is a private-market based concept that requires repayment, not an entitlement or a grant. It offers lower interest rates and somewhat looser standards with an expectation of higher default rates, and its repayment approach brings some real advantages over the typical grant. First, it appears to bring responsibility, pride, and stewardship into the recipient’s decision-making process, something often lacking in the grant or entitlement process. It also makes helps in the decision-making process for which projects can have the biggest impact, as only certain projects can make the cut of required repayment. And lastly, it allows the granting agency the ability to recycle the dollars, and reinvest them in multiple projects over and over.

Of course, privatization of government and the market-based theories are often debated, and have created a lot of dissention in politics recently. However, with the success of these programs, there is a good argument that these can make a positive impact. They have demonstrated they are a viable option to help spur neighborhood redevelopment, thus benefitting individuals and sponsoring organizations.