Microfinance

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& Oxford University Press and Community Development Journal. 2005 All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org doi:10.1093/cdj/bsi097
Advance Access Publication 13 September 2005

Community banking and
economic development: Lessons
from Los Angeles
Greg Andranovich, Ali Modarres
and Gerry Riposa

Abstract Among the changes in the field of community development is the growing importance of microfinance, both to provide access to credit and as a vehicle for empowerment. Community banks are recognized for their role in meeting these goals, although they remain controversial, as the goals of microfinance are not always agreed upon, with government officials and community members emphasizing different interests. We examine the Los Angeles Community Development Bank to glean

further lessons regarding the role community banks can play in community development. Among the lessons from this experience are that politics are inescapable in the design of community banks; the economics of banking tends to undervalue community needs; and cultural factors include both professional and community-level challenges. Accounting for these factors can help community banks empower communities to meet the challenges of eliminating poverty.

Introduction
This article examines community development in Los Angeles, more specifically the role of the Los Angeles Community Development Bank (the Bank) as an agent of empowerment. Recent research on community banks and other microfinance institutions and programmes suggests that understanding the roles for national, local, and community/household institutions and actors can bolster performance (Gulli, 1998). Furthermore, case studies indicate that the role for the state in microfinance programmes includes providing a framework for meeting complex policy objectives and challenges, such as reducing poverty (Zeller and Meyer, 2002). For example, 194

Community Development Journal Vol 42 No 2 April 2007 pp. 194 –205

Community banking and economic development in Los Angeles

195

the role of the state includes ensuring sufficient time for the microfinance institutions to develop the resources to operate without subsidies and time to develop the organizational capacity to operate effectively (Lapenu, 2002). Indeed, it is becoming clear that the non-financial part of microfinance programmes is as important as economics to efficacy (Turner and Jolis, 1999; Yunus, 1999). In part, this has yielded linkages with empowerment strategies relying on local people and the abilities of community institutions to define, articulate, and negotiate their own agendas and mobilize individuals and resources around community concerns (Arnstein, 1969; Clavel et al., 1997; Friedmann, 1992; Modarres, 2003). In light of the increased use of non-state organizations to implement public policy, particularly community-based organizations perceived as good at facilitating local needs and mobilizing local people, empowerment has become a widely accepted policy goal. However, can community banks be designed to address complex policy problems? We examine the political, economic, and cultural context of the Los Angeles Community Development Bank to provide some answers to this question. The research for this article was conducted by the authors as part of a larger project examining governance in Los Angeles. Over a six-year period, interviews were conducted with the leaders of the organizations discussed here, public meetings were attended, and internal memoranda and other documents were collected and analysed to provide evidence for this account.

Community development and federal policy
After its 1992 electoral victory, the Clinton administration fashioned an urban policy initiative called ‘empowerment zones’ built on federal – local linkages through funding, tax incentives, and technical assistance to develop businesses, create jobs, and provide social relief to inner city poverty...
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