IF YOU’RE WONDERING HOW the war against poverty is likely to be waged in Texas in the era of welfare reform, consider the case of Austin’s Micro-Media Solutions. The fledgling computer services company operates out of a gray brick warehouse with the sort of utilitarian, industrial appearance that is typical of high-tech companies. Yet while it is located in East Austin—a neighborhood with tumbledown houses and an unemployment rate that runs twice the citywide average—Micro-Media Solutions hasn’t had a problem with vandalism. The reason is that its president, Jose Chavez, hires local people even if they have no high-tech experience or have spent time in prison; anyone who shows up promptly, works hard, and passes random drug tests can get an entry-level job and move up to a skilled position. In this way, 46-year-old Chavez manufactures the hope of a secure future at the same time that he manufactures computer equipment—but he hasn’t done it alone. His company has thrived thus far because of the support of a community development financial institution (CDFI), an organization that is becoming the salvation of neighborhoods that have traditionally relied on government assistance.

Although CDFIs have gained widespread attention since the president signed welfare reform into law last year, they’ve been around since the seventies. CDFIs are financial institutions whose mission is to loan money in economically disadvantaged areas. Some, but not all, are nonprofit corporations. They’re funded by grants from foundations and the federal government and from public offerings of their stock; they often operate by teaming up with traditional lenders, thus fashioning a connection between the private sector and impoverished areas. One of the first CDFIs was the Shorebank Corporation, which sprang up when Chicago’s South Shore went into steep decline. At first, most of Shorebank’s loans failed to have any impact on the blighted neighborhood, but progress was made after bank leaders responded by offering additional services such as housing renovation, real estate development, community organizing, and technical help to entrepreneurs. That kind of multilayered aid has become a hallmark of many of the three hundred CDFIs operating in the U.S., six of which are in Texas. Unlike welfare, which offers assistance to individuals but does nothing about the neighborhoods they live in, CDFIs seek to change neighborhoods as a whole. “A lot of times when you’re talking about distressed communities you’re talking about areas that tend to be isolated from the larger economy,” says Margo Weisz, the executive director of Austin’s CDFI, the Austin Community Development Corporation. “Astute lending creates jobs, helps make physical improvements to the areas, and creates a tax base. And successful clients become leaders in the neighborhood.”

This mix of free-market economics and liberal social values has appealed greatly to Bill Clinton: In 1994 he and Secretary of Housing and Urban Development Henry Cisneros got Congress to create a new federal fund that has awarded money to CDFIs across the country, including San Antonio—based Accion Texas. “The idea is to help build self-sustaining institutions,” says Kirsten Moy, the director of the fund. “It means applying market discipline. These organizations aren’t going to succeed over time if they don’t make good lending decisions.” Welfare reform has made such efforts even more important—in Texas, for instance, the maximum time anyone can receive assistance under the Aid to Families With Dependent Children program is now only three years—which is why the president wants to increase the CDFI fund’s annual appropriation from $50 million to $125 million in 1998.

The ripple effect that a CDFI can have on a neighborhood is aptly demonstrated by the story of Micro-Media Solutions. Jose Chavez, an electrical engineer from El Paso, founded the company in 1993. The next year he landed a $4 million contract to set up a computer network for the Texas Department of Health—a lucrative job that was either going to overwhelm his young company or jump-start a period of extraordinary growth. Chavez needed a sizable influx of capital. He tried getting a loan through the Small Business Administration, but he didn’t have the assets to qualify for the kind of money he needed. That was when he contacted the Austin CDC. “For us, the company hit on every cylinder,” says Margo Weisz. “It was minority-owned, located in East Austin, had tremendous growth potential, and was going to create channels of communication between East Austin and the rest of the city.” The Austin CDC helped arrange a three-part loan: Bank One contributed $100,000, the City of Austin contributed $75,000, and the Austin CDC contributed $100,000.

During this period of expansion, Chavez moved the company from its cramped South Austin location into the larger warehouse space in East Austin. As it happened, Tina Rodriguez lived across from the new location; the 34-year-old mother of two had been on welfare for two years, a situation she disliked intensely. “I walked across the street and said, ‘What’s going on?’” Rodriguez recalls. “Jose said, ‘Well, it’s a minority-owned business.’ He told me all about the company.” Rodriguez asked for a job and was hired to work on Micro-Media’s assembly line. After a year she was promoted to customer service representative. “I’ve been doing really well, and I love it here,” she says. Micro-Media Solutions has been doing really well too: The company now manufactures a low-cost network computer, installs fiber-optic cable around the state, and has won a number of other big contracts to set up computer networks. Revenues have steadily increased—Chavez has already lined up $15 million in sales for 1997—and Hispanic magazine recently included him in its list of the one hundred top Hispanic entrepreneurs in the U.S. And the company’s effect on its environs has been noticeable: About a dozen East Austinites have been hired over the past three years—nearly a third of the total Austin staff—and the owners of local homes and businesses have undertaken a collective clean-up effort.

Statewide the impact of CDFI lending is just as significant. CDFIs in other cities have helped dozens of companies and, concurrently, residents in the surrounding areas. And that could only be the beginning: This spring the Texas Legislature—like its counterparts in a handful of other states—approved a bill that would create a $5 million statewide CDFI fund. “The social work approach just doesn’t seem to have worked,” says State Representative Sherri Greenberg of Austin, one of the bill’s principal sponsors. “I think we could be much more successful with the jobs approach.”