Originally published in Business Digest, July 1998

A Capital Enterprise

by Virginia Lindauer Simmon

When Caryl Stewart grabs hold of an idea, stand back if you don't want to get caught up. Because once this pixie-like, soft-spoken woman decides to make something happen, she takes on the qualities of a vortex, pulling in any likely subjects along the way. Unlike the whirlwind, Stewart builds and creates, in the process making something worthwhile. The story of her latest vision-brought-to-life -- the Vermont Development Credit Union (VDCU), founded in 1990 by the Burlington Ecumenical Action Ministry (BEAM) to bring affordable capital and financial services to low-income Vermonters -- is a perfect example, but far from the only one in Stewart's history.

In many ways, the VDCU is the culmination of her life experiences. By her own definition, it's the perfect "combination of human services with the creativity and discipline of the private sector," an idea that charges her batteries. It's an idea that marries Stewart's philosophy of social work -- help people to help themselves -- with sound financial principles.

Caryl Stewart
Caryl Stewart's career has moved between private enterprise and human services -- from Bennington Potters North and Dean Witter to pediatric social work and regional health care planning -- all qualifying experience for establishing the Vermont Development Credit Union in 1990. (Photo: Jeff Clarke)

Stewart, a native of South Dakota, came to Vermont in 1960, but her roots go back to Craftsbury and an ancestor of her grandmother's, a Burlingame. She says one day, she might pursue the details. Stewart married right after graduating from the University of Minnesota and spent much of her marriage traveling with her husband, an economist and international finance expert working with governments of underdeveloped countries. Her sister, Betty, married Scott Rowden, a Vermonter, and was living in Derby when, after nine years, Stewart's marriage broke up. "I was becoming a single mom," she says, "and I just decided that Vermont was the place to do that, both because I wanted to live in a non- city city and to be around family. And I loved Vermont." So she and her daughters, Gail and Lynn, came to live with her sister's family.

The family connection made it possible for her to study for her master's in social work at McGill University. The children lived with her sister's family while she commuted to Montreal by train, leaving on Monday night and returning Saturday morning.

After earning her master's degree, Stewart and the girls moved to Shelburne, and she was hired as the first pediatric social worker at the Medical Center Hospital of Vermont. There, she met Henry Albarelli, a medical technician and commissioner for the Burlington Welfare Department, who soon hired her to work for the city. "He discovered what he felt were too many families on the welfare rolls for three and four generations," Stewart says, "and he actually got the City Council to allow him to create a new department that would try to intervene with that intergenerational poverty cycle.

"We found that we needed what I came to call 'therapeutic employers,' " Stewart says. She is eternally grateful to Gene Cenci, former co-owner of the Sheraton Burlington Hotel & Conference Center, who took a chance on a man who had been deemed "unemployable" by every agency in the state. "Gene gave a chance to this guy, whose ego was nonexistent, who had lost jobs because he couldn't tolerate anybody looking cross-eyed at him. And he went on to become a second cook or something like that."

Before long, though, the state took over welfare and "that whole initiative kind of got lost," she moans. "I have never had a great penchant for institutional settings, so I chose not to go with the state."

Instead, in about 1969, she gladly accepted an offer from UVM to work for the Northern New England Regional Health Program, "a very heavily funded endeavor that was the first serious health-planning initiative." There was a similar program in the state that Stewart says was "probably passed by the national bureaucratic health system in Washington as a political reaction to the regional one. So every state health department had funds coming down for comprehensive health planning, and next to that were these regional establishments also doing health planning. In Vermont, where everybody wears many hats, it didn't take long until people were bumping into one another, so we attempted to put those together. That sent up all kinds of signals at the national level -- you've got two initiatives with gurus, and here we tried to combine them."

The bureaucratic wrangling left Stewart feeling she was "on a slow boat to nowhere. I always get nervous when I think I'm not having an impact on anything, and the writing got pretty big on that wall." She decided to leave the field of human services. It was 1973. She took a few months off to consider her future. That was when she met David Gil, owner of Bennington Potters. "He was sitting down there with a lot of seconds he didn't have a market for, and we came up with a scheme to create Bennington Potters North," says Stewart. "We did the first historic renovation in downtown Burlington."

Stewart went out to find investors and got acquainted with Dudley Davis at the Merchant's Bank, from whom she requested a large loan. "I put on a hard hat and became the project manager," she says. When she discovered that the sprinkler contractor was in the process of declaring bankruptcy she was determined to have him finish the job. "I went out and got the pipes and went down to Springfield, Mass., where he was and helped him thread the pipes."

Stewart managed Bennington Potters North for about five years, until she and Gil reached a point where they had divergent management visions, and she stepped away, although she's still a part-owner. After a brief hiatus, she joined Dean Witter in 1980 as a broker "to build my own base back." She did that for the next eight years, taking a couple of brief forays into politics along the way.

In 1981, she was elected chair of the Burlington Democratic Party, "because it seemed the party was letting itself get blown away. What I learned was that a big swing like that is like a pendulum, and it's got to work itself out." She later made a stab at challenging Sanders for the mayoral position, losing to Paul Lafayette in the primaries. She also had a close run for a state senate seat. Those things, she says, "made me realize that if you want to make a difference, you have to find where your own style allows it. I've got an ability to see how things should be, and I also kind of know how to make it happen, if something totally uncontrollable doesn't get in my way."

In 1987, Stewart rejoined the board of directors of BEAM, an organization created by Rev. Bill Hollister in 1969 and one she had been involved with since its beginnings. "BEAM tends to take on big projects," she says. "For example, BEAM started Spectrum; it saved the firehouse from being demolished; First Night started out of BEAM."

Stewart was interested in social investing and BEAM was looking at how escalating housing prices excluded low-income people. The success of South Shore Bank, a Chicago institution bought by African-American residents in its neighborhood when it decided to close, led her to Sen. Patrick Leahy's office. There she learned about a bill that included a section on community development banks. Although the bill never got out of committee, her research uncovered a community development credit union, which could be created to offer loans to low-income people.

After a survey of Vermont's non-profit community returned a 30 percent response -- all positive -- the idea of a community development credit union was born. "We had a total of $25,000 in the pot at BEAM," she recalls, "and that's all I had to bank on to pay myself."

The first thing she did was call the state banking and insurance department to ask how to start a new credit union. They told her it was pretty easy. " 'Take these steps, come to us, we review it, the feds come in and pretty much approve what we've said.' Very simple rules." But that was April 1988, just months before the national savings and loan crisis began. "By fall, it was a whole new ball game," says Stewart, "and all of the national regulators, the insurers, got totally paranoid about their functions. Even though the NCUA (National Credit Union Association) never had the problems the S&Ls did, they came down on everybody."

She, meanwhile, was merrily plugging along, even holding a news conference in November to announce they were sending in the charter request. "Next thing I heard, NCUA said we had to start over. It was a total blow." The application wasn't approved until October 1989. Stewart says it was her second big lesson in how federal bureaucracies work. "They keep raising the bar. You think you've done it, they come back and give you a few more. I finally realized that we had to give them more answers than they had questions." In the process, the business plan was devastated, and the new credit union was told it couldn't do anything but consumer loans, because anything else would be too risky. Even so, the decision was to move forward.

Stewart brought most of the local banks on board by convincing them that the credit union would be creating future customers for them. "The real hero was Bill Bruett at the Chittenden, who pledged $30,000 in operating grants to us." That and smaller grants from other banks made up the initial operating fund.

One thing that makes a community development credit union different is its ability to take deposits from non-members to support the effort. "It's kind of a good news Robin Hood," Stewart says, "because low-income people are not going to create a deposit base big enough to lend money to low-income people." VDCU has a growing list of individuals and organizations that purchase federally insured certificates of deposit.

Not long ago, a study showed that only half the credit union's loan applicants are successful -- essentially the same as at every other financial institution. VDCU created a self-help manual. "We studied the applications, did a series of focus groups with low- income people and came up with a hierarchy of needs. In the first level, people need information; at the next level they need education, and we're just starting to do a bit of that. The third level is counseling, and we do a lot of that." Loan amounts range from $50 to over $80,000.

In the last 10 years, the VDCU has expanded its operation far beyond the consumer loans first allowed. There are five employees in Burlington and a loan officer in Rutland. Stewart serves as president and is running the day-to-day operations while conducting a search for a new CEO. Creativity is rampant. With a motto that claims "We Don't Say No; We Say When," VDCU has a variety of loan and other programs, including mortgage and business lending. Burlington's burgeoning immigrant population has found it to be a financial oasis. According to Stewart, the delinquency rate is less than 2 percent, with a charge-off rate of less than 1 percent. That, she says, is because of something called counseling-based lending. "We develop such a good relationship with our borrowers, when they can't make a payment they'll just call us and tell us." Of the 120 mortgage loans, only one has gone bad.

The business loan program started in September 1997. It has a dedicated staff person and makes about five or six loans a month. Stewart is excited about its prospects. The story of Burlington artist Dug Nap's loan is typical. Nap has been working with Fred "Chico" Lager, part-time consultant and former president and CEO for Ben & Jerry's. Lager has known Stewart since her Bennington Potters days.

Nap has been creating and selling a line of greeting cards for about five years. They've all been hand-colored, and Lager urged Nap to have them printed, to improve his profit margin, lower the cost of the cards, and increase his volume. "In order to do that, he needs to borrow some money," says Lager. "We pretty much just ruled out traditional lenders," he continues, "because there's no equity there, and his personal balance sheet wouldn't support a traditional loan." But Lager first decided to call Stewart, sending her a copy of the business plan. "They indicated they were really interested in it and would more than likely lend Dug $20,000," Lager says. In the meantime, Lager and Nap have found some groups of reps to sell the product line to a larger market.

Most traditional credit unions are employer-based, which means members must be affiliated with a certain employer. Community- based credit unions draw members from a defined community. VDCU's original charter named the Old North End Enterprise Community as its base. "So anybody who lives in the Old North End can belong," Stewart says. "Then we said we wanted to allow anybody who has an affiliation with a non-profit. And they accepted that. If you don't have that affiliation, BEAM created an associate membership for $5. It drove the regulators crazy!" Stewart exclaims gleefully. About two years ago, VDCU became a statewide credit union.

In 1997, member deposits reached $1.65 million, which, coupled with the $3 million in certificates of deposit, provides the source of lending capital. The U.S. Treasury has just awarded VDCU a $500,000 equity grant funded by a Congressional Community Development Financial Institutions Fund. "We live in a financial era, so you have to be able to tap into a financial institution to be independent," says Stewart. "Many people have no access to that, which you and I take for granted. So if we don't create that infrastructure, we're condemning that whole segment of the population to living on the margin. What that infrastructure does is take away, perhaps, the real patriarchy of the present system. We don't do anythingfor them, we serve them. We made over 600 loans last year. It's lots of people." BEAM has created a subsidiary called the BEAM Enterprise Center, now totally dedicated to the credit union but open to future initiatives.

Stewart is happy with her efforts to bring the credit union to its current status. "I've always had the ability to envision," she says. "Ideas are out there. But doing it is the thing. I have a vision, and I know how to make a vision happen. That's my creative skill. I can't paint, and I can't write music. But I can do this. And I'm grateful for it. Now, we have created an institution where I could drop off the face of the Earth and it will still be there."