What is the CDFI Fund?

January 4, 2017

The Community Development Financial Institutions (CDFI) Fund was created in 1994 as an independent agency administered by the U.S. Department of Treasury. The CDFI Fund’s work transforms communities and creates economic opportunity for all Americans.

 

It does this by leveraging public funds to increase private investment in distressed communities through mission-driven financial institutions. (In laymen terms, the CDFI Fund uses federal grants to motivate financial institutions to lend when they normally might not be able to take the risk without harm to their other customers/members.)

 

Since inception, the CDFI Fund has awarded more than $2 billion in funding to financial institutions designated with a Community Development Financial Institution certification and $43.5 billion in New Markets Tax Credits. In 2015 alone, that resulted in the deployment of over 3.3 billion in loans and investments to improve quality of life, revitalize neighborhoods and empower Americans.

 

These special CDFI certified financial institutions expand credit, capital, and financial services to historically underserved populations which increases quality of life and reduces reliance on federal and state entitlement programs.

 

The federal funding is not available to corporate, profit-maximizing banks. Instead a financial institution must pass rigid criteria documenting that it serves low income populations, historically underserved, impoverished regions, and other populations that have been financially disadvantaged. Most not-for-profit credit unions meet this criteria.

 

The CDFI Fund operates multiple programs, including, among others, the CDFI Award program, which credit unions participate, New Markets Tax CreditsBank Enterprise Award Program, and the Capital Magnet Fund. Each unique program promotes access to capital and encourages economic growth to underserved, distressed or low income communities or populations. Grants are awarded based on the creditability and compelling nature and projected impacts of a CDFIs comprehensive business plan. All funds must be matched at a minimum level of one to one with non-federal money, or in the case of credit unions a financial assessment of retained earnings. In addition to financial assistance, the CDFI Fund also provides technical assistance and training to CDFIs.

 

In a strong display of bipartisan support, both houses of Congress voted overwhelmingly in favor of creating the CDFI Fund. Appropriations have also been supported through both Democrat and Republican administrations with funding levels varying over time.

 

The CDFI Fund has spurred an entire industry in the field of community development finance. As well city and county economic development agencies and departments around the US are being renamed to “Community and Economic Development.”

 

Many associations have emerged supporting the CDFI field:

 

·       The Opportunity Finance Network is the premier trade association and network of CDFIs. Membership is limited to CDFIs meeting benchmarks of excellence in the field.

 

·       The Association for Enterprise Opportunity is a trade association supporting microenterprise loan funds.

 

·       The CDFI Coalition is billed as “the united voice” advocating on behalf of the CDFI industry, collecting industry data, and educating the public about community development finance. Membership is open to all who support the field of community development finance.

 

·       The Community Development Bankers Association is a trade association supporting community development banks and thrifts.

 

·       The National Federation of Community Development Credit Unions is a trade association serving CDFI certified credit unions and friends. It also operates a CDFI certified loan fund and has a for-profit consulting arm which operates using a network of independent subcontractors.

 

·       The Community Development Venture Capital Alliance provides technical assistance, information, and resources on community development venture capital funds.

 

·       Community-wealth.org provides practitioners with links to information on CDFIs.

 

·       The Center for Responsible Lending conducts ground-breaking research on the extent and impact of predatory lending, to provide useful information to consumers, community advocates, and policymakers.

 

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