What is a CDFI?
Monday, 30 December 2019
Community Development Financial Institutions (CDFI) are private institutions dedicated to facilitating economic growth, job creation and opportunity in low-income communities through credit, investment and affordable financial services.
CDFIs come in many forms, some of them being non-profit organizations while others are for-profit banks. Some don't provide traditional financial services to consumers or businesses, but exist solely for the purpose of using federal and other funds to help underserved communities.
Regardless of their structure or for-profit status, the mission of certified CDFIs is to stimulate economic development in financially distressed areas throughout the country.
How long have CDFIs been in existence?
There's a long tradition of community-focused financial institutions in the U.S. However, it wasn't until 1994 when Congress passed the Riegle Community Development and Regulatory Improvement Act that Community Development Financial Institutions were officially established and the government got involved in funding CDFIs.
What kinds of companies and organizations can be certified CDFIs?
CDFIs come in many forms, from for-profit banks to non-profit credit unions. There are also CDFI loan funds and venture capital funds. Some CDFIs concentrate on individual financial opportunity while others prioritize the development of affordable housing. Others are dedicated to providing capital for small businesses while still others work to provide financing for community service groups.
Regardless of the type of organization and primary focus, all CDFIs must be certified by the U.S. Department of the Treasury in order to access government funds, grants, incentives and tax credits to support their community development efforts.
What kinds of government funding can CDFIs access?
The U.S. Department of the Treasury has numerous programs for certified CDFIs that give them access grants, loans, capital and other financial tools. One program offers financial incentives to banks who invest in community development, while another offers tax credits to private-sector companies that provide capital to CDFIs. Another program specifically supports Native Communities, while another is focused on the development of affordable housing in low-wealth areas.
How do CDFIs help individuals?
In low-income areas, many individuals cannot qualify for regular banking services, such as a checking account or a car loan. Consumer-focused CDFIs have the ability to relax credit standards to allow more individuals to access these services.
This is essential for many low-income individuals and families, as a checking account can be a requirement for signing a lease on an apartment or receiving a paycheck from a job. In addition, since many low-income communities are rural, having a vehicle can also be necessary for getting to and from a place of employment.
How do CDFIs help businesses and community organizations?
CDFIs have the ability to provide lending and other financial services to businesses and community organizations that can't access funding through traditional channels. This funding can allow struggling small businesses to keep their doors open, provide services and products to the community and hire employees. It can also help entrepreneurs start small businesses and even assist larger companies with facility renovation and business expansion.
Community organizations can tap CDFI funds to rehabilitate their downtowns, update utility and transportation services and fund many other projects designed to improve the quality of life and opportunity in economically challenged communities.
How many CDFIs are there in the U.S. today and what kind of impact do they have?
Today there are more than 1,000 CDFIs in the U.S. which have, in total, more than $100 billion in assets. According to the government, in 2018, CDFIs, through various programs, provided the following to low-wealth and economically distressed communities.
- $2.09 billion in home improvement and home purchases
- $3.45 billion in consumer financial services and lending
- $2.08 billion in businesses and micro enterprises
- $1.67 billion in commercial real estate
- $1.36 billion in residential real estate originations
- $473 million for all other
The funding allocated in 2018 financed more than $11.1 billion in lending and investment activity:
- 16,000 businesses
- more than 33,000 affordable housing units
- financial literacy training for more than 340,000 underserved, low-income individuals
- the development of more than 12.4 million square feet of commercial real estate
- the development of more than 6.4 million square feet of manufacturing space
- the generation over 39,000 permanent and construction jobs
What's ahead for CDFIs?
CDFIs have been growing consistently since their establishment in 1994. Going forward, they will have additional opportunities to change the lives of many Americans living in poverty and struggling to participate in the U.S. economy.
BBVA Marks $100 Million in CDFI Support
BBVA believes in the mission and impact CDFIs have on underserved communities. In fact, BBVA has consistently and enthusiastically provided support and funding for CDFIs, recently reaching $100 million in CDFI investments. BBVA will continue to support the valuable work of CDFIs and help them extend their reach into economically challenged communities.
The content provided is for informational purposes only. Neither BBVA USA, nor any of its affiliates, is providing legal, tax, or investment advice. You should consult your legal, tax, or financial consultant about your personal situation. Opinions expressed are those of the author(s) and do not necessarily represent the opinions of BBVA USA or any of its affiliates.
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