Community development financial institution
A community development financial institution (US) or community development finance institution (UK) - abbreviated in both cases to CDFI - is a financial institution which provides credit and financial services to underserved markets and populations, primarily in the USA but also in the UK. A CDFI may be a community development bank, a community development credit union (CDCU), a community development loan fund (CDLF), a community development venture capital fund (CDVC), a microenterprise development loan fund, or a community development corporation.
CDFIs are certified by the Community Development Financial Institutions Fund (CDFI Fund) at the U.S. Department of the Treasury, which provides funds to CDFIs through a variety of programs. The CDFI Fund and the legal concept of CDFIs were established by the Riegle Community Development and Regulatory Improvement Act of 1994. Broadly speaking, a CDFI is defined as a financial institution that: has a primary mission of community development, serves a target market, is a financing entity, provides development services, remains accountable to its community, and is a non-governmental entity.
The Housing and Economic Recovery Act of 2008 (HERA) authorized CDFIs certified by the CDFI Fund to become members of the Federal Home Loan Banks. The Final Rule regarding the procedures and standards to be used by the Federal Home Loan Banks to evaluate applications for membership from CDFIs were published in the Federal Register Federal Housing Finance Agency in January 2010. The Final Rule is to be implemented by the 12 Federal Home Loan Banks, each of which will evaluate membership applications independently.
CDFIs are related to, but not identical with, Community Development Entities (CDEs). CDEs are also certified by the CDFI Fund at the U.S. Department of Treasury, but have somewhat different qualifications. Many CDFIs have also been certified as CDEs. The primary purpose of CDEs is to utilize the New Markets Tax Credit Program (NMTCs). NMTCs were created to induce equity investments in low-income communities.
CDFIs may be subject to oversight by federal financial institution regulators (e.g., banks, credit unions) or may be "unregulated" at the federal level, and subject only to the laws of the states in which they operate. There is no mandatory rating or ranking system imposed on all CDFIs which would allow investors or others to evaluate their performance, safety or strength. The Opportunity Finance Network has developed a proprietary rating system, the CDFI Assessment and Ratings System or CARSTM.
In 2006, there were approximately 1250 CDFIs, consisting of:
- More than 500 community development loan funds;
- More than 350 community development banks;
- More than 290 community development credit unions;
- More than 80 community development venture capital funds.
Nationwide, over 1000 CDFIs serve economically distressed communities by providing credit, capital and financial services that are often unavailable from mainstream financial institutions. CDFIs have loaned and invested over billions in our nation’s most distressed communities. Even better, their loans and investments have leveraged billions more dollars from the private sector for development activities in low wealth communities across the nation.
While there are numerous organizations certified as CDFIs by the CDFI Fund, it is believed that there are thousands of financial institutions serving the needs of low-income people or communities in the U.S., but either have not applied for CDFI status or have otherwise not been able to fulfill all of the requirements for formal CDFI certification.
Notable depository CDFIs
ShoreBank, headquartered in the South Shore neighborhood of Chicago, was founded in 1973. It was the largest CDFI, with over $2 billion in assets. ShoreBank had branches in Chicago’s South and West sides, Cleveland, and Detroit, but in August 2010 the bank was declared insolvent and its branches were taken over by Urban Partnership Bank. Its holding company ShoreBank Corporation, still exists and promotes its community development mission through affiliates in Oregon and Washington state, and in Michigan’s Upper Peninsula. ShoreBank’s international consulting services have offices in Chicago, Washington, D.C., and London, and projects in 30 countries around the world.
OneUnited Bank, headquartered in Boston, MA is the largest African-American owned CDFI in the country and focuses on serving and developing urban communities. The Bank has achieved consistent profitable growth through both bank acquisitions of similar mission driven banks and organic loan and deposit growth. The Bank has provided innovative products and services to fulfill its community development mission in the urban communities of Boston, Massachusetts, Miami, Florida and Los Angeles, California. OneUnited Bank continues to be integrated into the social and economic fabric of each of these communities in every respect from not-for-profits, small business, affordable housing, churches, etc.
The Center for Community Self-Help, another leading CDFI, was founded in 1980 in Durham, North Carolina. Self-Help's home and business lending has provided low-wealth, minority, rural and female borrowers with over $5.24 billion in financing. Much of this is through Self-Help's national secondary market program, which enables conventional lenders to make more home loans to low-wealth families. Self-Help also develops commercial and residential real estate and operates retail credit unions. In response to predatory lenders increasingly targeting family wealth in poor and minority communities, Self-Help in 1999 worked with the NAACP, AARP and other North Carolina groups to form the Coalition for Responsible Lending and help enact one of the US's first laws to curb predatory mortgage lending. In 2002, Self-Help founded the Center for Responsible Lending, a nonprofit, nonpartisan research and policy organization that recommends solutions to predatory lending abuses.
Notable non-depository CDFIs
The Reinvestment Fund (TRF) is a national leader in rebuilding America’s distressed towns and cities, through the innovative use of capital and information. TRF has invested over $1.2 billion in Mid-Atlantic communities since 1985. A Community Development Financial Institution, TRF finances housing, community facilities, healthy food access, commercial real estate and energy efficiency projects. It also provides public policy expertise by helping clients create actionable solutions and by sharing data and analyses via www.PolicyMap.com. Other CDFIs include:
- Accion East in New York, NY and lends nationally
- Accion Chicago in Illinois and Indiana
- Albina Community Bank in Portland, OR
- Boston Community Capital in Boston, MA
- Carver Federal Savings Bank in New York, NY
- Central Bank of Kansas City in Kansas City, MO
- Chicago Community Loan Fund in Chicago, IL
- Chattanooga Neighborhood Enterprise, Inc in Chattanooga, TN
- Century Housing Corporation in Culver City, CA
- Cha Piyeh, Inc., in Ohkay Owingeh, NM
- Clearinghouse CDFI in Lake Forest, CA
- City First Bank of D.C. in Washington, D.C.
- Community First Fund in Lancaster, PA
- Community Bank of the Bay in Oakland, CA
- Craft3 in Astoria, OR, Bend, OR, Portland, OR, Ilwaco, WA, Port Angeles, WA, Seattle, WA
- Dryades Savings Bank in New Orleans, LA
- Enterprise Community Partners
- Enterprise Corporation of the Delta in Jackson, MS
- Federation of Appalachian Housing Enterprises in Berea, KY
- Forward Community Investments in Madison, WI
- Funding Partners in Fort Collins, CO
- HHOC Mortgage, in Honolulu, HI
- Hope Community Credit Union in Jackson, MS
- Housing Trust Silicon Valley in San Jose, CA
- HDF: Housing Development Fund, Inc. in Stamford, CT
- IFF in Chicago, IL
- Invest Detroit Foundation, in Detroit, MI
- Leviticus 25:23 Alternative Fund in Elmsford, NY
- Liberty Bank & Trust in New Orleans, LA
- Local Initiatives Support Corporation in New York, NY and other locations
- Louisville Community Development Bank in Louisville, KY
- Low Income Investment Fund in San Francisco, CA
- National Federation of Community Development Credit Unions in New York, NY and other locations
- National Community Investment Fund in Chicago, IL
- Natural Capital Investment Fund in Shepherdstown, WV
- National Development Council Grow America Fund nationwide
- Neighborhood National Bank in San Diego, CA
- New Jersey Community Capital in New Brunswick, NJ
- Nonprofit Finance Fund in New York, NY
- Northern California Community Loan Fund in San Francisco, CA
- One PacificCoast Bank in Oakland, CA, Washington, and Oregon
- OneUnited Bank in Boston, MA, Los Angeles, CA, and Miami, FL
- Opportunity Fund in San Jose, CA
- Partners for the Common Good in Washington, DC
- Primary Care Development Corporation in New York, NY
- Rocky Mountain MicroFinance Institute in Denver, CO
- The Reinvestment Fund (TRF) in Philadelphia, PA
- ShoreBank nationwide
- Southern Bancorp in Arkadelphia, AR
- University National Bank in St. Paul, MN
- Washington Heights and Inwood Development Corporation in New York, NY
- Street UK in Birmingham, England
- GLE OneLondon in London, England
While the CDFI Fund and its certifications are limited to the U.S., the UK also has about 70 CDFIs and a trade association, the Community Development Finance Association. The UK government has provided various funding initiatives for CDFIs and credit unions, and Community Investment Tax Relief (somewhat similar to New Markets Tax Credit) is available on investments in accredited CDFIs.
Institutions similar in purpose exist around the world, such as Grameen Bank in Bangladesh, though they are not generally called CDFIs, but are described by other terms such as microfinance institutions or social banks.
There are a number of trade associations and other resources applicable to the CDFI industry. For more information, see:
- Association for Enterprise Opportunity
- CDFA Community Development Finance Association
- CDFI Coalition
- Community Development Bankers Association
- Community Development Venture Capital Alliance
- Fair Finance Consortium
- Fair Finance
- National Federation of Community Development Credit Unions
- National Community Investment Fund
- Opportunity Finance Network
- U.S. Department of the Treasury - CDFI Fund
- CU Strategic Planning
- Alexander von Hoffman Fuel Lines for the Urban Revival Engine: Neighborhoods, Community Development Corporations, and Financial Intermediaries. Washington, D.C.: Fannie Mae Foundation, 2001.
- Community Development Financial Institutions: Current Issues and Future Prospects
- Community Development Financial Institutions and CD Banks - Natural Partners for Traditional Lenders
- Community Development Financial Institutions (CDFIs) - Providing Capital, Building Communities, Creating Impact
- Citizen Capital is the first French venture capital fund to provide capital to underserved businesses.
- CDFI Assessment and Rating System - CARStm
- "Final Rule on CDFI Membership in the Federal Home Loan Bank System" Opportunity Finance Network
- Community-Wealth.org CDFI Models, Best Practices, and Research Resources
- The CDFI Banking Sector: 2012 Annual Report on Financial and Social Performance, NCIF