Community Development Financial Institutions (CDFIs)

OVERVIEW

Community development financial institutions (CDFIs) include a variety of financial institutions with a community development mission, all of which provide credit, technical assistance, and other financing services that help low-income individuals, community development corporations, and other community-based entities pursue and implement effective community wealth-building strategies.

There are five key types of CDFIs:

1. Community development banks
2. Community development credit unions
3. Community development loan funds
4. Community development venture capital funds
5. Microenterprise loan funds

How can poor communities obtain the capital they need when neither traditional banks nor the government will provide sufficient resources? Finding a solution to this question has proven anything but easy. Historically, mutual aid societies played a role in pooling capital for a wide variety of needs including insurance, medical care, and home loans. During the Great Depression, African-Americans formed the first community development credit unions. The modern community development financial institution (CDFI) industry follows in the tradition set by mutual societies and other community efforts, including CDC business loan programs originating in the late 1960s, and includes a variety of forms. In addition to community development credit unions, the sector also includes community development banks, loan funds, specialized micro-enterprise (typically loans of $25,000 or less) loan funds, and venture capital funds. Today, CDFIs are found in every state in the nation.

The effect of CDFI financing on job creation and affordable housing production has been significant. A CDFI survey covering only slightly more than a quarter of the industry conducted in 2000 found that the survey participants alone had provided $2.9 billion in financing, which was used to create or retain 137,000 jobs and 121,000 affordable housing units. And all of this has been achieved while maintaining loan loss rates on a par with those of commercial banks. Basic statistics regarding CDFIs can be found in the table below:Community