What Are CDFIs? A Guide to Community Development Financial Institutions, Rural CDFIs, and the CDFI Fund
Imagine a small business owner in rural Mississippi finally securing a loan to expand her grocery store after being turned down by traditional banks. Or a family in Appalachia purchasing their first home thanks to an affordable mortgage program. These stories of economic resilience are made possible by Community Development Financial Institutions (CDFIs) — mission-driven institutions dedicated to revitalizing underserved communities.
CDFIs are financial institutions with a shared mission: expanding economic opportunity and revitalizing communities. Unlike traditional banks, they prioritize people over profits, offering a vast array of financially accessible products including, but not limited to:
- Affordable loans and credit for small businesses
- Mortgages for first-time homebuyers
- Financing for community projects (health clinics, schools, affordable housing)
Whether it’s a credit union in the Bronx, a loan fund in Native American tribal lands, or a rural community bank, CDFIs fill gaps left by mainstream finance.
In the 1880s, when the first minority-owned banks focused on low-income neighborhoods, communities self-organized to provide the financial services needed. Predecessors to the formal CDFI — community banks, credit unions, community development corporations, and nonprofit loan funds — all sought to improve economic conditions in financially underserved markets.
The Community Development Financial Institutions Fund (the CDFI Fund), a federal agency, was established in 1994 via the Riegle Community Development and Regulatory Improvement Act to support these emerging community development financial institutions. The CDFI Fund promotes economic revitalization in low-income communities by investing in and assisting CDFIs, catalyzing private banks to invest in community development. The CDFI Fund provides critical capital to CDFIs — and for every public dollar it provides, CDFIs can incentivize the private sector to invest $8 toward community projects [1]. Additionally, CDFIs also serve as gap financers alongside grants and other types of capital, playing a critical role in projects actually crossing the finish line. Since 1994, the CDFI Fund has granted over $8 billion and provided $81 billion in tax credits [2], planting the seed for strong local economies that can scale community-driven economic development solutions in rural America. Since its inception, the Fund has deployed billions of dollars into economically distressed regions, generating public-private partnerships that drive meaningful change.
Today, CDFIs represent a robust sector in the financial services industry. There are over 1,300 CDFIs in the United States, of which 115 are rural-serving CDFIs. Rural communities face unique challenges, from higher poverty rates to aging populations to shifting industries. Rural CDFIs intervene with innovative capital solutions designed to meet their communities’ needs. These CDFIs are treasured across the country; in some areas, they are one, if not the only, entity providing financial services.
CDFIs, particularly rural-serving CDFIs, know that place matters. Although 85% of this country’s land mass is rural and rural America makes up 14% of the population, economic opportunities for rural America can be scarce [3]. CDFIs’ intervention is key; in 2020 alone, they originated an estimated $5.9 billion in financing.
When rural-serving CDFIs are supported, the lives of millions of rural families and business owners nationwide are improved. The Partners for Rural Transformation (PRT) is a coalition of six community organizations working to launch economic development innovations to deploy capital in rural America across the country. PRT accomplishes this through its track record of $2.5b in investment to our regions, millions of rural Americans served, building trust through tangible solutions, and implementing innovations at scale.
Serving 78% of rural persistent poverty counties means we know the importance of mobilizing capital in rural areas and sustaining rural CDFIs that work in and serve these regions. CDFIs continue to serve as experts in community development, complex blended financing, and service providers, all of which are specialized and have technical skills. Now, more than ever, it is crucial that financial and public support for rural CDFIs and the CDFI Fund be maintained and increased to serve millions of rural communities across our country.
Follow PRT for more information on how to contribute to our mission and help rural CDFIs continue to prosper.
[1] Source – Opportunity Finance Network
[2] Source – U.S. Dept. of Treasury
[3] Source – Opportunity Finance Network