The community development financial institution ecosystem has seen significant growth over the past few years as pandemic-era support programs and specialized legislative groups helped give rise to certification efforts — and a boost in overall assets.
While loan funds accounted for the majority of ordained organizations, credit unions held more than 66% of all assets. Banks held roughly 26% and loan funds held 8%.
Both this classification and the CDFI Fund were created under the Riegle Community Development and Regulatory Improvement Act of 1994, which set out to tackle the economic insecurities facing low- and moderate-income consumers throughout the country by helping institutions such as credit unions and community banks offer increased access to financing for households, businesses and during real estate transactions.
The pandemic and the advent of the Paycheck Protection Program became a proving ground for these institutions, as difficulties in obtaining the federal funding heightened the value of each loan.
Experts with the National Development Council, a New York-based firm that assists and advocates on behalf of CDFI-certified institutions, explained how concerns regarding
Very few CDFIs engaged with PPP early on in the campaign, as larger banks that acquired the funding primarily allocated it for "value customers" as "a tool that will help you get through COVID," said Dan Marsh, president and chief executive of the NDC.
Marsh emphasized that the pivot point occurred when the successive waves of PPP funding from the Federal Reserve allowed CDFIs to showcase a deeper understanding of people of color to help channel support where it was needed most.
"We went from basically standing with a cup in our hands on the corner, to all of a sudden being recognized and accepted as a very important part of the finance industry in this country — particularly one that is almost exclusively focused on low-income communities," Marsh said.
Since then, the subject has
The Inclusiv Network, an association of credit unions serving economically disenfranchised communities, and the Madison, Wisconsin-based insurance provider TruStage joined forces in December 2020 to boost CDFI application by launching the
More recently, Sens. Mark R. Warner, D-Va., and Mike Crapo, R-Idaho,
The two reintroduced the
Benefits are currently limited to institutions already endorsed, as the
But for CDFI leaders already employing grant funds through the Emergency Capital Investment Program or other federal sources, changing any requirements means "moving the goalposts," said Michael Emancipator, senior vice president and senior regulatory counsel for the Independent Community Bankers of America.
"The biggest concern is for those existing CDFI banks and what this is going to do to the continued viability of … serving the customers where they are and with the products they need," Emancipator said.
He emphasized that more stringent limitations on benchmarks such as specifically offered products and the maximum interest rate that can be used will leave leaders with a difficult decision.
"A bank might say, 'we're going to have to eliminate those products for the sake of saving our CDFI designation' or the other alternative is 'at the end of the day, I'm going to serve my customer and if I don't have this certification then that's fine,' " Emancipator said.
For consumers that remain overlooked by larger institutions, these specialized depositories remain essential for access to necessary financial services.
"CDFIs are the most specialized institutions for the most often forgotten people," said Lewis Plush, senior associate director for the National Association of Federally-Insured Credit Unions and head of its CDFI working group.
