Community Dividend

CDFIs focus on community development

CDFIs serve an important function in their communities by meeting needs for financial services and products that are not currently being met through the traditional financial market.

Published December 1, 1996  |  December 1996 issue

Community development financial institutions, or CDFIs, are a diverse set of organizations, but they all share a commitment to community development as their primary mission. CDFIs have lending and investment as their principal business activities; they also assist underserved communities and maintain community accountability. Private and nonprofit groups, including start-up organizations, are eligible to apply for awards from the CDFI Fund. The fund was established as part of the Community Development and Regulatory Improvement Act of 1994 to expand the availability of credit, investment capital, financial and other services in distressed urban and rural communities. Government agencies are specifically excluded from CDFI funding consideration.

CDFIs serve an important function in their communities by meeting needs for financial services and products that are currently not being met through the traditional financial market. Examples of the services and products provided by these organizations include mortgage financing for first-time homebuyers, commercial loans and investments to start or expand small businesses, loans to rehabilitate rental housing and basic financial services. CDFIs form partnerships with private and community sources to leverage significant private dollars, which brings needed capital and credit into distressed areas.

Round one

The first round of CDFI funding was highly competitive; only 31 of 268 applicants received awards. Of the nearly $35.5 million in funds awarded, 53 percent was awarded in the form of grants and 26 percent in the form of equity investments. Furthermore, 19 percent was awarded in loans and about 2 percent will be used for technical assistance (see Total CDFI Fund awards). Northeast Ventures Corp., featured in this issue of Community Dividend, is just one type of organization to receive a CDFI Fund award.

A diverse group of organizations was selected for program funding, including four community development banks, six credit unions, 12 loan funds, three venture capital funds and two microenterprise loan funds. Also selected were two multifaceted CDFIs, a Native American regional housing organization and a national community development intermediary. These organizations have a substantial geographic reach, serving communities in 46 states and the District of Columbia. About 50 percent of the organizations serve predominately urban areas, 25 percent serve mostly rural areas and the remaining 25 percent assist both urban and rural communities.

The CDFI Fund management expects that the $35.5 million of awarded funds over time will be leveraged to bring in at least $350 million in lending and investing in poor and distressed communities. Using these resources, CDFIs and their community partners work to improve affordable housing, encourage entrepreneurship, create jobs and revitalize neighborhoods. Reinvestment in these areas creates stronger, healthier communities that benefit CDFI program recipients, neighbors and the larger community.

Reaching for success

CDFIs have already made significant contributions to underserved communities, and those who established the CDFI Fund recognize the powerful and positive effects of access to credit and investment in poor and distressed communities. Two well-known CDFIs are the South Shore Bank of Chicago (Shorebank) in Illinois and the Southern Development Bancorporation (Southern) in Arkansas. These institutions have strong records of meeting the needs of underserved businesses and community members through a diverse set of programs and strategies tailored to the needs of the people and communities served.

The success of these organizations provides examples for the types of programs that can work in communities throughout the country. For example, Shorebank has rehabilitated run-down buildings, attracted new businesses to poor neighborhoods and helped tenants organize to create safer and more livable neighborhoods. Southern has assisted in the creation of housing for low- and moderate-income people, provided microenterprise loans to rural residents and provided technical assistance to small businesses. These and similar organizations have proven that the CDFI model can work well in distressed central cities and poor rural areas if there is a focus on community building, innovative ideas and access to resources.

The recent CDFI Fund awards will encourage investment and development in communities where there is much more work to be done, as well as in neighborhoods where there are many more opportunities and dreams yet to be realized.

For information about the next round of CDFI funding, visit www.cdfifund.gov.

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