Understanding the financial health of Native CDFI loan funds: A closer look at the numbers

Community Development Financial Institutions (CDFIs) were created to provide financial and banking services to individuals and small businesses that have been underserved by the traditional banking sector. The Center for Indian Country Development (CICD) has researched how Native CDFIs—those that direct at least 50 percent of their activities toward serving Native American, Alaska Native, and Native Hawaiian people or communities—contribute to local economies by tailoring products and services such as loans and financial education to their clients’ needs. Due to historical barriers to credit access in Native communities, Native CDFIs face unique challenges that make them operate quite differently from non-Native CDFIs.

In a new analysis from CICD, we used publicly available financial-disclosure data from the Internal Revenue Service (IRS) to increase our understanding of the financial health of Native CDFI loan funds. Like other CDFI loan funds, these are entities that tend to be organized as nonprofits and governed by boards of directors with community representation. We calculated a number of standard industry ratios and indicators to examine Native CDFI loan funds’ financial strength compared to that of non-Native CDFI loan funds. In the absence of an industry-standard set of financial ratios that all CDFI loan funds use to benchmark results, we examined a few ratios that reflect key elements of Native CDFI loan funds’ operations.

We found clear differences between the two groups of CDFIs. Compared to non-Native CDFI loan funds, Native CDFI loan funds lend out more of their assets, which means a greater share of their financial resources is at work in the community. We also found that Native CDFI loan funds have lower self-sufficiency, meaning they are more reliant on external financial support. At the same time, they are better cushioned against financial loss. These new findings further CICD’s understanding of the unique features of the Native CDFI loan fund sector. Consistent with CICD’s mission, this work advances the economic self-determination and prosperity of Native nations and Indigenous communities through actionable data and research that inform public policy discussions.

Delivering needed capital

Nonprofit organizations that meet minimum size thresholds are required to file IRS Form 990, an annual disclosure of financial data, activities, and governance.¹ For our analysis, our sample was the 40 certified Native CDFI loan funds and 402 certified non-Native CDFI loan funds that filed Form 990 for at least one of the years from 2012 through 2024.²

We first compared the loan-to-assets ratios of the Native CDFIs in our sample to those of the non-Native CDFIs. This ratio shows what share of a CDFI’s total assets, which primarily consist of loan portfolios, cash reserves, and investments, are actually out in the community working as loans. The higher the ratio, the more of the organization’s assets are being loaned out. As Figure 1 indicates, when we group CDFI loan funds according to the total assets they had in 2023, we see that Native CDFI loan funds with asset size below $20 million posted, on average, high loan-to-assets ratios compared to non-Native CDFI loan funds. The 12-year mean ratio for Native CDFI loan funds was 46 percent for organizations with asset size below $5 million and 47 percent for organizations with asset size between $5 million and $20 million, compared to 33 percent and 42 percent, respectively, for non-Native CDFI loan funds.

Although Native CDFI loan funds with total assets above $20 million initially reported lower loan-to-assets ratios over the first decade of our 2012–2024 data period, their rolling average ratios (that is, their average ratios using data from the current year and the prior year) surpassed those of comparable non-Native CDFI loan funds in 2022 and 2023. Native CDFI loan funds had rolling average ratios of 58 percent in 2022 and 67 percent in 2023, compared to 54 percent and 57 percent, respectively, for non-Native CDFI loan funds.

Why do most Native CDFI loan funds’ loan-to-assets ratios seem to be higher? CICD research shows demand for Native CDFIs’ services is increasing at a faster pace than that for non-Native CDFIs’ services. Native CDFI loan funds are addressing credit gaps and providing Native communities and residents with an alternative to mainstream banks. For example, during the COVID-19 pandemic, many communities that needed help the most thought of Native CDFI loan funds as financial lifelines.

In addition, Native CDFI loan funds tend to spend more time working with individuals to ensure they can eventually qualify for a loan, while a non-Native CDFI loan fund may decline an unqualified borrower and move on. Previous CICD research indicates that Native CDFI loan funds seem to have adopted an approach of “leave no client behind” that emphasizes their desire to help every community member achieve a better financial life. This approach could generate high demand for Native CDFI loan funds’ services and, in turn, spur the Native CDFI loan funds to extend more loans to meet the demand.

Facing self-sufficiency challenges

We next compared Native and non-Native CDFI loan funds by their self-sufficiency ratios, which indicate the extent to which an organization covers its expenses by earning revenue rather than depending on donations or grants. The higher the ratio, the more financially self-sufficient the organization is. For CDFI loan funds, earned revenue comes mainly from interest on loans they make and fees for their services. According to industry experts, the self-sufficiency ratio is a key indicator of a nonprofit CDFI loan fund’s financial strength or sustainability.

According to 2020–2023 reports from the CDFI Fund, a program of the U.S. Department of the Treasury that certifies and provides financial assistance to CDFIs, CDFI loan funds have a median self-sufficiency ratio of 35 percent. We use this figure as a minimum standard in our analysis. As shown in Figure 2, we found that the median Native CDFI loan fund self-sufficiency ratio fell short of that minimum standard in every year from 2012 through 2024, whereas the median non-Native CDFI loan fund self-sufficiency ratio remained above that threshold. This means Native CDFI loan funds are more likely than other loan funds to receive external funding—for example, from the federal government or the philanthropic sector.

What can help explain this finding?

We offer two possible explanations. First, the economic realities of Native communities often constrain Native CDFI loan funds’ ability to achieve self-sufficiency. The limited nature of commercial activity and business infrastructure on many reservations reduces the opportunity to make income-generating loans. In our sample, the average loan-portfolio size of Native CDFI loan funds from 2012 through 2024 was $4,768,545, compared to $31,226,257 for non-Native CDFI loan funds. When we classify and compare organizations in our sample by their age, we find that regardless of whether they are newly established or have had 20 or more years to build up their lending operations, Native CDFI loan fund portfolios remain smaller across the board. And these smaller portfolios tend to consist of many very small loans, which will generate lower earned income. For instance, a Native resident might need $10,000 for a used car or $20,000 to start a small business. While these loans might be life-changing for this borrower, they each require the same underwriting effort as a $100,000 loan but generate less interest income.

Second, mission-driven practices often require these loan funds to remain accessible to every community member. The greater need for financial literacy and capacity-building services among these borrowers requires more intensive technical assistance and loan-servicing support. These requirements collectively increase administrative burdens and expenses. The combination of higher expenses and lower revenue earned from interest income on smaller loan portfolios—see Figure 3—means that Native CDFI loan funds must utilize more public-private partnerships to sustain operations. In other words, they must rely more on funding streams that have been created through the mutual effort of public entities and private entities. This reflects genuine capacity and market constraints and highlights the need for sustained external support to enable Native CDFI loan funds to fulfill their mission.

Additional challenges that result in lower self-sufficiency ratios stem from the geographic isolation of Native American reservations and their smaller and dispersed populations, two factors that limit lending opportunities. Processing and servicing a single loan in a remote location usually requires specialized underwriting and also significantly more time, due to loan officers needing to travel long distances to meet with borrowers. This means Native CDFI loan funds have to dedicate more of their resources toward operating costs, which leaves fewer resources to dedicate toward lending capital and often translates into smaller loan portfolios.

Native CDFI loan funds are serving communities with greater needs and fewer resources, which makes self-sufficiency much harder to achieve. In their 2017 report Access to Capital and Credit in Native Communities: A Data Review, researchers Miriam Jorgensen and Randall Akee noted that funders increasingly recognize that applying traditional financial metrics like self-sufficiency ratios to Native CDFIs requires contextual interpretation, given the unique challenges of serving tribal communities.

“We always consider [the self-sufficiency ratio],” said Zoila Jennings, impact investment lead at the Robert Wood Johnson Foundation. She added, “However, 100 percent self-sufficiency is not required. We do like seeing a strategic plan to understand a path to self-sufficiency. Usually, loan volume helps with self-sufficiency and a plan for growth can address this.”

Cushioning against financial losses by adhering to the mission

Finally, we looked at CDFI loan funds by unrestricted net assets ratio. This measure compares unrestricted net assets—that is, liquid funds whose use is not restricted by providers—and operating expenses. The higher the ratio, the better the loan fund’s financial stability and capacity to absorb losses. As shown in Figure 4, in our 2012–2024 data, Native CDFI loan funds’ median ratio was frequently at or above 55 percent. Conversely, non-Native CDFI loan funds’ median ratio was below 40 percent. According to 2020–2023 reports from the CDFI Fund, CDFI loan funds have a median net assets ratio—that is, a ratio that includes donor-restricted assets, not just unrestricted assets—of 55 percent. When we use that threshold as a minimum standard and consider that an organization might have a strong net assets ratio but be cash-poor if most assets are restricted, Native CDFI loan funds appear to have more financial flexibility than non-Native CDFI loan funds. This flexibility provides a cushion against financial losses.

What accounts for the financial flexibility and cushion many Native CDFI loan funds appear to have? The key factors contributing to higher unrestricted net assets among Native CDFI loan funds are multifaceted. Unlike other CDFI loan funds, Native CDFI loan funds do not heavily leverage debt—that is, they do not borrow a large share of the money they lend out. This may be an indication that Native CDFI loan funds often have limited access to conventional capital markets and the prime interest rates they offer. Turning to the higher-cost subprime capital market would not align with many Native CDFI loan funds’ missions.

“Most of us would not accept higher interest rate debt and pass that on to our customers,” said Lakota Vogel, executive director of Four Bands Community Fund, a Native CDFI loan fund located on the Cheyenne River Reservation. “While other CDFI loan funds are driven by growth and scale, we refuse to accept these [high-cost] debt products because of the people we serve.”

Instead of borrowing for their capital, these Native CDFI loan funds turn to other sources. Many of them secure critical funding through the CDFI Fund’s Native American CDFI Assistance Program and other external sources. These contributions are frequently unrestricted, meaning they go directly to the organization’s balance sheet as unrestricted net assets.

Many Native CDFI loan funds follow a funding model that relies more on public-private partnerships. Some entities in these partnerships have begun prioritizing flexible capital and core operating support for Native CDFI loan funds, recognizing that building strong balance sheets is essential for these institutions to fulfill their mission of promoting economic sovereignty and opportunity in Native communities.

What these ratios, taken together, can tell us

Our analysis of these financial ratios shows that Native CDFI loan funds require distinct support. The lack of a standardized set of financial ratios for measuring performance across CDFI loan funds impedes comparison, but the few ratios we examined show that Native CDFI loan funds may need more flexible funding and support for capacity building in order to ensure financial stability and absorb eventual losses. Their lower self-sufficiency ratios reflect their heavy focus on technical assistance, training, and financial education to address increasing demand for their services in remote communities with profound economic challenges.

Understanding these ratios may help reveal areas for improvement and identify additional funding resources. Researchers and policymakers could investigate these metrics further, to explore ways of helping Native CDFI loan funds continue their work of building financial capability, creating economic opportunities, and strengthening Native communities for generations to come.

Endnotes

1 Generally, nonprofits are required to file Form 990 if they have gross receipts of at least $200,000 or total assets of at least $500,000.

2 At the time we accessed the data, there were 52 certified Native CDFI loan funds and 521 certified non-Native CDFI loan funds. Therefore, our dataset represents 76.9 percent of the certified Native CDFI population and 77.1 percent of the certified non-Native CDFI population, respectively.