Skip to main content
Community development financial institution

Community development financial institutions

Stephanie Geller

Stephanie Geller

Research Specialist, Community Wealth Building more

Democratic Ownership Money & Banking

Community development financial institutions (CDFIs) are mission-driven organizations committed to providing services that create and broaden economic opportunities within their community.

Today’s CDFIs trace their roots to the work of community activists in the 1970s fighting bank redlining in urban areas and seeking to redirect capital through community-controlled banks. To cover the broad range of services they provide, CDFIs may be built as for-profit or nonprofit organizations. In particular, a CDFI may be structured as a community development bank, credit union, loan fund, or venture capital fund. Most are certified by the federal government and are thus eligible for government support (through the federal CDFI Fund) as well as private funding. Today more than 1,100 CDFIs operate around the country. 

Potential Impact

With increased investment and support, CDFIs can transform neighborhoods that have faced historical disinvestment by providing the capital needed to jumpstart and sustain new businesses; build quality, affordable homes; and develop critical community facilities such as health clinics and childcare centers. Individuals living in underserved and under-resourced communities could obtain the financing they need to ensure their long-term financial security, whether through buying their first home, opening a business, or purchasing a car in order to get to a job. More significantly, they could help pilot and scale promising community wealth building efforts like that of the New Hampshire Community Loan Fund, which in 1984 helped trailer park residents form a pioneering cooperative that contributed to the creation of resident-owned communities that now provide affordable housing to 28 million people. CDFIs are also willing, as they did during the 2008 financial crash, to provide financing to communities and individuals during economic downturns, acting as a critical countercyclical force when traditional bank lending declines.

Transformative Characteristics

As CDFIs prioritize benefitting their community over extracting profit from it, they invest in places and projects that traditional lenders will often ignore. Thus, CDFIs are essential to developing and sustaining the housing, businesses, nonprofit facilities, and community infrastructure that serve as the backbone of vibrant and equitable neighborhoods. Moreover, CDFIs also provide technical assistance to nearly a half-million people a year in developing the skills, such as financial literacy, needed to achieve true financial independence, plus provide financial services to thousands more who previously had never used a bank. This is especially crucial for empowering historically marginalized communities and ensuring community control of local assets.

Examples

BlueHub Capital

Founded in 1984, BlueHub Capital (formerly known as Boston Community Capital) is considered one of the nation’s most innovative and successful community development financial institutions. It embraces the concept of a “blue economy” that offers “an equitable prosperity that includes low-income people and communities.” To date, it has lent more than $1 billion and leveraged $6 billion in additional investments. Its work is credited with preventing more than 800 foreclosure-related evictions, renovating 2 million square feet of real estate, building or preserving nearly 20,000 units of affordable housing, and creating 4,440 living-wage jobs. BCC is also one of the largest providers of solar power to affordable housing; it has financed more than 26.5 million kilowatts of solar capacity, saving customers millions in energy costs.

Chicago Community Loan Fund

Established in 1991, the Chicago Community Loan Fund (CCLF) was created to ensure that community development organizations could access the funding needed to catalyze projects and enterprises in Chicago’s low and moderate-income neighborhoods. It has grown into an organization with more than $70 million in total assets. The $188 million in financing it has provided is credited with leveraging an additional $1.3 billion, building or preserving nearly 9,400 units of affordable housing, developing more than 3 million square feet of commercial and community facility space, and supporting the creation of more than 4,900 jobs. CCLF also provides comprehensive technical assistance to new organizations and offers resources to encourage developers to rely on sustainable, green practices

Challenges

The $136 billion in assets held by CDFIs represent just a fraction of the more than $17 trillion in assets held by all banking institutions. In a country with significant inequities between communities, the CDFI industry’s impact is severely constrained by its size. While CDFIs exist in all 50 states, an Urban Institute analysis of their lending activity revealed that from 2011 to 2015, the most economically vulnerable households were issued no loans in a quarter of the counties that CDFIs currently operate in. Moreover, while CDFIs exist to channel resources to populations that are overlooked by traditional lenders, only 22% are owned or led by people of color

More Resources

  • The Department of the Treasury Community Development Financial Institutions Fund provides a range of resources, including impact reports and updated lists of certified CDFIs (cdfifund.gov).
  • The Opportunity Finance Network offers resources about CDFIs and has a database enabling users to identify CDFIs working in their community (ofn.org/cdfi-locator).

 

Download and Share

Stephanie Geller

Stephanie Geller

Research Specialist, Community Wealth Building more

More related work

Public holding company

Public holding company

The effects of a local firm facing economic disaster can ripple destructively through a community. Public holding companies could take either partial or full ownership positions in distressed firms to prevent the economic and social dislocations associated with liquidation or collapse. read more
Low-income limited liability company

Low-profit limited liability companies

An L3C straddles the line between a nonprofit and for-profit venture, an enterprise with a profit goal that is subordinate to its charitable mission. read more
Participatory budgeting

Participatory budgeting

Participatory budgeting democratizes public investment by giving people the power to decide how public dollars are spent. read more
Credit union

Credit unions

Credit unions are financial cooperatives owned by their account holders and can concentrate on maximizing their impact in the community and on the financial well-being of their members. read more
Element of the Democratic Economy: Social Wealth Fund

Social wealth fund

A social wealth fund embraces the collective ownership of assets to provide services and democratically distribute resources within a society or community. read more
Worker cooperative

Worker cooperatives

A worker cooperative provides for both democratic ownership and democratic governance of the workplace, unlike traditional businesses in which ownership is often antagonistic to the workers who create value for the firm. read more
Municipal enterprise

Municipal enterprise

Municipal enterprises are businesses or services owned by local public authorities that provide services or generate revenue for local communities. read more
Employee stock ownership plan

Employee stock ownership plan

Description An employee stock ownership plan (ESOP) enables full or partial ownership of a business by its employees through a pension plan or trust. The first ESOP was created in 1956 by a San F read more
Element of the democratic economy: Public bank

Public Banks

How financial institutions owned by and accountable to the people help create a nonextractive economy. read more
The commons

The Commons

The commons are collective resources—encompassing things as varied as land, seed banks, and open-source software—managed by self-organized social systems under mutually acceptable terms. read more
Land bank – Elements of a Democratic Economy

Land Bank

Land banks can acquire abandoned, foreclosed, and tax-delinquent properties in order to convert them into productive use. read more

Community Land Trust

CLTs are nonprofit organizations that acquire and steward land in a “trust” for the permanent benefit of low-income communities. read more
Green Bank

Green Bank

A green bank can help communities transition away from fossil fuels and build resilience against climate change. read more
Community benefit agreement

Community Benefit Agreement

A legally binding product of negotiations between a developer and community members who have banded together to safeguard their community’s interests. read more

Resident-Owned Community

Resident-owned communities (ROCs) are manufactured housing neighborhoods (sometimes referred to as mobile home or trailer parks) in which the land is community-owned and managed. read more

Limited Equity Housing Cooperative

A limited equity housing cooperative is a residential development owned and managed by a democratically governed, nonprofit cooperative corporation, such as a tenants’ union. read more
Democratic energy utility

Democratic Energy Utility

Democratic energy utilities are nonprofits run by the public or community members in a way that enables their engagement in decision-making and distributes ownership. read more