Helping a family make home ownership a reality. Assisting a college student with funding for their dream degree. Supporting a budding entrepreneur through the start-up process.
These are just some of the many ways community development financial institutions, often referred to as CDFIs, invest in people and places.
Just What is a CDFI?
CDFIs are mission-driven lenders that provide responsible funding opportunities to individuals, businesses, or organizations that mainstream financial institutions typically don’t support.
According to a 2024 report from the Federal Reserve, more than 1,400 CDFIs exist today. And they can come in many forms, including:
- Banks and credit unions
- Loan and microloan funds
- Venture capital providers
CDFIs vary in size and structure, and they also have varying areas of focus, including economic development, education, affordable housing, and consumer finance. Some specialize in microloans, while others lend larger sums. Others may offer CDFI grants (investments that don’t need to be repaid).
The Opportunity Finance Network (OFN) reports that, collectively, the CDFI industry manages $222 billion, money that’s used to improve communities in many ways, from job creation and education to healthcare and housing.
CDFI History & Milestones
To better understand community development financial institutions, let’s take a quick step back.
There’s been a long tradition of people and organizations helping others financially when traditional financial institutions turned them away. The CDFI Coalition website offers a glimpse into this history, citing immigrant guilds in the 1880s, early community development credit unions in Black communities in the 1930s, and government offices dedicated to “poverty alleviation” in the 1970s. All of these helped build a foundation for the modern CDFI.
Although there’s an established history of institutions devoted to equitable lending, CDFIs became formally recognized with the Riegle Act of 1994. This act established the CDFI Fund, which focused on addressing challenges faced by traditionally underserved populations in urban, rural, and Native communities. CDFIs have continued to evolve and the industry has expanded by leaps and bounds.
How CDFIs Create Opportunities & Make an Impact
As OFN likes to say of the CDFI community, “we see opportunity where others see risk.”
CDFIs provide capital to people and organizations that might not otherwise qualify through more traditional means. More specifically, OFN research from 2022 shows that CDFIs reach underserved people and communities:
- 66% people of color
- 85% low-income
- 27% rural
- 48% women
CDFI loans serve as a driver of innovation; the financial boost allows people to start businesses they might not otherwise see come to life. CDFIs who focus on education or housing see their borrowers reach life milestones they otherwise couldn’t achieve.
In summary, CDFIs invest in people and places, and that investment often pays off significantly as the community around them thrives.
Beyond the Loan: CDFIs Build Community
Beyond CDFI loans, many of these purpose-driven institutions also offer small business consulting, financial literacy training, technology assistant, local networking events, and other services and resources that benefit their borrowers.
Resources: Learn More About CDFIs
If you are Interested in learning more about community development financial institutions or are already in the CDFI lending space and are looking for additional resources, here are a few places to check out:
The CDFI Fund
Helps organizations and lenders become certified as a CDFI.
The CDFI Coalition
A policy-development initiative to help advocate and promote the work of CDFIs.
The Opportunity Finance Network
An industry organization that provides training and networking events, as well as a host of other resources to CDFI lenders and partners.
CDFI List: OFN’s Locator
A searchable directory of CDFIs by location, lending type, and organization type.
The Federal Reserve
Offers information and research, from a national perspective, on community lending.
IvyTek & Community Development Financial Institutions
IvyTek proudly serves the CDFI lending community with our end-to-end loan management solutions. We’ve implemented secure, scalable, and customized loan management software for CDFI clients who serve their local communities through student loans, scholarships, and other economic-boosting financial services.
We’d love to tell you more. Schedule a discovery call today.
About Us
IvyTek, Inc. is a family-owned and operated company that produces custom software. The Griggs family has been in the software development business for over 25 years, spanning three generations.