Community Development Financial Institutions A P U B L I C A T I O N O F T H E C D F I D A T A P R O J E C T
What are community development financial institutions? Community development financial institutions (CDFIs) are specialized financial institutions with missions of providing financial products and services to people and communities underserved by traditional financial markets. Currently, 800 to 1000 CDFIs operate in low-wealth communities in all 50 states, the District of Columbia, and Puerto Rico. CDFIs provide affordable banking services to individuals and finance small businesses, low-cost housing, and community services that help stabilize neighborhoods and alleviate poverty. In addition, CDFIs provide credit counseling to consumers and technical assistance to small business owners and housing developers to help them use their financing effectively. CDFI customers include: Individuals who require affordable banking services, including basic checking and savings accounts and loans. For example, CDFIs provide consumer loans to help borrowers buy a home or purchase a used car to get to work. Small business owners dedicated to bringing quality employment opportunities and/or needed services to economically disadvantaged communities. Affordable housing developers that construct and rehabilitate homes that are affordable to low-income families. Community facilities that provide childcare, healthcare, education, training, arts, and social services in marginalized communities. CDFIs are specialized financial institutions with missions of providing financial products and services to people and communities underserved by traditional financial markets.
Why are CDFIs needed? A growing gap exists between the economic mainstream and low-income people and communities. CDFIs help bridge that gap by bringing capital and financial services to these underserved people and communities affording them access to capital to start and expand businesses, build and purchase homes, and develop needed community facilities. In the last decade accessing capital has become even more challenging for low-income people and communities, as financial institutions have streamlined their operations to become more competitive in a global economy. For example, most conventional financial institutions INVESTORS will not make loans to low-income individuals who want to start businesses or to new nonprofit housing developers who want to build affordable housing units. Banks, Corporations, Foundations, Individuals, Government, Religious Institutions CDFIs Banks, Credit Unions, Loan Funds, Venture Capital Funds CDFI CLIENTS Businesses, Low-Income Individuals, Affordable Housing Developers, Community Service Providers COMMUNITY IMPACT Jobs, Affordable Housing Units, Childcare Centers, Healthcare Centers, Savings Accounts for Low-Income Individuals The number of locally based banks and branches that serve poor people and communities also has declined substantially. In the absence of these conventional financial service providers, high-cost check-cashing services and payday lenders have moved into low-income communities, preying on unsophisticated borrowers, draining wealth from these distressed neighborhoods, and contributing to the growing economic inequality in the United States. CDFIs offer responsible alternatives to these predatory lenders, providing necessary products and services at a fraction of the costs. IMPROVED LIVES FOR LOW-INCOME INDIVIDUALS AND COMMUNITIES
What types of CDFIs exist? Many different kinds of CDFIs exist. They embody diverse ranges of organizational structures and activities and share common goals of promoting community development. CDFIs can be grouped into four categories: loan funds, venture capital funds, credit unions, and banks. Community Development Loan Funds provide financing and development services to businesses, organizations, and individuals in low-income urban and rural communities. There are four main types of loan funds: microenterprise, small business, housing, and community service organizations. Each is defined by the client served, though many CDFIs serve more than one type of client in a single institution. Loan funds tend to be nonprofit and governed by boards of directors with community representation. Community Development Venture Capital Funds provide equity and debt with equity features for medium-sized businesses in distressed communities. They can be structured as either for-profit or nonprofit, and include community representation. Community Development Credit Unions promote ownership of assets and savings and provide affordable credit and retail financial services to lowincome people, with special outreach to minority communities. They are nonprofit financial cooperatives owned by their members. They are regulated and insured by the National Credit Union Administration, an independent federal agency, and/or by state agencies. Community Development Banks provide capital to rebuild economically distressed communities through targeted lending and investment to nonprofit community organizations, individual entrepreneurs, small business owners, and housing developers. They are for-profit corporations with community representation on their boards of directors. They are regulated by the Federal Depository Insurance Corporation (FDIC), the Federal Reserve, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, the Federal Financial Institutions Examination Council, and state banking agencies. Their deposits are insured by the FDIC.
What data exists on CDFIs? CDFI Data Project Data Summary: FY 2001 (1) Number of CDFIs 512 Average Year Began Financing 1984 Market Served n= 388 % of customers Located in Major Urban Area 40% Located in Minor Urban Area 27% Located in Rural Area 33% All Total Lending/Investing Pool (2) $8,248,584,859 n= 502 Average Lending/Investing Pool $16,431,444 Total Financing Outstanding (3) $5,692,033,743 n= 504 Average financing outstanding $11,293,718 % of Group's Financing Outstanding By Dollar Amount of Financings ($) Business 20% Community Services 6% Consumer 12% Housing 56% Microenterprise 2% Other 6% n= 389 % of Group's Financing Outstanding By Number of Financings (#) Business 4% Community Services 1% Consumer 58% Housing 23% Microenterprise 8% Other 6% n= 389 Average loan size outstanding per CDFI $41,655 n= 486 Average equity investment outstanding per CDFI $305,377 n= 35 Notes: (1) Data was collected by the CDFI Data Project. The sample represents a subset of the 800 to 1000 CDFIs across the United States. Data is only included for those institutions that reported on the particular data point (represented by the n=). While the CDP has several methods to ensure data quality and consistency, it cannot guarantee the reliability of the data. Also, the CDP dataset of 512 CDFIs understates the size of the industry as it excludes a few large CDFIs.
Banks Credit Unions Loan Funds Venture Capital 18 230 238 26 1966 1973 1990 1996 15 118 230 25 58% 38% 40% 46% 15% 29% 27% 26% 27% 33% 33% 28% $2,156,437,318 2,768,850,714 $3,052,073,185 $271,223,643 18 229 230 25 $119,802,073 $12,091,051 $13,269,883 $10,848,946 $1,135,494,398 $2,012,267,686 $2,424,375,745 $119,895,914 16 228 236 24 $70,968,400 $8,825,735 $10,272,779 $4,995,663 39% 3% 13% 98% 9% 1% 6% 0% 5% 53% 0% 0% 42% 37% 71% 0% 2% 2% 2% 1% 3% 4% 8% 1% 15 115 235 24 19% 0% 9% 81% 2% 0% 3% 0% 34% 79% 2% 0% 25% 9% 68% 0% 14% 4% 17% 18% 6% 7% 1% 1% 15 118 232 24 $68,599 $5,176 $71,868 $112,693 15 228 229 14 NA NA $268,002 $333,408 NA NA 15 20 (2) Total Lending/Investing Pool for Venture Capital funds includes the amount committed as well as the amount closed. For all other institution types, Total Lending/Investing Pool includes only the amount on the balance sheet of the CDFI. (3) Financing Outstanding includes loans, equity investments, debt with equity features, guarantees, and linked deposits. 0% represents any number less than 0.5%. Totals may not add to 100% due to rounding.
What impact do CDFIs have? CDFIs meet the double bottom line measuring their return in both financial and social terms. CDFIs are responsible stewards of their investors capital and provide them with financial returns on their investments. A survey of 512 CDFIs revealed that they had $5.7 billion of financing outstanding at the end of 2001 and $2.2 billion in new loan and investment activity in FY 2001. CDFIs net loan loss rates were less than 1% and they had sufficient reserves and equity bases to cover those losses. In addition to their financial successes, CDFIs strive to achieve significant community impact. CDFIs social return on investments include quality jobs, affordable housing units, improved financial literacy or entrepreneurial skills, alternatives to predatory lending, and access to bank and credit union branches in markets not typically served by financial institutions. In FY 2001, the CDFIs surveyed reported that their customer base was 74% low-income individuals, 63% minorities, and 53% females. This sample of CDFIs 1 : Financed 7,484 businesses and microenterprises and created or supported 52,798 jobs, Provided asset-building savings and retail financial services to 2,143,217 people via credit unions and 487,148 people via retail banks, Closed 7,139 mortgages to economically disadvantaged people, Constructed or rehabilitated 43,428 homes for low-income families, and Built or renovated 501 community facilities in economically disadvantaged communities. 1 Outcome information is understated because several CDFIs are unable to track this information.
What is the CDFI Fund? The CDFI Fund, a program within the U.S. Department of Treasury, was established in 1994 to create a network of CDFIs and to make capital and financial services available to those CDFIs that serve the nation s underserved people and communities. The CDFI Fund operates three programs: The CDFI Program provides loans, equity investments, and grants to CDFIs to support both their capitalization and capacity building, enhancing their ability to create community development impact in underserved markets. This program is comprised of three components: Financial Assistance, Technical Assistance and Native American CDFI Development. The Bank Enterprise Award Program provides financial incentives to banks and thrifts to invest in CDFIs and support other community development finance work. The New Markets Tax Credit Program provides incentives to the private sector which will enable more than $15 billion in equity investments in lowincome communities. The Fund is the largest single source of funding for CDFIs. It plays an important role in attracting and securing private dollars for CDFIs by requiring them to match their award Since its first round of funding in FY 1995, the Fund has made more than $534 million in awards to community development with non-federal funds. Since its first round of funding in FY 1995, organizations and financial institutions. the Fund has made more than $534 million in awards to community development organizations and financial institutions.
What is the CDFI Data Project? The goal of the CDP is to ensure access to and use of data to improve practice and attract resources to the CDFI field. The CDFI Data Project (CDP) is a collaborative initiative to create a data collection and management system that produces high quality, comprehensive data about CDFIs. The CDP collected FY 2001 data on 512 CDFIs, which represents a majority of the 800 to 1000 CDFIs across the nation and the largest dataset ever collected on the CDFI industry. The goal of the CDP is to ensure access to and use of data to improve practice and attract resources to the CDFI field. The Association for Enterprise Opportunity* (www.microenterpriseworks.org) National member-based trade association of more than 500 microenterprise development programs. Aspen Institute* (www.fieldus.org) National nonprofit that disseminates best practices and educates policymakers, funders, and others about microenterprise. CDFI Coalition (www.cdfi.org) Lead organization in the United States that promotes the work of CDFIs. Community Development Venture Capital Alliance* (www.cdvca.org) Certified CDFI intermediary that serves community development venture capital funds through training, financing, consulting, research, and advocacy. Corporation for Enterprise Development (www.cfed.org) National nonprofit that promotes assetbuilding and economic opportunity strategies, primarily in low-income and distressed communities. National Community Capital Association* (www.communitycapital.org) National membership network that finances, trains, consults with, and advocates for CDFIs. National Community Investment Fund* (www.ncif.org) A certified CDFI that channels equity, debt, and information to locally owned banks, thrifts, and selected credit unions with a primary purpose of community development. National Federation of Community Development Credit Unions* (www.cdcu.coop) A certified CDFI intermediary that serves over 200 low-income credit unions across the United States. * Represents organizations that collected data on 512 CDFIs in FY 2001.
CDFI Data Project Board of Directors data and the system to collect and manage it will bolster capacity building, policymaking, and research to strengthen CDFIs. Supported by The John D. & Catherine T. MacArthur Foundation and The Ford Foundation, this initiative convenes leading organizations in the CDFI industry. Mark Pinsky (Chair) National Community Capital Association Kerwin Tesdell (Vice Chair) Community Development Venture Capital Alliance Elaine Egdcomb Aspen Institute Zach Gast Association for Enterprise Opportunity Jennifer Vasiloff CDFI Coalition Andrea Levere CDP Committees Publications Committee Clifford Rosenthal (Chair) National Federation of Community Development Credit Unions Data Collection/Cleaning Committee Elaine Edgcomb (Chair) Aspen Institute For more information on the CDFI Data Project, contact: Beth Lipson National Community Capital Association bethl@communitycapital.org 215.320.4315 Eliza Mahony Corporation for Enterprise Development eliza@cfed.org 202.408.9788