What is a Community Development Financial Institution (CDFI)?
September 21, 2018
What Community Development Financial Insitutions (CDFIs) are and why they're important
What does it mean if a bank/credit union is a Community Development Financial Institution (CDFI)? According to cdfi.org, financial institutions dedicated to community development have been around in the U.S. since the 1800’s, mainly borne out of need for credit and banking products in communities ignored in traditional banking. Although many community development banking institutions are much less locally focused and have been absorbed by larger banks and credit unions, they still focus on the development of underserved neighborhoods. This allows some CDFIs to serve much larger areas than their original counterparts and invest in modern technologies and products. Since the establishment of the CDFI Fund in 1994 that was created to “provide funding to individual CDFIs and their partners through a competitive process,” there are significant institutional advantages to being a bank that invests in their communities. They particularly look for institutions which have a pronounced effect on their local neighborhoods and have relationships with both their investors and investees.
There are over 950 certified CDFI’s today, and this number only increases. The CDFI Fund diverts resources and provides unique programming to banking institutions which are driven to help distressed and middle-income communities. These institutions which are contributed to by the fund can be a bank, a credit union or a loan fund, and like CDCU’s and low-income credit unions, strive to improve the financial options for underserved communities.