For those who are paying attention to the stimulus package just passed and are wondering, “what the heck is a Community Development Financial Institution ( #CDFI)?” Short answer: they are the greatest thing that you’ve never heard of.

A thread.

CDFIs were created in the 1970s as a response to discriminatory financing practices from banks (redlining, racism, etc.) As CDFI leader Mark Pinsky puts it, they were “an experimental approach to community building and anti-poverty efforts” https://www.brookings.edu/articles/taking-stock-cdfis-look-ahead-after-25-years-of-community-development-finance/

They were set up to create a grass roots financial system to serve the people, businesses and communities that the banks deemed “un-bankable” (i.e., non-white, poor communities). Today, they are 1,142 community-based loan funds, credit unions, & banks across the country.

These organizations – particularly the 552 of them that are loan funds – provide affordable, flexible capital to build & grow all of the things in your community that you love. Arts organizations, community centers, small businesses, daycares, schools, quality affordable housing.

They generate and measure the impact of every dollar that they lend – and, together have created millions of jobs, helped start or grow hundreds of thousands of small businesses, and have developed or preserved multi-millions of units of affordable housing and other facilities.

They cover all 50 states + territories and are active in urban, rural, and native communities. There are 68 Native #CDFIs, there are 6 in Alaska and 10 in Hawaii. CA has the largest number, 98. Mississippi also has the 2nd highest w/ 90 (if anyone knows why, would love to know!)

Enough stats, why are #CDFIs important right now? Like the heroic healthcare workers fighting the virus, they are on the front lines of the current economic crisis and have built trust and relationships with the businesses and communities that the banking system doesn’t reach.

(Remember the part about how they were set up to pick up where banks left off? Turns out that – as we’re seeing #PPP lending play out – this is important).

These are the small businesses that everyone is talking about –the smallest of the small, the ones w/ limited (if any) cash reserves, the ones that have faced decades of discrimination because of where they are located, the color of their owners’ skin, or their immigration status

If we’re serious about wanting to support these businesses through and beyond this crisis, we need to give CDFIs the tools they need to respond. If resourced, CDFIs can work with these businesses to provide access to credit and critical services.

What do CDFIs need?

They need operating grants to boost their ability to provide outreach and advisory services – money to pay (fair wages!) to the literal boots on the ground. They also need grants to cover loan loss expense (reserves), marketing, and technology.

They need access to affordable and flexible loans that they can use to provide working capital to small businesses at affordable rates. And they need the “equity” (for the nonprofits, this is called net assets) to enable them to do more borrowing.

But most importantly, they need ALL of these combined to adequately respond in this moment. The carve-out for CDFIs and other community banks in the bill just passed is an awesome recognition of their work and reach…

…but it is not useful in practice unless there are corresponding solutions to the liquidity, capitalization, and operational capacity constraints that exist today (because we – and the federal gov’t – have failed to make the necessary investments in them for decades.)

And to be clear, the focus right now is on the smallest businesses in dire need of support -but as we start to dig out and re-open, we will need to broaden our focus to other areas of acute need in marginalized communities – housing, community facilities, schools, health clinics.

Guess what? CDFIs do that too.

For awesome resources on CDFIs, check out @OppFinance @CDFICoalition @CDFIFund

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