Learn what CDFIs are and how they create change and impact communities.
In this guide we will share some introductory information on CDFIs. We will share their history, ways in which they impact communities, and how the CDFI Friendly model is helping bring their impact to more Indiana communities.
Designed to be flexible, fair and equitable
Community development financial institutions (CDFIs) are lenders with a mission to provide fair, responsible financing to rural, urban, Native, and other communities that mainstream finance doesn’t traditionally reach. Where others see risk, we see opportunity.
Unlike traditional banks, we specialize in lending to individuals, organizations, and businesses in under-resourced communities, offering clients financial education, business coaching, and low-interest rate loans that increase economic potential and help build wealth.
CDFI lending leads to small businesses and homeownership, creates living wage jobs, supports the development of schools, grocery stores, and health care centers, finances climate change solutions, and so much more.
From Opportunity Finance Network website (https://www.ofn.org/what-is-a-cdfi/)
Developing communities since 1973
The central purpose of The Community Development Banking and Financial Institutions Act of 1994 (the CDFI Act) was to create a CDFI Fund to promote economic revitalization and community development by investing in and assisting CDFIs through equity investments, capital grants, loans and technical assistance support.
CDFIs can use this financial assistance to support an array of community development activities including housing for low-income people, businesses owned by low-income people, basic financial services, commercial facilities that promote job creation or retention, and technical assistance. The Fund seeks to build the capacity of the individual institutions it finances to bolster their ability to start, expand and improve their programs, thus strengthening and expanding the national network of CDFIs.
The Fund is housed in the U.S. Treasury Department. A 15-member advisory board is comprised of six government representatives: the Secretaries of Agriculture, Commerce, HUD, Interior, and Treasury as well as the SBA Administrator; and nine private citizens: two CDFI representatives, two representatives from insured depositories, two national public interest representatives, two community development specialists, and one Native American community development representative.
Text from CDFI.org website (https://cdfi.org/about-cdfis/cdfi-statute/)
Image from Grassroots Economic Organizing (https://geo.coop/story/history-community-development-financial-institutions)
More than just loan funds
There are four CDFI structures: community development banks, credit unions, loan funds, and venture capital funds. Although they share a common vision of expanding economic opportunity for all, each has a different business model and legal structure.
Community development banks provide capital to rebuild economically distressed communities through targeted lending and investing. They are for-profit corporations with community representation on their boards of directors. Depending on their individual charter, such banks are regulated by some combination of the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and state banking agencies. Their deposits are insured by FDIC.
Community development credit unions promote ownership of assets and savings and provide affordable credit and retail financial services to low-income people, often with special outreach to minority communities. They are nonprofit financial cooperatives owned by their members. Credit unions are regulated by the National Credit Union Administration (NCUA), an independent federal agency, by state agencies, or both. In most institutions, deposits are also insured by the National Credit Union Administration (NCUA).
Community development loan funds (CDLFs) provide financing and development services to businesses, organizations, and individuals in low-income 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 loan funds serve more than one type of client in a single institution. CDLFs 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 small and medium-sized businesses in distressed communities. They can be either for-profit or nonprofit and include community representation.
More information available at Opportunity Finance Network: https://www.ofn.org/
“Community Development Financial Institutions (CDFIS) are great assets in their communities. But they can’t be everywhere, and they can’t always offer all the types of financing each community needs—affordable housing, small business & nonprofit organizations.” – CDFI Friendly America
CDFI Friendly America is on a mission to bring the $152 billion CDFI industry to underserved communities in small cities and towns across the nation. In “CDFI Friendly” markets, nonprofits like CDFI Friendly Bloomington can identify opportunities for CDFIs, provide technical assistance to potential borrowers, or provide gap financing or additional financing incentives to lenders.
CDFI Friendly Bloomington served as the pilot program for these types of markets, followed closely by CDFI Friendly South Bend, CDFI Friendly Tulsa, CDFI Friendly Fort Worth, and CDFI Friendly Evansville Region. Indiana has been a leader in embracing this model and a way to connect local borrowers with regional/national serving CDFIs.
This model has allowed several Indiana regions to benefit from CDFI investment without the administrative or operational burden of standing up their own CDFI(s) or the market restrictions required by the certification process.
Prezi to learn more: https://prezi.com/view/xeM0tiEBOHD17at4Kz87/
CDFI’s are incredibly useful tools to help finance your small business, but it isn’t always easy identifying a CDFI.
To give you a leg up in locating a CDFI near you, we are including this spreadsheet. This lists the CDFI’s nationwide and is will be a great resource for you in finding the nearest Indiana-based CDFI near you.
Additionally, if you think the information outlined in this module is helpful and you’d like to learn more about how CDFI’s can help you we suggest that you take a look at this Prezi.
This will what you through the Who, What, When, Where and Why of CDFI’s and how they can be helpful to your particular needs.
CDFI Friendly South Bend is a newly formed 501(c)(3) organization that will increase flexible and affordable financing to businesses, housing developers, nonprofits, residents, and others. CDFI Friendly South Bend will serve as a matchmaker between individuals and businesses looking for capital and a variety of lenders.
CDFI Friendly South Bend serves as a matchmaker between local individuals and businesses looking for capital and CDFIs working in other places, regionally, or nationally. We help CDFIs from other places lend to businesses and individuals. That financing can help make the local economy stronger and more inclusive, creating opportunities for people on all steps of the economic ladder, and increasing economic growth throughout the region.
Fusion Fest Fund
We partnered with Allies for Community Business and the City of South Bend to create the Fusion Fest pilot program – a streamlined application process for a small business line of credit to be able to participate in a large local festival. With this program, vendors were able to avoid jumping through many of the hoops found in more typical loan applications and secure a $2,500 line of credit quickly.
Capital Coaching Program
Our Capital Coaching program pairs entrepreneurs with an expert mentor. As a participant, you will work one-on-one with your Capital Coach to gain an insider’s knowledge of the financing world. Capital Coaches help small business owners avoid some of the financial pitfalls that often slow an entrepreneur’s progress. Funded by the Indiana Economic Development Corporation, this program works in partnership with ISBDC and provides any small business owner who has completed the core steps of starting a business, and help them prepare a successful loan application.
These are two examples of the many ways CDFI Friendly creates partnerships to bring capital and support for local small business owners and those looking to develop communities in northern Indiana.