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  • Jamie Strayer

What is a CDFI?

Community development financial institutions (CDFIs) are:

  • Are financial institutions dedicated to empowering and protecting working class, moderate to low income people, vulnerable populations and disadvantaged communities.

  • Mission-driven financial institutions working on a local level that know their communities best.

They do this by:

  • Providing access to mainstream financial services consumers with no credit, a shallow credit profile or distressed credit are otherwise denied.

  • Serving communities that typically are underserved by traditional financial institutions, or may not have another mainstream financial institution (bank or credit union.)

  • Deploying microbusiness loans, small business and/or commercial business loans to individuals and businesses without access to loans needed to establish, grow or keep their business in business.

Why is this important?

  • Lack of access to affordable financial services leaves the most financially distressed consumers vulnerable to be preyed upon by wealth stripping predatory lenders, check cashers and the like.

  • CDFI’s prevents these wealth stripping alternative service providers from siphoning household income critically needed to pay for groceries, utilities and housing.

  • Its not just the poor, elderly people are impacted by wealth stripping.

  • Job creation and retention is critical to household stability and asset building.

  • Business ownership is the number one means of asset building for racial minorities.

  • It is this economic opportunity that transforms neighborhoods, rebuilds rural towns and urban centers and stops the cycle of multi-generational poverty.

What are their biggest benefits of CDFIs to American taxpayers?

  1. They have invested billions of private dollars in low-income areas, reducing tax payer investment.

  2. Reduce reliance of individuals and families on entitlement programs through self-empowerment.

CDFIs have a special designation and access to a grant program offered by the US Department of the Treasury, The CDFI Fund.

By providing microenterprise, small business and commercial loans, CDFIs are job creators and economic engines in distressed communities across the United States. Through auto lending CDFIs help families get to work to retain jobs, and ensure access to education, health and childcare. Through unique mortgage products including alternative down payment options, home rehabilitation and rental loans, CDFIs prevent homelessness for working families, create household stability essential to performance of children in school, and help families build assets. Through first accounts and second chance checking, CDFIs prevent consumers from losing limited resources, essential to purchasing groceries and utilities payments, to check cashers and predatory service providers.

Credit unions are CDFIs, but not all CDFIs are credit unions. What do they have in common?

CDFIs, like not-for-profit credit unions, are profitable but not profit-maximizing. They put community first, just as credit unions put their members first, not corporate shareholders. For more than 30 years, CDFIs they have had a proven track record of improving lives in communities of America that need it most.

It can be argued that credit unions, as cooperatives, were the very first CDFIs even before the term “community development” or “CDFI” was coined. The credit union international operating principles incorporate tenants essential to community development, including social responsibility, non-discrimination, equal distribution of profits and financial education. Credit unions are owned by members of the community and are governed by elected volunteers that live in the community- not corporate stock holders. Credit unions are the only sector of CDFIs that are exclusively not-for-profit, and the only depository institutions providing not-for-profit access to savings and checking.

There are over 1,000 CDFIs as of 2017, which include: loan funds, which can be for-profit or non-profit, for-profit banks and for-profit venture capital (VC) funds.

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