Community development financial institutions (CDFIs) are private financial institutions that are 100% dedicated to delivering responsible, affordable lending to help disinvested people and communities join the economic mainstream.
As mission-driven lenders, CDFIs leverage funding from private and public sources to finance community businesses—including small businesses, microenterprises, nonprofit organizations, commercial real estate, and affordable housing—and spark job growth and retention in hard-to-serve U.S. markets.
In addition to connecting capital to communities and people that need it, many CDFIs also provide financial education, technical assistance, and capacity-building support to the organizations, businesses, or individuals they serve.
Types of CDFIs
There are four CDFI structures— community development banks, credit unions, loan funds, and venture capital (VC) funds. Although all share a common vision of expanding economic opportunity and improving the quality of life for disinvested communities, each has a different business model and legal structure.
Community Development Banks
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
Community development credit unions (CDCUs) 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 NCUA.
Community Development Loan Funds
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
Community development venture capital (CDVC) 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.