Most low-income communities in the U.S. have access to an important resource that few people outside of these communities know: a CDFI, or community development financial institution.
CDFIs are private community lenders dedicated to delivering social and economic impact by providing responsible, affordable financing to disinvested people and communities.
Why are CDFIs important?
If you live in a community whose streets are dotted with check cashers, liquor stores, and blighted buildings, chances are there are few if any bank branches and very little investment overall. Without access to capital, residents can’t start or grow a business, purchase or rehab a home, or oftentimes, have access to quality childcare and healthcare facilities. CDFIs provide access to capital that creates opportunity and leads to real change that wouldn’t otherwise be possible.
CDFIs are an integral part of the communities they serve, understanding the specific needs and developing products to address those needs. And they are experts at what they do. Not only do they create positive impacts in communities of perceived high risk, but they also have a 30-year history of doing so while maintaining very strong portfolio and financial performance. CDFIs’ net loan charge-off rate is less than one percent, comparable to FDIC-insured banks. And CDFIs are financially sound, with an average net worth ratio of 32 percent.
CDFIs serve markets that mainstream financial institutions are not able to reach. In these disinvested markets, CDFIs finance microenterprises and small businesses that create self-employment opportunities and create new jobs; affordable housing for veterans, senior citizens and other vulnerable populations; community facilities that provide vital health care services in medically underserved communities; and commercial real estate that brings, for example, the first full-service grocery store to a food desert.
CDFIs provide fairly-priced mortgages that allow lower income individuals to start building wealth through homeownership; credit builder loans that help individuals restore their FICO score; citizenship loans that cover the upfront costs of the US citizenship application process; and responsible alternatives to the high-cost payday loans that keep many lower-income households in a cycle of debt.