CDFIs at a Glance: Demystifying the Three Primary Organizational Types
Community Development Financial Institutions (CDFIs) are mission-driven institutions that aim to rebuild communities with accessible capital but place an emphasis on undoing inequality rather than generating profit.
CDFIs can take many shapes, but all have the same purpose; to connect individuals, businesses, and non-profits to fair, affordable capital.
Since the Riegle act was passed in 1994, over 1,300 CDFIs have sprouted across the country. Together, they control over $220 billion worth of assets and have originated about $100 billion in financing in rural, urban, and Native communities. CDFIs operate where traditional financial institutes won’t.
If you're having difficulties accessing capital from traditional financial institutions, a CDFI may be your best bet. But before you start down that road, it’s important to know the different types of CDFIs and how they vary from each other.
The majority of CDFIs fall into one of three buckets; CDFI banks, CDFI credit unions, and CDFI loan funds. We’ll outline the differences in their services and target consumers below.
CDFI Bank
CDFI banks are traditional, FDIC-insured depository financial institutions, meaning that they accept and hold money in bank accounts for their clients. Their purpose is to rebuild lower -income communities by providing targeted lending and investments. They generally offer consumer and commercial banking services, as well as mortgage financing and student loans. CDFI banks are more likely than other forms of CDFIs to be for-profit institutions.
CDFI Credit Union
CDFI credit unions exist to promote community ownership of assets and savings. They provide affordable credit card and retail financial services to lower-income people, prioritize outreach to minority communities, and take deposits to re-lend to credit union members. CDFI credit unions generally offer extensive technical assistance and act as a financial education resource for their members.
CDFI Loan Fund
CDFI loan funds do not take deposits. CDFI loan funds aggregate capital from various sources and provide accessible loans to small businesses, individuals, and nonprofits who are unable to access funding from traditional financial institutions.
While not every CDFI will perfectly fit the mold of the three types — or may be a hybrid of them — CDFI banks, CDFI credit unions, and CDFI loan funds are the most common forms of CDFIs you'll encounter. All CDFIs, regardless of their organizational structure, are focused on providing affordable capital and are more willing to work with borrowers who banks turn away.