Created in 1994, the Community Development Financial Institutions Fund (CDFI Fund) is an agency within the U.S. Department of the Treasury created to “promote economic revitalization and community development through investment in and assistance to community development financial institutions.” Since 1995, the CDFI Fund has invested $820 million in community development financial institutions (CDFIs) serving distressed urban, rural, and Native American communities across the nation.
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- The demand for allocations from the New Markets Tax Credit has far exceeded the supply of the credit; the dollar amount of credits requested is 12 times greater than the number of credits awarded.
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- The U.S. Small Business Administration’s Microloan Program provides loans to more than 160 nonprofit community-based lenders, including CDFIs, and has financed about 26,000 loans worth approximately $328 million to small entrepreneurs.
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- The SBA’s budget for the Microloan Program has fallen from $48.9 million in fiscal year 2001 to $33 million in fiscal year 2007
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- Since 1995, the U.S. Treasury Department’s Community Development Financial Institutions Fund (CDFI Fund) has invested more than $820 million in community development financial institutions working in underserved urban, rural, and Native American communities across the country.
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- Applications for funding from the CDFI Fund have been increasing rapidly, up 122.3 percent in 2008. The applicants requested an aggregate of over $205.5 million in assistance, which also increased from the previous round by nearly 150 percent.
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- The budget for community development block grants, which provide funding to localities for affordable housing, job creation, and economic development, has been reduced by $1.5 billion since 2001. At the same time, the United States has lost more than three million manufacturing jobs and nearly a million units of affordable housing.
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- Women-owned businesses account for 41 percent of all privately held firms, yet in 2006, the latest year for which data are available, they received only 3.4 percent of government contracts.
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- A study conducted by the Joint Center for Housing Studies in 2002 demonstrated that without the Community Reinvestment Act (CRA), mortgage lending to low- and moderate-income borrowers and communities would have decreased by 336,000 loans from 1993 through 2000.
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- From 1996 through 2005, depository institutions regulated by the CRA made 10 million small business loans totaling $449 billion and outperformed non-CRA lenders in terms of home-purchase loans in low- and moderate-income neighborhoods.
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- The U.S. Department of Agriculture has provided more than $70 billion in grants, loans, and loan guarantees since 2001 as part of its Rural Development program, yet more than three times as much money goes to metropolitan areas with populations of 50,000 or more ($30.3 billion) as to poor or shrinking rural counties ($8.6 billion).
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- Support increased funding for the U.S. Treasury Department’s Community Development Financial Institutions Fund (CDFI Fund). It is strongly recommended that the CDFI Fund receive a minimum of $250 million per year.
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- Within the CDFI Fund, a research and development program should be established. This “innovation bank” would function as a new source for product creation and system change to lead promising ideas and products to scale.
Read more recommendationsThe opportunity finance industry has been the leader in sustainable innovation for our nation's poorest communities for decades, but it has the potential to facilitate even greater levels of change. It is time to put resources into research and development for community development financial institutions (CDFIs).
- Congress should make the New Markets Tax Credit (NMTC) permanent. Although extending the NMTC one year at a time, as Congress has since 2006, has been helpful, the lack of long-term availability of the credit makes it extremely difficult for organizations and developers to plan. Making the NMTC permanent would help alleviate this problem.
Read more recommendationsStatutory changes that eliminate the structural disadvantages faced by certified CDFIs should be made part of the program.
- Congress should make statutory changes that enhance the ability of certified CDFIs to compete for the NMTC. Certified CDFIs receiving allocations have successfully demonstrated their ability to raise capital and deploy it in low-income communities.
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- Increase funding for the U.S. Small Business Administration’s Microloan Program to at least $20 million for technical assistance and grant it the budget authority to provide $31 million for direct SBA Microloans.
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- Amend the CDFI Fund regulations for CDFI certification standards to reestablish the importance of the primary mission and financing entity tests. In recent years, CDFI Fund regulations have relaxed the rules to enable organizations with affiliates or subsidiaries that do not have a principal focus on distressed markets to qualify as CDFIs.
Read more recommendationsIn addition, the requirement that a CDFIs predominant business activity be financing has been relaxed. These tests are critical to ensuring that only organizations with a deep commitment to distressed communities and a strong focus on delivering financial products qualify for scarce federal resources.
- The U.S. Department of the Treasury and the Internal Revenue Service should amend regulations to include certified CDFIs among the entities deemed eligible to be qualified active low-income community businesses. That would enable certified CDFIs to receive qualified low-income community investments.
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- Make CDFIs eligible applicants for all federal community development grant and loan programs.
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- A positive obligation to serve low-income communities and people should be extended to all portions of the financial services industry that compete with banks and thrifts through the Community Reinvestment Act. That obligation includes not only credit unions and mortgage bankers but also other entities that provide credit, transaction services, and savings and investment vehicles.
Read more recommendationsEvaluations should include holding companies and all affiliates.
