Community development financial institution
Encyclopedia
Community development financial institutions (CDFI) are financial institution
Financial institution
In financial economics, a financial institution is an institution that provides financial services for its clients or members. Probably the most important financial service provided by financial institutions is acting as financial intermediaries...

s which provide credit and financial services to underserved markets and populations, primarily in the USA but also in the UK. A CDFI may be a community development bank
Community development bank
- Community Development Banking in the United States :In the United States, community development banks are commercial banks that operate with a mission to generate economic development in low- to moderate-income geographical areas and serve residents of these communities...

, a community development credit union
Credit union
A credit union is a cooperative financial institution that is owned and controlled by its members and operated for the purpose of promoting thrift, providing credit at competitive rates, and providing other financial services to its members...

 (CDCU), a community development loan fund (CDLF), a community development venture capital fund (CDVC), a microenterprise development loan fund, or a community development corporation
Community Development Corporation
Community Development Corporation is a broad term referring to not-for-profit organizations incorporated to provide programs, offer services and engage in other activities that promote and support community development. CDCs usually serve a geographic location such as a neighborhood or a town....

.

CDFIs are certified by the Community Development Financial Institutions Fund
Community Development Financial Institutions Fund
The Community Development Financial Institutions Fund, or CDFI Fund, promotes economic revitalization in distressed communities throughout the United States by providing financial assistance and information to community development financial institutions...

 (CDFI Fund) at the U.S. Department of the Treasury, which provides funds to CDFIs through a variety of programs. The CDFI fund and the legal concept of CDFIs were established by the Reigle Community Development and Regulatory Improvement Act of 1994. Broadly speaking, a CDFI is defined as a financial institution that: has a primary mission of community development
Community development
Community development is a broad term applied to the practices and academic disciplines of civic leaders, activists, involved citizens and professionals to improve various aspects of local communities....

, serves a target market, is a financing entity, provides development services, remains accountable to its community, and is a non-governmental entity.

The Housing and Economic Recovery Act of 2008
Housing and Economic Recovery Act of 2008
The Housing and Economic Recovery Act of 2008 designed primarily to address the subprime mortgage crisis. It authorized the Federal Housing Administration to guarantee up to $300 billion in new 30-year fixed rate mortgages for subprime borrowers if lenders write-down principal loan balances to 90...

 (HERA) authorized CDFIs certified by the CDFI Fund to become members of the Federal Home Loan Banks
Federal Home Loan Banks
The Federal Home Loan Banks are 12 U.S. government-sponsored banks that provide stable, on-demand, low-cost funding to American financial institutions for home mortgage loans, small business, rural, agricultural, and economic development lending...

. The Final Rule regarding the procedures and standards to be used by the Federal Home Loan Banks to evaluate applications for membership from CDFIs were published in the Federal Register Federal Housing Finance Agency
Federal Housing Finance Agency
The Federal Housing Finance Agency is an independent federal agency created as the successor regulatory agency resulting from the statutory merger of the Federal Housing Finance Board , the Office of Federal Housing Enterprise Oversight , and the U.S...

 in January 2010http://www.fhfa.gov/webfiles/15336/CDFIPR122909F%5b1%5d.pdf. The Final Rule is to be implemented by the 12 Federal Home Loan Banks, each of which will evaluate membership applications independently. http://www.fhfa.gov/webfiles/15335/CDFIattach122909.pdf

CDFIs are related to, but not identical with, Community Development Entities (CDEs). CDEs are also certified by the CDFI Fund at the U.S. Department of Treasury, but have somewhat different qualifications. Many CDFIs have also been certified as CDEs. The primary purpose of CDEs is to utilize the New Markets Tax Credits Program
New Markets Tax Credit Program
The New Markets Tax Credit Program was established in 2000 as part of the Community Renewal Tax Relief Act 2000. The goal of the program is to spur revitalization efforts of low-income and impoverished communities across the United States and Territories...

 (NMTCs). NMTCs were created to induce equity investments in low-income communities.

CDFIs may be subject to oversight by federal financial institution regulators (e.g., banks, credit unions) or may be "unregulated" at the federal level, and subject only to the laws of the states in which they operate. There is no mandatory rating or ranking system imposed on all CDFIs which would allow investors or others to evaluate their performance, safety or strength. The Opportunity Finance Network has developed a proprietary rating system, the CDFI Assessment and Ratings System or CARSTM.

Scope

In 2006, there were approximately 1250 CDFIs, consisting of:
  • More than 500 community development loan funds;
  • More than 350 community development banks;
  • More than 290 community development credit unions;
  • More than 80 community development venture capital funds.


In May 2010, the CDFI Fund had certified 862 CDFIs, 57 Native CDFIs (serving Native Americans), and 4,230 CDEs, each of which may have multiple subsidiary investment funds.

Nationwide, over 1000 CDFIs serve economically distressed communities by providing credit, capital and financial services that are often unavailable from mainstream financial institutions. CDFIs have loaned and invested over billions in our nation’s most distressed communities. Even better, their loans and investments have leveraged billions more dollars from the private sector for development activities in low wealth communities across the nation.

While there are numerous organizations certified as CDFIs by the CDFI Fund, it is believed that there are thousands of financial institutions serving the needs of low-income people or communities in the U.S., but either have not applied for CDFI status or have otherwise not been able to fulfill all of the requirements for formal CDFI certification.

Notable Depository CDFIs

ShoreBank
ShoreBank
ShoreBank was a community development bank founded and headquartered in Chicago. At the time of its closing it was the oldest and largest such institution, and in 2008 had $2.6 billion in assets. It was owned by ShoreBank Corporation, a regulated bank holding company.ShoreBank had branches in...

, headquartered in the South Shore neighborhood of Chicago
Chicago
Chicago is the largest city in the US state of Illinois. With nearly 2.7 million residents, it is the most populous city in the Midwestern United States and the third most populous in the US, after New York City and Los Angeles...

, was founded in 1973. It was the largest CDFI, with over $2 billion in assets.http://www.spokesmanreview.com/business/story.asp?ID=194303 ShoreBank had branches in Chicago’s South and West sides, Cleveland, and Detroit, but in August 2010 the bank was declared insolvent and its branches were taken over by Urban Partnership Bank. Its holding company ShoreBank Corporation, still exists and promotes its community development mission through affiliates in Oregon and Washington state, and in Michigan’s Upper Peninsula. ShoreBank’s international consulting services have offices in Chicago, Washington, D.C., and London, and projects in 30 countries around the world.

OneUnited Bank
OneUnited Bank
OneUnited Bank is an African-American-owned Internet bank and controlled Massachusetts-chartered trust company headquartered in Boston, Massachusetts. The bank is also a community development financial institution as designated by the United States Department of Treasury...

, headquartered in Boston, MA is the largest African-American owned CDFI in the country and focuses on serving and developing urban communities. The Bank has achieved consistent profitable growth through both bank acquisitions of similar mission driven banks and organic loan and deposit growth. The Bank has provided innovative products and services to fulfill its community development mission in the urban communities of Boston, Massachusetts, Miami, Florida and Los Angeles, California. OneUnited Bank continues to be integrated into the social and economic fabric of each of these communities in every respect from not-for-profits, small business, affordable housing, churches, etc.

The Center for Community Self-Help
Center for Community Self-Help
The Center for Community Self-Help is a community development lender and real estate developer. It was founded in Durham, North Carolina in 1980...

, another leading CDFI, was founded in 1980 in Durham, North Carolina
Durham, North Carolina
Durham is a city in the U.S. state of North Carolina. It is the county seat of Durham County and also extends into Wake County. It is the fifth-largest city in the state, and the 85th-largest in the United States by population, with 228,330 residents as of the 2010 United States census...

. Self-Help's home and business lending has provided low-wealth, minority, rural and female borrowers with over $5.24 billion in financing.http://www.selfhelp.org/about-us/impact Much of this is through Self-Help's national secondary market
Secondary market
The page applies to the finanical term; For the merchandising concept, see Aftermarket .The secondary market, also called aftermarket, is the financial market where previously issued securities and financial instruments such as stock, bonds, options, and futures are bought and sold....

 program, which enables conventional lenders to make more home loans to low-wealth families. Self-Help also develops commercial and residential real estate and operates retail credit unions. In response to predatory lenders
Predatory lending
Predatory lending describes unfair, deceptive, or fraudulent practices of some lenders during the loan origination process. While there are no legal definitions in the United States for predatory lending, an audit report on predatory lending from the office of inspector general of the FDIC broadly...

 increasingly targeting family wealth in poor and minority communities, Self-Help in 1999 worked with the NAACP, AARP
AARP
AARP, formerly the American Association of Retired Persons, is the United States-based non-governmental organization and interest group, founded in 1958 by Ethel Percy Andrus, PhD, a retired educator from California, and based in Washington, D.C. According to its mission statement, it is "a...

 and other North Carolina groups to form the Coalition for Responsible Lending and help enact one of the US's first laws to curb predatory mortgage lending.http://www.businessweek.com/magazine/content/07_45/b4057078.htm? In 2002, Self-Help founded the Center for Responsible Lending, a nonprofit, nonpartisan research and policy organization that recommends solutions to predatory lending abuses.http://www.politico.com/news/stories/0108/7946.html

Notable Non-depository CDFIs

Other CDFIs include:

Other countries

While the CDFI Fund and its certifications are limited to the U.S., the UK also has about 70 CDFIs and a trade association, the Community Development Finance Association. The UK government has provided various funding initiatives for CDFIs and credit unions, and Community Investment Tax Relief (somewhat similar to New Markets Tax Credit) is available on investments in accredited CDFIs.

Institutions similar in purpose exist around the world, such as Grameen Bank
Grameen Bank
The Grameen Bank is a microfinance organization and community development bank started in Bangladesh that makes small loans to the impoverished without requiring collateral...

 in Bangladesh
Bangladesh
Bangladesh , officially the People's Republic of Bangladesh is a sovereign state located in South Asia. It is bordered by India on all sides except for a small border with Burma to the far southeast and by the Bay of Bengal to the south...

, though they are not generally called CDFIs, but are described by other terms such as microfinance
Microfinance
Microfinance is the provision of financial services to low-income clients or solidarity lending groups including consumers and the self-employed, who traditionally lack access to banking and related services....

 institutions or social banks.

Resources

There are a number of trade associations and other resources applicable to the CDFI industry. For more information, see:

External links

The source of this article is wikipedia, the free encyclopedia.  The text of this article is licensed under the GFDL.
 
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