Americans in all communities depend on financial services—whether it’s the construction of new affordable housing, a loan to start or expand a business, or a savings account for emergencies. Yet many consumers, business owners, and real estate developers don’t have access to banks, credit unions, and other institutions that provide these services at prices affordable to those with limited resources.
In both urban and rural areas, community development financial institutions (CDFIs) fill the gap by providing credit and capital to businesses and families. CDFIs are on the front lines helping people and places adversely affected by high prices, not enough housing, offshoring, and deindustrialization. The federal government’s CDFI Fund provides foundational funding for these institutions, and other federal agencies have key roles as well.
Currently, CDFIs are one of the most cost-effective tools available to federal policymakers, with every $1 in federal investment able to unlock $5 to $10 in additional private funding.
However, a new presidential action has called into question the CDFI Fund’s role. As exemplified by the 14 Republican and 14 Democrat members of the Senate CDFI Caucus, CDFIs have long earned bipartisan support. As the Department of Treasury reviews the role of the CDFI Fund, Urban Institute analysis shows the program provides crucial support via CDFIs to people throughout the nation.
Where do CDFIs advance local economic growth?
Communities need capital to prosper. Capital allows people to get a foot on the homeownership wealth-building ladder, start or grow a small business, invest in building quality child care centers, or finance charter schools. Yet some places experience barriers to investment. Rural areas and areas with high levels of poverty see significant disparities in investment. CDFIs seek to counteract these disparities and support underinvested places.
To help policymakers understand the economic value of CDFIs in their area, we calculated the total CDFI investment for each congressional district. We find that the nation’s more than 1,400 CDFIs invest in areas represented by both political parties. Republicans represent 8 of the 10 that received the most CDFI investment over the past decade.
The three congressional districts with the most CDFI investment are all in Mississippi. Louisiana’s Fifth District, the fourth most invested district, saw $5.2 billion of investment (in constant dollars) in the more rural northern and eastern parts of Louisiana. Texas’s Sixteenth, the fifth most invested district, had $5.2 billion of investment in El Paso and the surrounding corner of northwest Texas. Iowa’s Second, Wisconsin’s Seventh, and Florida’s Nineteenth and Twelfth round out the top 10 most invested districts over the past decade.
CDFIs are active both in more-urban and more-rural states. Over the past decade, the states with the most CDFI investment were Florida and Mississippi, both with $30 billion total (adjusting for inflation). California, Louisiana, New York, Texas, North Carolina, Wisconsin, Michigan, and Iowa round out the top 10 recipients.
How do CDFIs grow local economies?
CDFIs provide catalytic capital. These investments are safe but often require accepting lower returns, less collateral, smaller deals, and more-patient terms—which can be prohibitive for mainstream financial institutions. In practice, CDFIs provide deal-level leverage, offering low-cost capital for lower returns over a longer time, which allows a project sponsor to finance more of a project with fewer assets as collateral. They also tend to provide lower associated fees attached to their loans, which can be vital for businesses and projects with less available cash flow.
CDFIs often provide a project’s first capital, especially in the predevelopment phase. These investments can generate wholesale community change, resulting in neighborhood-level “spin-off” effects.
In more-rural areas, CDFIs have an integral role—in some cases, they are one of only a few financial providers. The Community First Fund in central Pennsylvania began as the only development capital provider in an area of roughly 360,000 residents. Since then, the Community First Fund has gradually expanded its work beyond affordable housing and small-business lending to meet the area’s food security, education, and early childhood support needs.
CDFIs are also key to reviving American cities. Between 2013 and 2015, CDFIs, together with their philanthropic and public partners, contributed 42 percent of all capital toward rebuilding the commercial and multifamily real estate sectors in Detroit. Because of CDFIs’ presence, flexibility, and willingness to tolerate risk, Detroit neighborhoods were able to redevelop up to the point where more-traditional financial services were willing to enter the market as well.
Why does the CDFI Fund matter?
CDFIs sometimes struggle to obtain capital on the terms they need to make catalytic capital investments. To make loans, they often access debt capital from banks or foundations, but that debt capital must be supported with equity capital—funds with little obligation to repay.
That’s where the CDFI Fund comes in. The CDFI Fund is the leading provider of equity capital into the sector and offers critical foundational work such as certifying CDFIs, ensuring they meet their community benefit obligations, and collecting data about their investment activity.
Through the CDFI Fund, CDFIs receive the funding they need to support organizational capacity and innovation, meet lender and regulator requirements, and measure how well they serve their markets through instruments such as Financial Assistance and Technical Assistance or Bond Guarantee funding.
In many disinvested communities, CDFIs also need time and funding to build their capacity, community infrastructure, and partnerships. Sufficient capital can provide a cushion for operating expenses and loan repayment in hard times, support debt, fund research and innovation, and satisfy requirements from regulators and funders. Equity capital is the most difficult to raise. Without it, CDFIs cannot operate, even if large volumes of low-cost debt do become available to the sector.
The CDFI Fund also manages critical programs that advance housing supply, expand consumer finance, and further economic development. In fiscal year 2024, the Capital Magnet Fund provided more than $240 million to 48 organizations to create and preserve affordable housing. The grant requires at least a 10-to-1 match in private capital, meaning this program leveraged over $2.4 billion in private investment last year alone.
The Small Dollar Loan program supports CDFIs in establishing loan products that allow consumers to build their credit scores and access mainstream lending. Urban’s evaluation of the New Markets Tax Credit program found that communities with relevant projects had, on average, 18 new firms enter and 101 jobs created.
Urban’s research has shown that CDFIs are extremely effective and efficient in their allocation of capital, meaning federal investment in CDFIs is highly impactful. The CDFI Fund helps drive investment to all corners of our country, increase the supply of housing, and grow Main Street USA. To build and rebuild resilient, innovative, and hard-working American communities and support a thriving American economy in the decades ahead, CDFIs need more support, not less.
Let’s build a future where everyone, everywhere has the opportunity and power to thrive
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