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What is a CDFI?

Until recently, Community Development Financial Institutions (CDFIs) didn’t find themselves in the spotlight often.

But when the federal government allocated $10 billion to CDFIs to participate in the Paycheck Protection Program, these institutions became key players in an unprecedented stimulus bill. PPP approvals through Aug. 8 show that CDFIs processed $3.3 billion in PPP loans.

CDFIs play a vital role in the United States economy and are responsible for creating meaningful opportunities in low-income communities across the country.

Even still, how CDFIs work, the ways in which they differ from traditional banks and their mission still aren’t common knowledge. So what exactly is a CDFI?

How Are CDFIs Different Than Traditional Banks?

CDFIs are mission-driven financial institutions that strive to provide community development in economically distressed areas. They are certified through a rigorous annual process by the CDFI Fund, which is part of the U.S. Department of the Treasury.

These institutions provide a range of products and services targeted to economically distressed communities, including helping low-income individuals obtain mortgage financing, lending services to nonprofits and commercial lending to businesses in low-income census tracts.

CDFIs are different than traditional banks in that they are required to have at least 60% of their loan portfolio dedicated to helping underserved or low-income communities. It should be noted, too, that CDFIs aren’t just banks – they can also be credit unions, loan funds or venture capital funds. Data from August 2020 reports there 1,135 CDFIs across the country.

Making an Impact

The CDFI Fund and the legal definition of CDFIs came about with the passing of the Riegle Community Development and Regulatory Improvement Act of 1994. Ever since, the CDFI Fund has provided critical funding and support to CDFIs.

In Fiscal Year 2019, the CDFI Fund financed more than 19,000 businesses; funded more than 51,000 affordable housing units; and originated more than $21 million in loans and investments. The CDFI Fund provides funding awards through programs like the Financial Assistance Award and Bank Enterprise Award.

In July, Sunrise Banks announced it had received $50 million in New Markets Tax Credits (NMTC) for the fiscal year 2019 program. The NMTC program is funded by the CDFI Fund and NMTC recipients have deployed nearly $52.5 billion in investments in low-income communities and businesses. These investments have led to the creation or retention of more than 836,000 jobs, and the construction or rehabilitation of more than 218.3 million square feet of commercial real estate.

Sunrise has participated in the NMTC program since 2009 and received $60 million in funding through the program in 2019. Sunrise has received $243 million of total NMTC allocations in five separate awards to date.

Ensuring Financial Access for All

The COVID-19 pandemic has exacerbated inequities among minority and low-income groups, accentuating the need for financial inclusivity. CDFIs play a vital role in ensuring all communities have access to the opportunities necessary to succeed.

For more information on CDFIs, visit the CDFI Fund’s website.

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