Community development financial institutions: bridging financial gaps in underserved communities

In many American communities, traditional financial institutions have left a void. Banks have closed branches in many low-income neighborhoods, small businesses are unable to secure loans to fund their operations, and members of the community may lack access to basic financial services.

To fill this void, the U.S. government created a network of Community Development Financial Institutions (CDFIs), which are creating economic opportunity in places the mainstream financial system has overlooked.

Origins of CDFIs

CDFIs trace their roots back to the U.S. civil rights movement of the 1960s and 1970s, when community activists fought against redlining and financial discrimination. However, CDFIs gained formal recognition when the U.S. Congress passed the Riegle Community Development and Regulatory Improvement Act of 1994, which established the CDFI Fund within the U.S. Treasury Department.

This legislation created a means of certifying CDFIs and provide them with financial and technical assistance. The goal was to empower mission-driven financial institutions to advance economic growth in distressed communities across America.

Structure: how CDFIs operate

CDFIs come in several forms, each designed to address specific community needs:

Community Development Banks, which are federally insured institutions that provide capital to rebuild economically distressed communities.
Community Development Credit Unions, which are member-owned financial cooperatives that serve low-income communities.
Community Development Loan Funds, which provide financing and development services to businesses, organizations, and individuals in low-income communities.
Community Development Venture Capital Funds, which supply equity capital to small and medium-sized businesses in underserved communities.

All CDFIs share a common mission, which is to deliver responsible, affordable financial products that will help disadvantaged people and communities join the economic mainstream.

What CDFIs do

Unlike traditional financial institutions that primarily focus on profitability, CDFIs aspire to balance financial considerations with positive community impact. Following are typical services that they provide:

Affordable housing loans
Small business financing
Consumer financial services
Commercial real estate loans
Community facilities funding

Notably, CDFIs offer flexible terms and supportive practices that conventional lenders typically don't provide—like financial education, technical assistance, and longer payback periods.

Ways that CDFIs help transform communities

According to the U.S. Treasury Department's CDFI Fund 2023 Annual Report, certified CDFIs manage over $220 billion in assets and have created or maintained more than 1.8 million jobs.

Consider Coastal Enterprises, Inc. (CEI) in Maine, which helped finance Sea Meadow Marine Foundation, preserving working waterfront access for local fishermen while creating sustainable jobs. Or Southern Bancorp in Arkansas and Mississippi, which has provided millions in mortgage loans to families in the Mississippi Delta, one of America's most persistently poor regions.

In urban settings, CDFIs like Chicago Community Loan Fund have financed affordable housing developments, community facilities, and commercial projects that help transform neglected neighborhoods. During the COVID-19 pandemic, CDFIs were instrumental in delivering the U.S.-sponsored Paycheck Protection Program loans to minority-owned small businesses that larger banks overlooked.

The Lower East Side People's Federal Credit Union in New York is another successful example of the CDFI mission. It was founded in 1986 when the last bank branch in Lower East Side neighborhood closed. It now serves over 8,500 members, offering affordable checking accounts, small-dollar loans, first-time homebuyer programs, and financial counseling—services particularly vital for immigrants and low-wage workers.

How faith-based investors can support the work of CDFIs

Faith-based investors have unique opportunities to invest their assets that support CDFIs by aligning their investments with the values of social justice and community care. Some examples include:

CDFI Deposit Certificates: Many CDFIs offer certificates of deposit where the funds directly support community lending. For example, Hope Credit Union's Transformational Deposits program allows faith-based organizations to make federally insured deposits that expand access to financial services in underserved communities.
CDFI-Focused Loan Funds: Organizations like the Calvert Impact Capital and the Adrian Dominican Sisters' Portfolio Advisory Board enable faith-based investors to pool resources that are then deployed to CDFIs nationwide.
Direct Investment: Larger faith-based institutions can make equity investments in CDFI loan funds or banks, potentially earning both financial and social returns.
Program-Related Investments: Faith-based foundations can use program-related investments (PRIs) to provide below-market loans to CDFIs working in areas aligned with their mission.

Many faith communities have successfully integrated CDFI investing into their stewardship. The Francesco Collaborative (which absorbed the former Catholic Impact Investing Collaborative) helps Catholic institutions direct capital toward CDFIs that serve vulnerable communities while upholding their faith values.

International faith-based community finance options

Faith-based investors outside the U.S. can find similar vehicles that apply CDFI principles globally:

Microfinance Institutions (MFIs): Organizations like Opportunity International and VisionFund provide small loans to entrepreneurs in developing countries, often working through faith networks.
Impact Investment Funds: Funds such as BlueOrchard and Triodos Bank offer faith-aligned investors exposure to community finance institutions worldwide.
Community Banks: Many countries have their own versions of community banks. In the UK, for example, community development finance institutions (also called CDFIs) serve similar functions to their American counterparts.
Credit Unions: Faith-based credit unions exist in many countries, including Canada's Kindred Credit Union, which was founded on Mennonite principles.
Islamic Finance Institutions: These provide Sharia-compliant financial services that avoid interest while supporting community development.

The U.S.-based Interfaith Center on Corporate Responsibility (ICCR) offers resources connecting faith-based investors around the world with community finance opportunities that match their values and geographic interests.

A call to action for faith-based investors

The FaithInvest community has consistently expressed a desire to make investments that generate true impact alongside financial returns. CDFIs offer a proven, values-aligned pathway to achieve this dual purpose. By investing in CDFIs, faith-based organizations can directly support affordable housing, small business growth, healthcare facilities, and sustainable development in communities that need it most.

FaithInvest is ready to help your organization identify CDFI partners that align with your specific mission, values, and impact goals. Our team can offer suggestions for how you can find opportunities that transform lives while ensuring prudent and responsible stewardship of your resources. Feel free to reach out to FaithInvest for additional information at info@faithinvest.org.