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What Are Community Development Financial Institutions?

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What is Community Development Financial Institutions?

CDFIs are banks and credit unions which provide services to those who are normally excluded from financial institutions.

By Amber Murakami-Fester. Amber is a former banking writer for NerdWallet. Her writing has been featured by USA Today, The Christian Science Monitor and The Associated Press. She holds a bachelor’s diploma in literary studies from UCLA.

Mar 4 2022

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If you’re in search of affordable loans and bank accounts and haven’t had luck in the past, community-based financial institutions could be able to assist.

What exactly are CDFIs?

CDFIs, also known as community development financial institutions also known as CDFIs are mostly credit unions and banks that are focused on serving those in low-income communities that have historically been locked out of the financial system. Contrary to other financial institutions CDFIs do not rely on credit scores when providing loans and other services.

Additionally, they focus on creating long-term relationships with people of the community to help people become financially literate and set savings goals. They also help develop credit, and get access to inexpensive loans. CDFIs could also be loan funds as well as venture capital funds with community-oriented missions.

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A closer look at CDCUs

A community development credit union, or CDCU is a credit union that’s a member of Inclusiv an organization that is a national non-profit association of CDCUs since 1974. Inclusiv coined the term “CDCU” and began supporting missions-driven credit unions two decades before the federal government introduced CDFI certification. CDFI certification. (See a .)

CDCUs have a mission that is similar to CDFIs, but “CDCUs have a larger mission that revolves around financial inclusion. CDFI certification is a measure of financial inclusion. CDFI certification is a measure of lending activity” states Pablo DeFilippi, senior vice president of membership at Inclusiv. “CDCUs are able to do this and more.”

CDCUs can also be CDFIs however, they aren’t all. Smaller CDCUs may have fewer resources for CDFI accreditation or grant writing. “Part of our job at Inclusiv is helping membersget CDFI-certified” in the event that they don’t have it already, says DeFilippi.

How does CDFIs function?

To help consumers who aren’t served by the mainstream banks, Congress established community development banking in 1994.

A part of U.S. Treasury, CDFIs can often provide low-cost mortgages to first-time home buyers and loans to small-scale enterprises. They also can offer small credit-building loans that are designed to assist consumers build credit. Credit expansion throughout the community can help promote the stability and health of the local economy.

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CDFIs are specialized in “communication about the right [financial] product at the right time for the consumer. It’s as much a plan as it is an art” DeFilippi says “You’re really taking on the role of a consumer.”

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CDFIs can help save cash for those who require it most. If, for instance, you’re in need of a $500 loan but can’t qualify for a traditional bank loan, a payday lender could provide an loan with an interest rate equivalent to 400% per year. With a CDFI, someone lacking a strong credit score might be able to obtain a loan with an 18% interest rate. That can help save many hundreds of dollars on interest.

To find an CDFI institution or credit union in your area, check the state-by-state list below. For a complete list, visit the .

Alabama

Alaska

Arizona

Arkansas

California

Colorado

Connecticut

Delaware

District of Columbia

Florida

Georgia

Hawaii

Idaho

Illinois

Indiana

Iowa

Kansas

Kentucky

Louisiana

Maine

Maryland

Massachusetts

Michigan

Minnesota

Mississippi

Missouri

Montana

Nebraska

Nevada

New Hampshire

None

New Jersey

New Mexico

New York

North Carolina

Ohio

Oklahoma

Oregon

Pennsylvania

Rhode Island

None

South Carolina

South Dakota

Tennessee

Texas

Utah

Vermont

Virginia

Washington

West Virginia

Wisconsin

Wyoming

Author bio: Amber Murakami is an ex-banking writer at NerdWallet. Her work has appeared on USA Today and The Christian Science Monitor.

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