What Is a Community Development Financial Institution?

The Community Development Financial Institutions Fund (CDFI Fund) is a private sector financial institution that focuses on personal lending and business development efforts in local communities requiring revitalization in the U.S. CDFIs can receive federal funding through the U.S. Department of the Treasury by completing an application. They can also receive funding from private sector sources such as individuals, corporations, and religious institutions.

Understanding Community Development Financial Institution

Community Development Financial Institutions (CDFIs) focus on serving the needs of the poor and working class within urban and rural communities, as many of these citizens are underserved or ignored by traditional commercial banks and lending processes. The goal is to help this group of people become more financially self-sufficient and contribute more to overall economic growth through community redevelopment.

There are hundreds of chartered CDFIs operating in the United States, each with a focus on using innovative (and often less stringent) lending practices, educational efforts, and small business lending. The CDFI's vision is an America in which all people and communities have access to the investment capital and financial services they need to prosper.

CDFIs tend to be controlled locally, without interference from the federal government or national corporate hierarchy.

Community Development Through the CDFI Fund

The CDFI Fund promotes access to capital and local economic growth through its Community Development Financial Institutions Program with direct investment that provide loans, investments, financial services, and technical assistance to underserved populations and communities.

The fund also provides an allocation of tax credits to Community Development Entities that enables them to attract investment from the private sector and reinvest in low-income communities.

Its Bank Enterprise Award Program provides an incentive to banks to invest in their communities and in other CDFIs. The CDFI Bond Guarantee Program issues bonds to support CDFIs that make investments for eligible community or economic development purposes.

Through its Capital Magnet Fund, the CDFI offers competitively awarded grants to finance affordable housing solutions for low-income people and low-income communities nationwide.