Why Community Development & Why CDFI?

Many credit unions today are stretching to expand their community development and outreach programs. Credit unions are pursuing community development financial institution certification because of their desire to promote greater community outcomes and, of course, grant awards to fund them. However, receiving CDFI Certification and grant funding, usually up to $1 million, only scratches the surface of the potential for credit unions interested in strengthening their communities.  

An example of the potential associated with being community-minded is $1.1 billion Dade County Federal Credit Union, Sweetwater, Florida. The credit union had the strategic foresight to not only pursue CDFI Certification but also to recruit a CDFI-experienced and passionate community development leader to lead its community development efforts. When the pandemic hit, Dade County FCU was ready to hit the ground running with existing partnerships, products and programs that resulted in $25 million in funding to expand inclusive, diverse and equitable lending through the Miami Dade County area. The CU calls this effort Project Rise. 

What Do We Mean by ‘Community Development’?

Community development in a broad sense is a process through which community members come together to take collective action and generate solutions to common problems. In the financial services space, this often means providing access to affordable financial products and services. While such access is a staple of economically sound communities, at least a quarter of American households are unbanked or rely on costly payday lenders and check-cashing outlets. In recent years, the lack of access to capital for small businesses and other critical community development projects has also led to an increased need for alternative and reliable sources of financing. 

Being a community development-minded credit union often means helping lower- and moderate-income, sometimes credit-challenged and other underserved consumers achieve financial independence. The mission of community-minded credit unions aligns perfectly with the mission of the CDFI Fund, which we’ll talk about next.

What Is a CDFI?

The Community Development Financial Institutions Fund was established by the Riegle Community Development and Regulatory Improvement Act of 1994 with the mission of expanding economic opportunity for underserved people and communities by supporting the growth and capacity of a national network of community development lenders, investors and financial service providers.

The CDFI Program, a department of the U.S. Treasury, uses monetary awards and training opportunities to invest in and build the capacity of CDFIs, empowering them to grow, achieve organizational sustainability and drive community revitalization. The CDFI Fund exists to create economic opportunity in America’s underserved communities, transforming the lives of the people who live and work there. Since investment decisions are made at the local level by the CDFI, its financial products and investments target the community’s greatest needs and opportunities. 

The CDFI Program offers both financial and technical assistance awards to CDFIs. These awards support and enhance the ability of CDFIs to meet the needs of the communities they serve. Certified institutions must compete for these awards through the application process.

CDFI Certification also is the gateway to the CDFI community, a network of mission-driven organizations serving and empowering economically distressed communities. There are certified CDFIs in all 50 states, the District of Columbia, Guam and Puerto Rico.

To be eligible for CDFI Certification, an organization must meet the following criteria: 

• Have a primary mission of promoting community development 
• Provide both financial and educational services 
• Serve and maintain accountability to one or more defined target markets 
• Maintain accountability to a defined market 
• Be a legal, non-governmental entity at the time of application (Tribal governmental entities are the exception) 

CDFI certification opens the door to opportunities for CDFIs to excel—both operationally and financially. 

Why CDFI?

As mission-driven organizations, CDFIs fill gaps in their communities by offering affordable financial products and services that help to meet the unique needs of economically underserved people and groups. 

Here are three specific benefits to becoming CDFI-certified:

• Grant funding. Only CDFIs can apply for, receive and put to work awards from the CDFI Fund. Receiving these funds allows credit unions to better serve the needs of their communities. CDFI status also may make a credit union eligible for additional sources of grant funding, such as from local or state agencies.
• Mission alignment. CDFI credit unions get grant support for focusing on serving a specific market that aligns with their mission. 
• Market differentiation. Being a CDFI sets a credit union apart in the marketplace. CDFI status is recognized by other members of the community development community and therefore opens opportunities for partnerships with other community development organizations. CDFI status can also be the cornerstone of a credit union’s efforts to communicate its mission, increasing staff engagement and enhancing how the credit union talks about its community impact.

Becoming a CDFI will not make a credit union succeed on its own. This certification can be leveraged as both a building block and a tool to achieve growth and impact in underserved markets.

Our Example

In the story of Dade County FCU and its Project Rise, a group of CDFIs, government and local non-profits gathered to find a solution for overlooked and struggling small businesses. The Miami-Dade Board of County Commissioners seeded Project Rise through a $25 million allocation, stemming from its Federal CARES Act Coronavirus Relief Fund allotment. As a public-private partnership, Dade County FCU, a local, leading CDFI, administered the program. This level of community cooperation and funding far exceeds an annual CDFI grant award of $1 million, demonstrating how CDFI credit unions can think and act big, maximizing the credit union brand and providing solutions that serve local community needs.  

CDFI Certification is within reach for hundreds or perhaps thousands of additional credit unions, but credit unions must take action to make that reach. For most credit unions, the first step is a strategic decision and commitment to providing products and services that can compete and win in low-income communities. Today’s CDFI credit unions illustrate many different models of success. Evidence suggests that credit union models and innovations will continue to multiply in the coming years. If these efforts continue, the benefits will be shared by credit unions and low-income communities alike. 

Alison Carr, PHR, CUDE, I-CUDE, is chief strategy officer at Your Credit Union Partner.