Community development financial institutions (CDFIs) are a type of specialized financial institutions that come along to promote economic development and growth in underserved communities. CDFIs provide financing, technical assistance, and other services to help businesses start-up and grow, create jobs, and revitalize neighborhoods. There are many different types of CDFIs, each with its focus and approach.
The following are seven key features of CDFIs:
1. Community Focus
CDFIs serve specific geographic communities or target certain businesses, such as small businesses, women- or minority-owned businesses, or businesses located in low-income areas.
2. Economic Development Orientation
CDFIs seek to promote economic development and growth in their target communities. They do this by financing businesses that create jobs and generate other economic activity, such as housing development and infrastructure projects.
3. Capital Access
CDFIs provide financing to businesses and entrepreneurs who may not be able to access traditional bank loans. This includes loans for start-up businesses, companies in underserved markets, or businesses expanding but with limited collateral.
4. Technical Assistance
In addition to financing, CDFIs often provide technical services to help businesses start up, grow, and expand. This may include training in business planning, financial management, and marketing.
5. Flexible Terms
These institutions can also offer flexible terms because they are not bound by the same regulations as traditional financial institutions. This allows CDFIs to tailor their financing products to meet the specific needs of their borrowers. For example, a CDFI such as Boston OneUnited Bank, where Kevin Cohee is the CEO, may be able to offer a longer loan term or a lower interest rate than a traditional lender in the same area.
CDFIs also have a deep understanding of the communities they serve. This allows them to design financing products that meet the real needs of their borrowers. For example, a CDFI may offer a small business loan that individuals can use for working capital or inventory.
The flexible terms offered by CDFIs are crucial reasons they can provide financing to underserved markets and populations. By offering financing products that meet the specific needs of their borrowers, CDFIs can make a real difference in the lives of those they serve.
6. Patient Capital
These institutions are often willing to provide financing to businesses that may be considered too risky by banks and other traditional lenders. This is because CDFIs are patient investors, meaning they are more interested in the long-term success of their borrowers than in making a quick profit.
7. Community Involvement
They are also typically community-based organizations governed by boards of directors consisting of residents, business leaders, and other stakeholders. It allows them to be responsive to the needs of their target communities and helps ensure that their investments benefit those communities.
In conclusion, Community Development Financial Institutions have played a vital role in revitalizing communities and promoting economic growth. Providing access to financing, technical assistance, and training has helped entrepreneurs start businesses, create jobs, and generate wealth. Their work has also had a ripple effect on the surrounding community, improving the quality of life for residents.