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Explainer: What are CDFIs, and how have they supported U.S. economic security


By Milan Bhatt, Deputy Director, Economic Inclusion at Clinton Global Initiative; and Maeve Curtin, Senior Community Manager, Entrepreneurship

In 1994, President Clinton championed and signed into law a federal fund to create a new type of banking institution – community development banks called CDFIs (Community Development Financial Institutions).

Recent reports suggest that federal funding for CDFIs is at risk. Here’s why this is such a critical issue for communities across the country.

What are CDFIs?

CDFIs are private banks, credit unions, and other financial institutions that are based in low- and middle-income communities across the U.S. – in small towns and rural areas, lower-income neighborhoods in large cities, Native communities, and more. These communities traditionally didn’t have many options for banking or sources of capital, as many traditional banks saw these areas as too risky and not profitable.

With the creation of a new fund in 1994 to connect these banks with billions in capital, CDFIs have helped people in communities across the U.S. start their own businesses, buy a home, work better paying jobs, and more.

In 1997, there were fewer than 200 CDFIs. By the end of the Clinton Administration, that had more than doubled. Today, there are more than 1,400 CDFIs certified across all 50 states, the District of Columbia, and Puerto Rico.

CDFIs have lent and invested hundreds of billions of dollars in communities across the country. According to the Opportunity Finance Network, these institutions currently manage $304 billion in loans that support:

  • More than 4.3 million businesses;
  • Nearly one million families in accessing safe, stable, and affordable housing;
  • 5,000 community centers such as childcare centers, healthcare facilities, and schools.

How are they helping American communities today?

CDFIs are an example of what’s working in America. The Clinton Global Initiative (CGI) continues to advance the mission of these institutions: investing in local communities and giving more people the chance to live their best life stories. As we have worked for two decades to build partnerships and drive action on economic opportunity, CDFIs have been critical partners from the private sector. 

Some examples of CGI partners that are helping Americans today:

  • In Appalachia, CDFIs are using data tools to identify rural communities that have been left out of investment opportunities, and to support deserving small businesses and entrepreneurs from those areas. (Learn more about Appalachian Community Capital here)
  • One nonprofit impact investor has created a “Good Jobs Innovation Lab” – where entrepreneurs have access to professional training and mentorship from a nationwide network. (Learn more about Pacific Community Ventures here)
  • In Puerto Rico, a network of credit unions and cooperativas are helping local businesses access financial programs and resources more easily available on the U.S. mainland — helping generate over $330 million in investment so far. (Learn more about Inclusiv here)

Have CDFIs worked?

This model has also shown that serving areas traditionally overlooked by mainstream banking institutions can be profitable and successful. For every dollar awarded by the federal government, CDFIs have brought in an additional $8 in private investment that goes to local economic development. These institutions also have loan default rates nearly half those of traditional banks. 

In recent years, administrations from both sides of the aisle have turned to the CDFI community to help address urgent challenges. In 2020, as the COVID-19 pandemic hit low-income communities hard, at the request of the administration CDFIs stepped up to issue critical loans and grants to businesses – with over $16 billion mobilized in the first four months of the pandemic. Last year, the CDFI Fund awarded nearly $250 million to 48 organizations for the development of affordable housing and community facilities that will help the construction of more than 26,000 affordable housing units.

For all these reasons, there has always been broad bipartisan support for CDFIs. Over the past three decades, CDFIs have been a critical lifeline to communities across the United States, creating jobs and helping Americans realize the dream of starting their own business and owning their own homes. They are a model of what’s working that all Americans can come together to support.