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What Are Community Development Financial Institutions?

These banks aim to promote financial literacy in underserved communities.

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Community development financial institutions aren’t like traditional banks. CDFIs offer underserved communities a place to develop financial literacy through money management skills and banking products. Without understanding how credit, banking or loans work, many of us can get on the wrong track with overspending, overdrawing, paying hefty fees or accumulating debt. 

Instead of pushing specific banking products and services, CDFIs provide access to banking products with less strenuous credit requirements. 

“CDFIs don’t just talk the talk; they walk the walk of creating positive social change,” said Michael Ryan, a former financial planner and founder of Michael Ryan Money. Generally, CDFIs team up with community-based organizations, government agencies and foundations to maximize their impact, Ryan said.

Here’s more about CDFIs, including what sets them apart from traditional banks, and how to find one in your area. 

What is a CDFI?

Simply put, a government-funded CDFI offers financial services and resources to businesses and families in urban and rural low-income communities.  

CDFIs are certified by the US Department of Treasury’s CFDI Fund to service individuals who lack access to financing, according to Bernel Hall, president and CEO of New Jersey Community Capital. The CDFI Fund offers monetary awards and tax credits to financial institutions. Those institutions can also apply for funds to create CDFIs to help economically disadvantaged people in underserved communities. 

Currently, there are over 950 CDFIs in rural and urban communities nationwide, according to the CDFI Coalition. These CDFIs assist individuals and families with savings accounts and personal loans, as well as help small businesses acquire loans and capital. 

“These products and services support the preservation and development of affordable housing and sustainable community development ventures that increase jobs, improve education and strengthen neighborhoods,” said Hall. For example, loans from CDFIs can build businesses and community facilities, according to the CDFI Coalition. 

If you know someone kick-starting a small business serving a low-income community, a CDFI could help them get funding easier. A local CDFI could also provide resources to a family eager to learn about credit and banking options.

The difference between a bank and a CDFI

CDFIs can fall under four different umbrellas: community development banks, credit unions, loan funds and venture capital funds. These financial institutions wouldn’t be considered CDFIs on their own. The determining factor is the community they’re aiming to serve. What sets them apart is who the bank is targeting to help, said Hall.

CDFIs are available everywhere, but some credit unions serving as CDFIs still have membership requirements, just like a regular credit union, said Hall. So if you want to join a community development credit union, keep in mind that you may have to be a county or city resident or be employed by a certain business. 

What are the requirements for a CDFI? 

The US government supports CDFI programs through funding and tax credits. Institutions must apply and qualify for the status. 

For a financial institution to apply and qualify to be a CDFI, it must meet the following criteria, according to the Federal Deposit Insurance Corporation

  • Be a legal financing entity that’s dedicated to financing and isn’t affiliated with the government.
  • Have a mission that promotes community development, and offer development services.
  • Serve at least one target market by allocating at least 60% of its financial activities to underserved communities, and maintain accountability to its target market. 

Where can I find a CDFI?

If you’re in need of a business, real estate or personal loan, you can use the Opportunity Finance Network’s Locator to find a CDFI in your area. Though CDFIs aren’t physically available in every state, there are CDFIs that serve all 50 states with resources by phone and online. Some bigger banks, such as Bank of America, also partner with CDFIs to offer resources and assistance.

The bottom line

Though local credit unions and banks can offer banking services and products you need to manage your money, the right CDFI can give you resources to attain financial skills and get greater access to banking products. Even if there isn’t a CDFI near you, many operate online to offer assistance.

Editors’ note: An earlier version of this article was assisted by an AI engine. This version has been substantially updated by a staff writer.

Dashia is a staff editor for CNET Money who covers all angles of personal finance, including credit cards and banking. From reviews to news coverage, she aims to help readers make more informed decisions about their money. Dashia was previously a staff writer at NextAdvisor, where she covered credit cards, taxes, banking B2B payments. She has also written about safety, home automation, technology and fintech.
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