CDFIs and Mainstream Financial Institutions

History
Helping Low-Income People
CDFI Products and Services
Sources of Funding
CDFIs and Mainstream Financial Institutions
CDFI Fact Sheet

CDFIs and Mainstream Financial Institutions

CDFIs differ from mainstream financial institutions in some key aspects. CDFIs cultivate specialized knowledge about the communities in which they do business. They forge deep relationships with their customers and community leaders. This translates into a willingness and commitment to spending time on individualized service, and specialized programs that are often too time-consuming or costly for mainstream financial institutions to implement. For example, many CDFIs offer non-conforming mortgages or loans. Others make accounts available to customers with limited or poor credit history. Mainstream institutions, on the other hand, tend to offer a few generic programs designed to capture the broader market.

Despite these differences, CDFIs do not supplant conventional financial institutions. In fact, they complement each other. Because CDFIs and banks share a market-based approach to serving communities, CDFIs often work in partnership with banks to develop innovative ways to deliver loans, investments, and financial services to distressed communities. Oftentimes, they jointly fund community projects, with the CDFI assuming the more risky subordinated debt.

Mainstream financial institutions also invest their own capital directly in CDFIs, receiving Community Reinvestment Act (CRA) credit and potential cash rewards under the CDFI Fund’s Bank Enterprise Award Program. Furthermore, CDFIs create a future market for mainstream financial institution products and services. They incubate businesses and people, helping them to grow and prosper. Once their customers have achieved some success, established a good credit history and have reached a substantial size, they can “graduate on” to borrowing larger amounts available from more conventional lending institutions. CDFIs are trailblazers in their communities, leading the way in investing in distressed urban and rural neighborhoods and bringing people into the economic mainstream as contributors to the economy.