What is a CDFI and How Can it Help Your Community?

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What is a CDFI?

CDFIs are private, nonprofit organizations that are certified by the U.S. Treasury Department's Community Development Financial Institutions Fund (CDFI Fund). To receive certification, an organization must meet certain criteria, such as a primary mission of promoting community development and serving low-income communities. CDFIs can take many forms, including credit unions, community banks, loan funds, and venture capital funds.

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How do CDFI’s work?

To truly understand the impact of CDFIs, it's important to explore their unique business model. CDFIs are mission-driven organizations that focus on providing financial services to underserved communities. Their goal is to create economic opportunities in areas that have historically been neglected by mainstream financial institutions.

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CDFIs obtain funding from various sources, including grants, loans, and equity investments. The funding is then used to provide loans and other financial products to individuals and small businesses in underserved communities. By providing access to affordable credit, CDFIs empower people to start businesses, create jobs, and build wealth.

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There are many successful examples of CDFI initiatives that have promoted economic development in underserved communities. For example, some CDFIs offer training programs to help entrepreneurs develop business plans and financial strategies. Others provide affordable housing loans that help families purchase their first homes. These initiatives not only provide immediate benefits to the communities they serve, but also have a ripple effect in creating long-term economic stability.

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How do CDFIs benefit communities?

CDFIs play a crucial role in providing financial services and products to underserved communities. They offer affordable loans and other financial products to individuals and businesses that may not have access to traditional banking services due to factors such as low income, lack of credit history, or location in a rural or urban area. CDFIs also provide financial education and counseling to help individuals and businesses build financial capability and make informed financial decisions.

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How do CDFIs differ from traditional banks?

CDFIs operate differently from traditional banks in several key ways. First and foremost, CDFIs have a unique mission-driven approach to lending and investment. While traditional banks are commonly profit-driven, CDFIs focus on promoting economic development and financial inclusion in underserved communities. As a result, CDFIs are often willing to lend to individuals and small businesses that may not meet the strict credit requirements of traditional banks.

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Another key difference between CDFIs and traditional banks is the sources of funding available to them. While banks rely primarily on deposits and loans from other financial institutions, CDFIs have access to a variety of funding sources, including grants, loans, and equity investments. This diversity of funding sources allows CDFIs to be more flexible in their lending practices and better able to respond to the unique needs of their communities.

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CDFIs also tend to have a more personalized approach to lending, with a focus on building relationships with their clients. This can include providing technical assistance, financial education, and other services to help borrowers succeed. 

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Conclusion

CDFIs play a critical role in promoting economic development and financial inclusion in underserved communities. By providing affordable financial products and services, CDFIs help individuals and businesses build financial capability and improve their financial well-being. If you're interested in learning more about CDFIs and how you can get involved, visit the CDFI Fund's website or reach out to a local CDFI organization in your community. 

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If you are involved in a CDFI and looking to move or upgrade your digital lending infrastructure don’t hesitate to book a call with us below!