Community banks strive to improve the financial health of their customers and communities, particularly those community banks located in low and moderate-income (LMI) areas. Many community banks have attained the special designation of being a community development financial institution (CDFI) which recognizes their dedication to LMI communities.
CDFIs are specialized financial institutions that provide financial products and services to populations and businesses located in underserved markets. These institutions have community development missions and a reputation for lending responsibly in low-income communities. Community banks comprise approximately 240 (22 percent) of the 1,100 CDFIs in the nation.
Before designation as a CDFI, banks must apply to the CDFI Fund for certification. Among other requirements, a bank must demonstrate a primary mission of community development, serve one or more target markets, provide development services to borrowers in conjunction with financing activities, and maintain accountability to its target market.
In summer 2020, the CDFI Fund proposed revisions to its application and annual certification to ensure that entities provide financial products and services in a way that do not harm consumers. While ICBA supports this goal, the way the Fund proposes to assess these criteria could prove to be troublesome, such as asking a series of questions related to every financial product and setting rate caps on loans.