By Michael Emancipator
ICBA is working to raise awareness of a special designation available to certain community banks – the Community Development Financial Institution (“CDFI”). The designation, created by Congress, confers certain benefits for community banks, including access to federal grant funds, exemptions from certain regulations, and special consideration for programs, such as the recently enacted Paycheck Protection Program.
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 250 of the 1,200 CDFIs in this country.
CDFIs fill a niche in the nation’s financial services system by specializing in providing credit to borrowers and communities that may be difficult for traditional banks to serve. Many borrowers may be creditworthy but often lack credit history or have a poor past experience with alternative or predatory credit providers or a minimal amount of personal savings. To accommodate this market, CDFIs offer products with more flexible underwriting standards, combine a range of below-market financing with their own resources, and provide technical assistance with their lending activities to help ensure that borrowers use credit and capital effectively.
Before becoming designated as a CDFI, banks must first 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.
Interested in learning more? ICBA will be launching a webinar series in the near-future to discuss more about the basics of CDFIs, including how your bank can become certified and how to access the grants and other benefits. Be on the lookout for further details in NewsWatch Today.
Michael Emancipator is vice president and regulatory counsel for Independent Community Banker of America.