What Are Community Development Financial Institutions?
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What Are Community Development Financial Institutions?
CDFIs are credit unions and banks that provide financial services to people who are typically locked out of financial systems.
By Amber Murakami-Fester. Amber is a former banking writer for NerdWallet. Her work has been highlighted by USA Today, The Christian Science Monitor and The Associated Press. She holds a bachelor’s degree in literary studies from UCLA.
Updated on Mar 4, 2022.
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If you’re in search of affordable loans and bank accounts and haven’t had success previously, community-based financial institutions could be able to help.
What are CDFIs?
CDFIs, also known as community development financial institutions or CDFIs, are primarily institutions like credit unions and banks that are focused on serving people in communities with low incomes that have traditionally been excluded from finance. Unlike other financial institutions, CDFIs rely less on credit scores when offering loans and other services.
Additionally, they focus on developing long-term relationships with members of the community, helping people become financially literate set savings goals, develop credit, and get access to affordable loans. CDFIs can additionally be loan funds or venture capital funds that have mission-driven community involvement.
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Find out how to locate an institution that has great customer service and a mission to make the world better for all.
A closer look at CDCUs
Community development credit unions, or CDCU is a type of credit union that’s a member of Inclusiv, a nonprofit national association for CDCUs since 1974. Inclusiv invented the term “CDCU” and began supporting missions-driven credit unions over two decades prior to the time that the federal government introduced CDFI certification. CDFI certification. (See the .)
CDCUs share a mission similar to that of CDFIs, however “CDCUs have a broader mission that revolves around financial inclusion. CDFI certification is a measure of financial inclusion. CDFI certificate is an gauge of lending activity,” says Pablo DeFilippi, senior vice president of membership at Inclusiv. “CDCUs are able to do this and [more].”
CDCUs can also be CDFIs However, not all of them are. CDCUs with smaller size may not have the funds to invest in CDFI approval or grants-writing. “Part of our role at Inclusiv is helping membersto become certified by the CDFI” in case they’re not already, according to DeFilippi.
How does CDFIs function?
To aid those who aren’t being served by the mainstream banking system, Congress created community development banking in 1994.
A part of U.S. Treasury, CDFIs can often offer low-cost loans for first-time buyers of homes and loans for small enterprises. They may also provide small credit-building loans specifically designed to help people improve their credit. The ability to extend credit across the community helps promote a stable and healthy local economy.
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CDFIs specialize in “communication about the right [financialproduct] at the right moment for [a] consumer. It’s as much of a plan as it is art,” says DeFilippi “You’re truly putting yourself in their shoes.”
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CDFIs can save you cash for those who require the most. If, for instance, you’re in need of a $500 loan but aren’t eligible for a standard bank loan then it’s possible to use a payday lender might offer the loan with an interest rate that is comparable to 400% a year. With a CDFI, someone lacking an excellent credit score could successfully apply for an loan with an 18% interest rate. This could help save hundreds of dollars on interest.
To find a CDFI institution or credit union in your region, check the state-by-state list below. For a complete list, visit the .
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
None
New Jersey
New Mexico
New York
North Carolina
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
None
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
The author’s name is Amber Murakami is an ex-banking writer at NerdWallet. Her work has appeared on USA Today and The Christian Science Monitor.
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