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History | Sources of Funding |
History
While the term “community development financial institutions" or “CDFI” is relatively new, the concept itself is part of a rich history of self-help credit. From the immigrant guilds of New York City's Lower East Side and the Prairie Populists of the late 1800s, to African-American communities forming the first community development credit unions in the 1930s, communities have sought self-help credit solutions because traditional financial institutions have ignored or abandoned them.
The current CDFI industry began taking shape in the late 1960s and early 1970s. Some of the first organizations dedicated to community development were created out of governmental efforts to address poverty alleviation and racial discrimination. The Johnson Administration, under its “War on Poverty” campaign and through the Office of Economic Opportunity, launched community development corporations (CDCs) to work in both urban and rural poor communities. In the successes of many of these early CDCs lay the foundation for today’s CDFI industry.
In the 1970s, CDFIs expanded their funding sources by reaching out to private organizations, particularly religious institutions and individuals. Many business-development loan funds were launched with federal funds from the Department of Housing and Urban Development, the Economic Development Administration and the Department of Agriculture. Community development credit unions and banks were started in the 1970s, such as South Shore Bank in Chicago (1973) and the Santa Cruz Community Credit Union (1977). The Neighborhood Reinvestment Corporation (NRC), a national intermediary that supports local Neighborhood Housing Services offices, was created in 1973 and began financing affordable housing in 1978. In April 2005, Neighborhood Reinvestment Corporation began doing business as Neighborworks® America.
Despite the increased diversity of funding sources, CDFIs grew only incrementally through the 1970s and 1980s. It wasn’t until the 1990s that the CDFI industry expanded dramatically. Factors contributing to this growth include:
- the creation of the CDFI Fund in 1994, a government agency that provides funding to individual CDFIs and their partners through a competitive application process.
- revised Community Reinvestment Act (CRA) regulations in 1995 which explicitly recognize loans and investments in CDFIs as a qualified CRA activity.
- a growing record of success that has inspired confidence in the CDFI industry and attracted new sources of support and funding.
Today the number of CDFIs continues to increase. There are over 800 CDFIs certified by the CDFI Fund. CDFIs operate in every state and the District of Columbia, serving both rural and urban communities.
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