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Future Niche of CDFIs

The participation of conventional lenders in the community development field is in many ways evidence of success for the development finance industry. The case is often made that the goal of development is not only to initiate and fund projects in lower-income neighborhoods but also to attract traditional commercial lending through the success of nontraditional capital. However, the success of the development finance industry raises new questions about the appropriate role of development finance organizations in today's market. The growing involvement of mainstream financial institutions in markets that were previously underserved has created the need to redefine, or at least reexamine, the position of community development financial institutions in the financial sector.

Through interviews with representatives of nine CDFIs as well as with officials at mainstream institutions, this study explores how interaction with conventional financial institutions enhances the impact of CDFIs. It addresses the ways integration and collaboration currently take place and which CDFI characteristics mainstream financial institutions value in forming relationships. It also touches on some of the challenges to CDFIs with respect to profitability and sustainability. This study is not intended as an exhaustive industry analysis but provides insights on some key industry trends.


This study explores innovations from a cross-section of CDFI organizations, most of which have long operational histories and a diverse set of relationships with their mainstream financial partners. The group includes the Community Reinvestment Fund (CRF), Community Preservation Corporation (CPC), Low- Income Investment Fund (LIIF), Nonprofit Finance Fund (NFF), Center for Community Self-Help (Self-Help), ShoreBank Corporation, The Reinvestment Fund (TRF), ACCION New Mexico (ACCION-NM), and the National Community Investment Fund (NCIF); see Figure 2.1. All have weathered numerous changes in the mainstream financial services market, public policy, and the general economic climate and adapted to these environmental changes. Two of the participant organizations are mission-focused depository institutions and, as such, have at least one steady capital source (deposits). ACCION-NM and NCIF, both established in the mid-1990s, provide interesting cases of the use of existing banking infrastructure and perhaps insights for a possible future state of the development finance industry.

Roles described in the next section are drawn from personal interviews with the CEO and senior staff of each organization, as well as from background research and literature reviews. While we worked from a list of questions covering organizational history and financial relationships, each discussion went in its own direction. We also spoke with representatives of banks, foundations, and government agencies to gain some external perspective on these relationships. All interviews were conducted between June 2006 and April 2007.

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