Congress should continue to use proven financial leverage to help those who need it most
© Greg Nash

Getting $12 of resources for every one dollar invested is good policy, and Community Development Financial Institutions’ (CDFIs) have demonstrated success in leveraging federal dollars at this rate year after year. CDFIs use these competitively awarded federal dollars to help fill a vital niche in the nation's financial services delivery system, serving communities and market sectors that most conventional lenders cannot - with the ultimate goal of bringing CDFI customers into the mainstream economy as bank customers, home owners and/or entrepreneurs.

The Community Development Financial Institutions Fund (CDFI Fund) was established within the U.S. Department of Treasury in 1994 to promote community development in economically distressed urban and rural areas by investing in mission-driven financial institutions—CDFIs. These organizations provide the flexible, patient capital and financial services that consumers, small businesses and communities need to grow and thrive.

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There are some 1,100 CDFIs working in economically distressed rural and urban communities across the country. In FY 2017, CDFI program awardees made more than 120,000 loans or investments totaling over $5 billion to more than 12,000 small businesses. The average size of each loan or investment was $41,744. CDFIs also financed over 27,962 affordable housing units. CDFIs also financed community facilities such as health centers, child care and other necessary services—the services are flexible and tailored to meet their communities’ economic development needs.

Access to Capital for Entrepreneurs in Georgia is great example of the work of CDFIs in assisting community businesses. CDFI funds have allowed ACE to help over 60 small businesses, from an automotive services business, to a chiropractic practice and a janitorial service provider. ACE provides entrepreneurs with the technical assistance and business coaching needed to work through the issues accessing financing, understand the importance of credit scores along with the need for banking services.

Coastal Enterprises, Inc. in Maine provides rural business development and loans to entrepreneurs in a variety of industries across the country. From timber and fishing, to restaurants, retail and increasing access to home ownership—they are tangibly helping low-income communities and individuals access the capital and counseling necessary to grow businesses, create jobs and provide needed services in their neighborhoods.

Over the last 30 years, as measured by its share of GDP, federal community spending has dropped by 75 percent. CDFI’s have helped fill this gap by using a relatively small amount of federal funds to leverage capital from other public and private, state and local sources. The appropriation in Fiscal Year 2018 of $250 million will result in over $2.5 billion in financial assistance to business and projects.

The FY 2019 House Financial Services and General Government Appropriations bill would reduce the federal investment for CDFIs to $191 million. However, because of the significant leverage achieved by CDFIs, this reduction’s impact will be far greater than $59 million in communities nationwide. Based on CDFIs track record of raising $12 for every dollar of federal funds, this cut would translate to a $700 million reduction in terms of the services and financing provided by CDFIs in hard-hit rural and urban communities.

America’s struggling and distressed communities need this important financial tool, which is proven effective in delivering financial services to distressed urban neighborhoods and remote rural areas, and facilitating the development of strong economically vibrant communities. We urge Congress to bolster its support for the CDFI Programs, supporting economic development in communities where it is needed most.

Bob Rapoza is founder and president of Rapoza Associates in Washington, D.C., and spokesperson for the CDFI Coalition