ACDFI is a Community Development Financial Institution. CDFIs are nonprofit entities offering tailored resources and innovative investment programs that invest federal, state, and local dollars and private sector capital into underserved communities. According to Opportunity Finance Network (OFN), CDFIs are private financial institutions 100% dedicated to delivering responsible, affordable lending to help low-income, lowwealth, and other disadvantaged people and communities join the economic mainstream. CDFIs do not generally compete with conventional financial institutions as the markets they serve are defined differently. CDFIs are nonprofit entities that take the form of banks, credit unions, or specialized loan funds. Although different versions or formats of CDFIs began in the 1880s, the more structured CDFI today was shaped in the 1960s and 1970s, then expanded notably in 1994 with the Riegle Community Development Banking and Financial Institutions Act. Certified through the U.S. Department of Treasury, over 950 CDFIs exist nationwide, with 17 CDFIs headquartered in Colorado (12 loan funds, three credit unions and two What is a CDFI? By Kelly Green, Director of Marketing, Colorado Enterprise Fund banks). Many are in rural areas, but some are in the Front Range corridor, including the first and oldest CDFI loan fund in Colorado — the Colorado Enterprise Fund. CDFIs can focus on areas such as small business/ community lending or mortgage assistance. Other CDFIs can focus on particular groups, such as Native Americans, or geographic areas like the western slope of Colorado. Regardless of their focus, CDFIs help drive local economies, improve the quality of life in the communities, and fill the gap between traditional lenders and short-term, high-interest paydaytype loans. CDFIs look at lending and banking through a slightly different lens. CDFIs will partner and leverage investments and grants from financial institutions, foundations, government agencies, non-profits, and individuals to provide loans, banking services, and business educational services in a feasible and manageable approach. For the traditional banking community, CDFIs are a viable alternative to offer prospective customers who cannot access conventional forms of financing. Since CDFIs must devote at least 60% of their activities to underserved markets, they usually have more risk tolerance than traditional financing as they help borrowers with lower credit scores, limited collateral, start-up businesses, and those with tighter cash flows. From a lending standpoint, CDFIs can offer creative financing such as longer terms and flexibility with underwriting requirements. Borrowers don’t need to rely on high-interest credit cards or payday loans to obtain the capital to make their dreams a reality. CDFIs are created to accelerate community prosperity, provide access to capital, and help build wealth. As borrowers repay their loans, CDFIs recycle money back into the community through new borrowers, which becomes a multiplier effect. Injecting new sources of capital into underserved communities is important, along with creating jobs in high unemployment areas so individuals in the community can not only be self-sufficient but thrive. Many CDFI clients are low-income and minorities. It has been shown in various research reports, including the 2019 Federal Reserve Report, that the number of minority-owned businesses has grown rapidly in recent years and CDFIs remain popular among minorities to receive loans. Through vital lending for businesses, housing, and community facilities, CDFIs create the foundation for vibrant communities. Filling this void for minorities and distressed areas is an achievement for everyone. CDFIs have a long history of partnering with banks at the national, local and community levels. Many banks refer customer prospects they cannot service to CDFIs in their community with the comfort of knowing the CDFIs will likely send the businesses back to them once they are “bankable.” Bankability of a business is a measure many CDFIs use internally to know a www.coloradobankers.org 10
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