Session Description
In thousands of communities across the United States, entrepreneurs, nonprofits, and consumers have limited access to financing.
Community Development Financial Institutions (CDFIs) are mission-centered lenders specialized in lending and technical assistance for borrowers outside the margins of traditional finance.
However, not every community has such an institution. This is where CDFI Friendly America comes in. The organization works with cities, towns, and regions with little to no CDFI activity to develop and implement a CDFI Friendly “hub”. A nonprofit organization matches local borrowers primarily to CDFIs and technical assistance providers and may also refer to other local financial institutions when appropriate.
Discover how and why this new capital access model was created and how it works successfully in communities across Indiana.
Join us to explore:
- a new way for local leaders to support community development.
- how to create a financial ecosystem that works for all community members.
- insights from the CDFI Friendly strategy, which brings hundreds of millions of dollars to under-invested people and communities.
- how three small communities in Indiana are facilitating access to the $450 billion CDFI Industry.
Session Recap
(AI-generated session recap made available by Google NotebookLM)
The State of CDFIs and Why They're Important to Our Communities
This session offered a deep dive into the world of Community Development Financial Institutions (CDFIs), exploring their crucial role in fostering economic growth and providing access to capital in underserved communities across the United States. Featuring insights from Wells Fargo and leaders from the CDFI Friendly America initiative, the discussion covered the evolution of the CDFI industry, successful bank-CDFI partnerships, current challenges including policy uncertainty and predatory lending, and innovative models like CDFI Friendly hubs that aim to bring these vital resources to areas currently lacking significant CDFI investment. The speakers emphasized the resilience of CDFIs and their commitment to serving individuals and small businesses who may not be ready for traditional financing, highlighting the importance of wraparound services like technical assistance and credit readiness support.
Outline
• Introduction to CDFIs and their importance
• Wells Fargo's history and support for CDFIs, including the Small Business Resource Navigator platform
• The evolution of the CDFI industry since 1988
• The relationship between mainstream financial institutions and CDFIs
• Rationale for Wells Fargo supporting CDFIs – serving small businesses at different stages
• The importance of wraparound services and technical assistance provided by CDFIs
• CDFI definition: Private sector financial institutions working across the US in urban, rural, and native communities
• CDFIs working "just outside the margins" of conventional finance and government programs
• Uncertainty in the world of credit, including the Community Reinvestment Act (CRA) and the CDFI Fund
• CDFI performance and business model (profitable but not profit maximizing)
• Addressing the industry's greatest threat: uncertainty and liquidity needs
• Wells Fargo's pilot program to support CDFI liquidity by purchasing loan assets
• CDFIs not seen as competition by Wells Fargo, but partners in the ecosystem
• CDFI-bank advocacy and changing dynamics
• Growth and resilience of the CDFI industry despite past and current challenges to the CDFI Fund
• The CDFI Fund's history, bipartisan support, and recent administration budget proposals
• CDFIs as providers of stability and certainty in uncertain times
• Audience Q&A begins
• Discussing the proportion of CDFI dollars going to small business vs. real estate
• Advice for philanthropy/government/lenders to support CDFI small business lending (funding support systems, technical assistance)
• Addressing the problem of predatory lending and pre-existing small business debt
• The role of customer education and advocating against predatory practices
• Impact of tight money markets on CDFIs making hard choices
• Discussion on how CDFIs should talk about their work given policy changes (using language like "socially and economically disadvantaged")
• Using data (CDFI advocacy map, correlation studies) to make the case without solely focusing on race
• Advice for founders seeking a CDFI (understand your needs, meet with CDFIs, leverage their network)
• Introduction to the CDFI Friendly model
• Overview of CDFI Friendly efforts in South Bend, Evansville, and Bloomington, Indiana
• Data on low historical CDFI lending per capita in these regions
• The role of CDFI Friendly hubs as connectors and navigators in the local ecosystem (capital, technical assistance, city programs)
• Examples of ecosystem building: technical assistance programs (Jumpstart), addressing specific needs like affordable/workforce housing
• The concept of "shy borrowers" and the need for trust and hand-holding
• Innovative housing initiatives (cooperative housing, small-scale development) and financing models (capital enhancement fund)
• CDFIs scaling impact but missing scope in certain geographic areas (lending deserts)
• CDFI Friendly hubs reducing customer acquisition costs for visiting CDFIs
• Advice for communities wanting more CDFI financing (understanding needs, being an advocate, building relationships, eliminating barriers)
• Opportunities for small developers and nonprofits in affordable housing
• Key players for a successful CDFI Friendly ecosystem (public sector, private sector/banks, community voices, local champions)
• Why CDFI lending numbers might start slow but are expected to accelerate
• Importance of pushing education about CDFIs in underserved areas
• CDFI Friendly hubs providing post-loan support and local presence for remote CDFIs
Notable Quotes
• "The majority of small businesses did not know what CDFI was and what resources were available right in their backyard."
• "We support CDFIs because small businesses are at different stages and circumstances. And Wells Fargo, they might not be ready for a Wells Fargo... we want to get you somewhere that can get you credit ready and can get you capital again based on the stage and circumstances that you're in."
• "CDFIS are resilient. CDFIS are here to stay."
Key Takeaways
• CDFIs are Vital but Under-recognized: Many small businesses and individuals are unaware of CDFIs and the crucial role they play in the financial ecosystem, especially in providing access to capital and technical assistance for those not yet ready for traditional bank financing.
• Resilience Amidst Uncertainty: Despite policy changes and economic fluctuations, including challenges to the CDFI Fund and the Community Reinvestment Act, the CDFI industry has demonstrated remarkable growth and resilience.
• Ecosystem Building is Key: Successful community development and increased CDFI investment rely on building strong local ecosystems that connect CDFIs, traditional banks, government programs, technical assistance providers, and community leaders.
• Addressing Lending Deserts: Innovative models like CDFI Friendly hubs are emerging to bring CDFI resources to underserved geographic areas by acting as local connectors, navigators, and risk mitigants for visiting CDFIs.
• Fighting Predatory Lending Through Education and Support: Customer education about responsible lending options and robust local support systems are critical tools to help small businesses avoid predatory lenders who charge exorbitant interest rates.
Resources Mentioned
• Small Business Resource Navigator: An online platform by Wells Fargo to connect customers to CDFIs based on their needs and location. Website: bizresourcenavigator.com
• CDFI Friendly America: An initiative focused on creating environments where CDFIs can thrive in underserved communities
• CDFI Fund: A U.S. Treasury fund created by Congress to invest in and provide debt to CDFIs
• Community Reinvestment Act (CRA): A law placing expectations on banks to lend and serve their communities
• Wells Fargo Next Awards: A historical program that provided awards to CDFIs
• Diverse Community Capital Program: A Wells Fargo program that invested in CDFIs led by people of color
• CDFIs Mentioned: Allies for Community Business, Small Allies for Small Business, Senire (affordable housing focus), Local Enterprise Assistance Fund (LEAF), IFF (lending to nonprofits), Community Investment Fund of Indiana, Axion, Greenwood Archer Capital
• Technical Assistance Programs: Jumpstart (trains developers, specifically affordable housing), Small Business Development Centers, SCORE, Incremental Development Alliance (focuses on small-scale development)
• Data Tools: CDFI market map, CDFI advocacy map
Action Items
• Engage with CDFIs: For founders seeking capital, understand your specific financing needs and meet with CDFIs in your community to discuss your business goals. Don't be afraid to be direct about what you need.
• Advocate for Your Community: Community leaders and ecosystem builders should actively advocate for their region, highlighting needs and opportunities to attract CDFI investment.
• Connect with CDFI Friendly Efforts: If you are in a region served by a CDFI Friendly hub, engage with their team as they can provide local connections and support.
• Reach Out to CDFI Friendly America: For communities in CDFI lending deserts, contact Mark Pinsky (contact information available) to explore potential ways to attract CDFI financing.
• Start Building the Ecosystem: Don't delay in starting efforts to build connections between key players in your local financial and community development ecosystem.
