Social Impact Investing

Impact Investments:
An emerging asset class
Global Research
29 November 2010
Appendix III: CDFIs
In depth: Community Development Finance Institutions in the US
In the US, community development finance institutions (“CDFIs”) were some of the
earliest impact investors. As non-profit companies created to reduce poverty in
economically depressed areas, CDFIs evolved from depository institutions that
emerged in the early 1900s to serve economically disadvantaged communities by
lending capital from collected savings. Credit unions and banks dominated the
industry until the 1960s and 1970s, when community development corporations and
community development loan funds emerged to finance small business and
affordable housing developers.
As part of President Bill Clinton’s urban development agenda, a 1994 law formalized
the legal concept of a CDFI and established a government-funded CDFI Fund to
provide risk capital to spur investment in CDFIs. Since its inception, the CDFI Fund
has awarded more than $1bn in funding and has granted allocations of New Market
Tax Credits 110 that have attracted more than $26bn in private investment 111 .
There are over 1,295 CDFIs currently functioning in the US, including more than
400 community development loan funds, 80 venture capital funds, 290 credit unions
and 350 community development banks. In the 2008 CDFI Data Project, a
collaborative of the leading CDFI trade associations, 495 CDFIs were surveyed and
sampled in industry landscaping research. The sample managed over $29bn in assets,
with the average total asset size for each CDFI, being $59,408,271. They invested
over $5.5bn in 2008. 40% of their investments were in housing, 37% in business, 8%
in consumer finance, 4% in community services, 1% in micro-enterprise and 11% in
other. Those investments created 35,524 jobs, financed 60,205 affordable housing
units and provided 116,405 responsible mortgages for new home buyers 112 .
During the last five years, the total assets for CDFIs in the Data Project grew by 10%
per year. At this growth rate, the assets in this sample would grow to over $76bn in
10 years. However, when compared to the $13.8 trillion under management by US
banking institutions, CDFIs are a small subset of mainstream finance, and will need
government support to reach scale. We expect that this support will mainly be given
by the CDFI Fund. The CDFI Fund is the government’s most effective tool for
increasing the asset size of CDFIs. The CDFI Fund estimates that for every dollar
that they give in financial assistance, they leverage $20 in private and non-CDFI
public capital 113 . This is a highly promising statistic for the CDFI industry, given that
the Obama administration has increased the CDFI financial assistance appropriations
to a record $245m in FY 2010 and $250m in FY2011, up substantially from the
$54m in appropriations in 2007 and $107m in FY 2009. The new appropriations
budget is projected to leverage an additional $2.7bn in private financing.
110 The New Markets Tax Credits program is a program administered by the U.S. Department
of Treasury and the CDFI Fund to encourage economic development in low income
communities.
111 The CDFI Fund, http://www.cdfifund.gov/who_we_are/about_us.asp
112 FY 2008 CDFI Data Project Report, CDP Publication Committee. 8th ed. Philadelphia:
Opportunity Finance Network, 2010.
113 http://www.community-wealth.org/_pdfs/featured/bang-for-buck.pdf
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