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May 12, 2014

Community Development Financial Institutions Improve Financial Stability
    by Robert Kropp

The annual report on the state of the CDFI industry by the National Community Investment Fund anticipates an evolution that will improve revenues and fulfill mission of community development. -- The annual report issued by the National Community Investment Fund (NCIF) is admirably metrics-driven, and its year-to-year data on the financial performance of community financial development institutions (CDFIs) illustrates just how devastating the financial crisis was to the industry.

That said, “Data from the past five years show that the institutions in the CDFI Banking industry have been slowly recovering and growing,” according to the report. “Among those institutions that were certified through both 2012 and 2013, average assets per bank rose from $309.3 million to $325.3 million; average loans, average deposits, and average equity also rose.”

Total assets for all CDFI banks fell to $23.2 billion, however, as the number of such institutions declined from 88 to 75. Last year, the CDFI Fund undertook a recertification program for CDFIs; “This project will set a clean baseline for the number and types of certified CDFIs operating in the country, maintaining the integrity of what it means to be a CDFI,” CDFI Fund Director Donna Gambrell stated, “organizations continuously dedicated to serving their target markets of low-income communities and populations.”

“Many of those institutions, including ten CDFI Banks, declined to reapply for certification, recognizing that their business models had changed over the years and they no longer felt they met the criteria,” the NCIF report said. On the other hand, “CDFI Bank failures, high during the past five years, have all but disappeared.”

The steady improvement in the finances of CDFIs is good news, of course, for the fulfilling of their mission: to provide critically important financial services in communities underserved by mainstream commercial banks. And the NCIF report confirms that the services provided are indeed in robust condition.

Three out of every four CDFI bank branches are located in low and moderate income communities, the report found, nearly twice that of mainstream banks of similar size. “CDFI Banks’ mission to serve their communities requires a strong local presence in the areas of highest need,” the report states. “These banks become part of the neighborhood, recognizing the potential of local small business owners and providing residents with sustainable alternatives to predatory payday lenders and check cashers.”

Additionally, more than half of the home lending provided by CDFI banks occurs in low and moderate income communities, more than two and a half times that of peer banks. “Lending in economically distressed areas can be difficult, because borrowers tend to be less savvy about finances and face depressed economic conditions,” according to the report. “CDFI Banks fulfill their community development mission by dedicating the extra time and resources needed to tailor services for their 'high-touch' clients.”

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