Increased Focus on Community Development Financial Institutions

Wall Street Journal writer Amara Omeokwe reported today that, “The coronavirus pandemic and the heightened attention on race have thrown new light on a longstanding source of economic inequality: Black communities have less access to credit than white ones.

“To address that gap, Washington and Wall Street are turning to a small network of lenders set up precisely to address that disparity. Community development financial institutions, or CDFIs, are community-based banks, credit unions and investment funds that lend to home buyers, small businesses and others in rural, impoverished and minority communities.

“Earlier this year, Congress and the Trump administration earmarked billions of dollars for CDFIs to issue Paycheck Protection Program loans to small businesses. Meanwhile, CDFIs have received multimillion-dollar investments from traditional lenders such as Goldman Sachs Group Inc. and Bank of America Corp., and new corporate supporters such as Netflix Inc. and Google Inc.”

The Journal article noted that, “There are about 1,100 CDFIs nationwide. Under a program created in 1994, the Treasury Department’s CDFI Fund certifies CDFIs and provides them with grants, low-cost credit and operational support. Demand for CDFI Fund grants and support typically far exceeds Congress’s yearly appropriations.

“Fourteen percent of Black adults didn’t have a bank account in 2019, according to the Federal Reserve, compared with 6% of adults overall. Just 23% of Black-owned small businesses with employees used bank funding in the last five years, compared with 46% of white-owned firms, a Fed report showed.”

Ms. Omeokwe added that, “CDFIs’ $222.3 billion in assets are a tiny slice of the financial system; each of the largest consumer banks alone have trillions of dollars in assets. ‘It’s still a small industry and it needs more technological capacity to grow. It needs more financial capital. It needs more public support,’ said Margaret Anadu, head of the Urban Investment Group at Goldman Sachs.

“Sens. Marco Rubio (R., Fla.) and Susan Collins (R., Maine) have introduced a measure that would restart PPP, including another batch of set-aside funding for CDFIs. The proposal—currently stalled amid disagreements about further federal coronavirus relief—has bipartisan support.”

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