Bill reintroduced to support Community Development Financial Institutions

Community Development Financial Institutions (CDFIs) provide responsible and affordable credit to underserved communities.

Congress provided support for community-based lenders during the COVID-19 pandemic, but CDFIs require more long-term patient capital, operating capital and resources to modernize their systems and compete in an era of rapid financial innovation.

Last Thursday, U.S. Sens. Mark R. Warner of Virginia and Mike Crapo of Idaho reintroduced the Scaling Community Lenders Act to unlock more sources for liquidity and support for CDFIs. Both senators are co-chairs of the Senate Community Development Finance Caucus. The legislation would authorize new resources to activate and fund the long-dormant Section 113 of the Riegle Act of 1994, the CDFI liquidity enhancement program, and allow the fund to finance projects within the industry on a competitive basis.

“CDFIs can play a crucial role in driving economic growth and providing access to capital to underserved communities,” Warner said. “I’m pleased to reintroduce this legislation to that supports new and innovative approaches in the industry and lays the groundwork for new ways to meet the needs in LMI communities.”

CDFIs lend to a variety of categories, including business loans, consumer loans, commercial real estates, residential real estate, home improvement and home purchases. No secondary market of lending exists for many of these products.

The Scaling Community Lenders Act would encourage innovation and help determine the best routes for unlocking secondary markets for CDFIs.

“I am proud to support the Scaling Community Lenders Act, which will help provide access to capital in low-income, rural and underserved communities,” Crapo said. “CDFIs play an important role in our state and nationwide, and this bill will help them expand their lending activities.”

“CDFIs consistently demonstrate an ability to support and reach historically marginalized and under-resourced communities. These community-centered organizations, built to promote economic inclusion and capital access, need their own capital tools to scale and break through barriers to their growth,” VA CDFI Coalition Board President Leah Fremouw said. “Facilitating the development of a reliable secondary market for CDFIs will provide these lenders opportunities to leverage their existing portfolio as a financing tool, freeing up assets for additional community investment. Activating and capitalizing the dormant Section 113 of the Riegle Act is critical to building a secondary market for CDFI lending, ultimately giving them the liquidity to originate more high-impact loans and capital tools. The VA CDFI Coalition is excited by the possibilities these investments could create across Virginia and hope to see this pass.”

According to Aspen Institute Business Ownership Initiative Director Joyce Klein, CDFIs are critical “in reaching business owners, families and communities that our capital markets have left behind. Our decades of work with CDFIs have clearly identified the challenges they face in accessing the capital they need to scale their lending. Building secondary markets for CDFI loans is an essential complement to the CDFI Fund’s direct support for these critical institutions.”

“Throughout the last economic downturn, CDFIs provided flexible and patient capital, rigorous risk management and commitment to the projects in their communities and the sustainability of their borrowers. While traditional borrowers fled economically distressed communities, CDFIs stepped in and filled the void. Since the advent of the economic crisis prompted by the pandemic, CDFIs have been on the frontlines of providing technical and financial assistance to small and minority-owned businesses. CDFIs fill a vital niche in the nation’s financial services delivery system by serving communities and market sectors that conventional lenders cannot — with the ultimate goal of bringing CDFI customers into the mainstream economy as bank customers, homeowners and/or entrepreneurs,” Ceyl Prinster, President and CEO, Colorado Enterprise Fund and Chair of the CDFI Coalition, said.