By visiting scholar to the Atlanta Fed’s community and economic development program Donna J. Gambrell

CDFI are small in number: there are about 875 nationwide, with at least one CDFI in every state, the District of Columbia, Puerto Rico, and the Virgin Islands. The U.S. Treasury hosts a national database of CDFIs, including the type, location, and contact information. Of the 875 CDFIs, approximately 500 are loan funds, 200 are credit unions, and 175 are banks. This compares to about 14,000 banks and credit unions in the United States. Here in the Sixth District, there are 129 CDFIs; 43 banks, 45 loan funds, 40 credit unions, and one venture capital fund.

In spite of their small numbers, CDFIs perform. On February 24, 2015, the CDFI Fund issued two independent reports that provide the first-ever comparative analysis and evaluation of the effectiveness of CDFIs compared to mainstream lenders. The findings confirm that CDFIs are resilient and a reliable resource for capital in areas that need it the most.

The reports found that CDFIs have no more risk than conventional lenders and that they perform nearly as well as mainstream institutions. The first report, CDFIs Stepping into the Breach: An Impact Evaluation—Summary Report, undertaken by Michael Swack, Eric Hangen, and Jack Northrup from the Carsey School of Public Policy at the University of New Hampshire, is an analysis of the impact of financial assistance awards from the CDFI program on CDFI loan fund recipients.

The second report, Risk and Efficiency among CDFIs: A Statistical Evaluation Using Multiple Methods, conducted by Gregory B. Fairchild from the Darden School of Business at the University of Virginia and Ruo Jia from the Stanford Graduate School of Business, is an analysis of CDFI banks and credit unions to assess their risk of failure and their operational efficiency relative to mainstream financial institutions.

Key highlights from the Carsey School report include:

  • CDFI loan fund lending fills market gaps for key underserved low-income populations
  • CDFI loan funds deliver between roughly 66 percent to some 90 percent of all loan volume to borrowers living in a CDFI Fund–designated investment area
  • From 2005 through 2012, Community Reinvestment Act reported lending decreased while CDFI loan fund reported lending more than tripled
  • CDFI loan funds provide borrowers who may not qualify for loans from mainstream financial institutions with loan terms and interest rates comparable to mainstream products.

Key highlights from the Darden School report include:

  • CDFI banks and credit unions were found to have no more risk of financial failure than mainstream financial institutions, even after controlling for the CDFIs’ degree of involvement in the mortgage market during the financial crisis
  • Despite serving predominately low-income markets, CDFI banks and credit unions had virtually the same level of performance as mainstream financial institutions.

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