It was the late 1960s, and a movement was forming. Redlining practices were devastating communities, as financial services were largely unavailable in African-American and low-income neighborhoods. Change was needed in these distressed areas, and non-profit community development corporations began to emerge as a means of addressing poverty in these neighborhoods; as part of that movement, Community Development Financial Institutions (CDFIs) were born. These institutions provided capital in underserved communities that were previously unable to access personal and business financial services. Since that time, CDFIs have been strong contributors to the economic empowerment and growth of communities, and this impact is still apparent today.
CDFIs exist in the nexus of social intervention and financial systems. As private-sector institutions, CDFIs operate by attracting capital from private and public sources. Unlike traditional financial service providers, the primary goal of CDFIs is to channel private investment into underserved communities. Their understanding of the historical context behind disinvestment in an area positions CDFIs to serve as market alternatives in areas where traditional lenders may be more reticent to provide certain credit and investment needs. As market catalysts, CDFIs focus on community wealth building that promotes small business ownership, the development of affordable housing, and the creation of community programs geared towards forming financially sustainable communities.
CDFIs do not simply invest in communities and leave: they provide financial education, technical assistance, and capacity building to support the communities that they serve. While traditional financial institutions also fund these efforts, CDFIs are squarely focused on ensuring that underserved communities are positioned to enter the mainstream economy. Perhaps most notably, CDFIs take an innovative approach to development finance and risk management, all of which builds community capital.
The NC Community Development Initiative’s CDFI, Initiative Capital, has a longstanding history of working within North Carolina communities to fund projects that build community capital. When community anchors have a vision for a transformational project but cannot access traditional bank financing, Initiative Capital works with the community partner to develop a mutually agreeable financial strategy and loan terms. Our work with the Scrap Exchange exemplifies this process—over the course of one year, Initiative Capital worked with the Durham-based nonprofit to design a $2.5 million bridge loan to acquire, stabilize, and redevelop 85,000 square feet of commercial space in the Lakewood Shopping Center.
As institutions committed to communities that do not have access to conventional finance opportunities, the performance of CDFIs is both impressive and invaluable. For nearly 50 years, CFDIs have been dedicated to ensuring that traditionally underserved populations are able to prosper financially and become transformative stakeholders in their own futures.