What Is a Community Development Financial Institution (CDFI)?

A Community Development Financial Institution, or CDFI, is a specialized financial organization that provides loans, investments, and financial services to underserved communities and small businesses that often cannot access traditional bank financing. CDFIs support local economic development, job creation, and long term community stability.

Unlike traditional banks, CDFIs focus on community impact as well as financial performance. Their mission is to direct capital toward people, businesses, and neighborhoods that are important to local economies but are frequently overlooked by mainstream lenders.

CDFIs offer products such as small business loans, nonprofit financing, affordable housing loans, and capital for community facilities like health centers and childcare centers. Many also provide business coaching and financial education to help borrowers succeed.

CDFIs primarily serve small and minority owned businesses, women owned businesses, local contractors and suppliers, nonprofit organizations, affordable housing developers, and rural or urban communities with limited access to capital.

A key difference between CDFIs and banks is how lending decisions are made. Banks rely heavily on credit scores and collateral. CDFIs also consider business potential, job creation, and community benefit, allowing them to finance projects that traditional lenders may reject.

In the United States, CDFIs are certified by the U.S. Department of the Treasury through the CDFI Fund. To qualify, organizations must focus on community development, serve a defined market, and be accountable to the communities they serve.

CDFIs play an important role in closing financing gaps, supporting small businesses, creating jobs, and ensuring local communities benefit from economic growth.