Equitable Recovery and CDFIs

Community Development Financial Institutions (CDFIs) are poised to dramatically expand their role in supporting underserved communities as the nation rebounds from the COVID-19 crisis.

Participants in Penn IUR’s Third Annual Jeremy Nowak Memorial Lecture on April 20 said the pandemic showed both the opportunities and challenges CDFIs face in meeting their mission, as the federal government injects trillions of dollars in disaster relief and infrastructure funds into the U.S. economy. Penn IUR co-hosted the event with The Reinvestment Fund, a federally certified CDFI founded by Nowak that has put more than $2.4 billion to work in places that can't access traditional capital sources, particularly communities of color.

"When we began this journey … we had no ambitions that a particular CDFI or CDFIs as a field could be relevant to national policy considerations, to connecting national recovery efforts to the communities that we care about and invest in," said Donald Hinkle-Brown, President and CEO of The Reinvestment Fund, who moderated the discussion. "Today we find ourselves as critical players in that last mile of the credit chain, and now public sector subsidy chain."

Speakers said the pandemic has tested CDFI's scalability—that is their ability to expand to meet increased demand—as well as their use of technology to direct pandemic relief funds to the underserved communities.

"[Among] the very, very early challenges with deploying the recovery funds, certainly for units of government, was finding the software, the online platforms, to get the programs deployed out to the respective audiences," said Raquel Favela, Central Team Leader, National Development Council. NDC found, for example, that it was important to choose the platforms that were accessible to businesses of color.

The CDFI model "obviously works in terms of service delivery and intention, but it needs adequate funding and support to meet the goals that are in front of us," said Theresa Y. Singleton, Senior Vice President of the Community Development and Regional Outreach Department at the Federal Reserve Bank of Philadelphia. She listed three areas of concern for CDFI's: funding; the need to target financing more directly to communities of color; and the need to bring more emphasis to affordable housing, in addition to their traditional role in small business loans.

Everett Sands, CEO of Lendistry, a minority-led small-business and commercial real estate CDFI, said CDFIs may be in position to fill a $1 trillion gap in assets that was created as the number of community banks in the U.S. shrank to less than 1,000, from about 11,000. For CDFIs to replace the community banks will require $100 billion of capital and roughly a decade of strategizing, he said. "It's a long game with players that have been around for a long time, so actually we're going to be in a better scenario than a startup environment."

CDFI's have already come a long way from working with banks to line up loans to address crises ranging from redlining to inadequate schooling, said Dudley Benoit, Executive Vice President of Alliant Capital, and a member of the Reinvestment Fund board. Now "Reinvestment Fund and other CDFIs are going to public markets and issuing rated debt that's been snapped up and over-subscribed," he said. "The arc of that is really quite phenomenal."

The Jeremy Nowak Memorial lecture series aims to highlight Nowak’s enduring work to integrate public, private, and non-profit expertise to achieve collective urban prosperity, giving students and professionals the opportunity to hear from experts on topics that manifest the connections between the academic and the applied aspects of urban development. A video of the April 20 event is available to stream on the Penn IUR website.