Community Development Financial Institution – CDFI
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Definition: Community Development Financial Institution – CDFI
Access to fair and affordable is a key step in achieving financial inclusion and is thus an indicator of a country’s prosperity. The gap between willingness of mainstream lenders and the demand of small and medium businesses, households etc is widening day by day. Especially to people living in rural areas etc., traditional lenders are unable to provide direct services to them and are thus becoming more and more isolated.
Community Development Financial Institutions (CDFI’s) address this issue by providing credit facilities and financial services to those people and communities that would otherwise remain underserved. These are social enterprises that serve and invest in customers and communities that have difficulty in financing from high street banks. CDFI’s refer to the whole range of profit as well as non-profit entities such as community development banks, credit unions, development credit, small-medium-microenterprise loans etc.
Thus they play a crucial role by filling gaps in organised lending and addressing market failures. By offering an affordable alternative to high interest door step lenders, they are creating jobs by financing businesses that are viable and that have the ability to repay and thus helping businesses to grow.
Reasons for key Role of CDFI’s
• Provide capital and financial services to people in underserved areas/segments thus taking part in building the economy
• Enable members/communities to purchase homes, start a new business, help NGO’s to develop affordable housing, carryout critical community welfare activities
For example, founded in 1985, Boston community Capital has lent out over $ 200 million, financed 8500 affordable units of housing, help create or maintain 1300 jobs that provide a living wage to an underserved population. Also, they have invested directly in companies that give economic as well as social return. They currently have $93 million assets under management.