Nonprofit Quarterly, December 31, 2019: Detroit CDFI Struggles to Reach Business Developers of Color
As NPQ has reported, community development financial institutions (CDFIs) have grown at a remarkable pace, increasing in asset base from a few billion two decades ago to over $185 billion today. Capital Impact Partners (Capital Impact) has been among the leaders in this field; two years ago, it raised $100 million for lending through an investment note offering.
Yet growth has not been costless. As Ed Gorman of the National Community Reinvestment Coalition pointed out not long ago, “CDFIs, just judged by the total capital being invested, are a remarkable success over the last 25 years, but I think everybody knows we could all do better.”
What does Gorman mean by this? Well, he means many things, but fundamentally he means that in order to maintain the low loan loss ratios on which their growth depends, CDFIs too often find themselves lowering their risk tolerance. In other words, CDFIs still aim in their lending to serve low- and moderate-income families, but not to the extent that the loans they make would significantly increase their losses or endanger funding from banks or other investors. This at least partially defeats the purpose for which CDFIs were founded in the first place.
