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Community Scope

2018, Issue 2

Community Scope 2018, Issue 2 cover

This issue of Community Scope explores new research from the Federal Reserve Banks of Atlanta, Minneapolis, St. Louis and Richmond on community development financial institution (CDFI) partnership formation, development and sustainability featuring eight case studies on CDFI partnerships.

Strength in Numbers: The Growth and Evolution of CDFI Partnerships

Executive Summary

The Federal Reserve Bank of Richmond has researched developments in the community development financial institution (CDFI) industry on a regular basis since the 2009 inaugural launch of the biennial Survey of CDFIs in the Southeast.1

To this end, the Federal Reserve Banks of Atlanta, Minneapolis, St. Louis and Richmond came together to author timely case studies on the following eight CDFI partnerships:

The case studies yielded information about critical challenges for CDFI partnerships to navigate, including a lack of or inability to build trust, constrained capacity and resources, and difficulty sustaining engagement and activity.

Three key themes that emerged from the case studies are:

1. Be realistic about how membership composition impacts partnership goals.

2. Adopt an operating structure based on the needs of the member CDFIs.

3. Proactively seek a role in shaping local, state and federal policy.


The CDFI model is predicated on the assumption that the conventional financial sector does not lend to certain communities or constituencies because the credit risk and/or the operating cost is perceived as being too high. The former assumption, of credit risk, has frequently been a function of race, gender, income and/or collateral, and the latter, operating cost, has been a function of size, volume and the level of service required. To provide credit to these underserved communities and individuals, CDFIs have always required some form of financial subsidy. This subsidy breaks down into two parts: subsidized funding of community development assets, and subsidized funding of organizational expenses.

The financing of community development assets has seen a dramatic expansion of sources and vehicles over the last two decades. Among federal agencies, CDFIs have seen funding opportunities expand with, for example, the U.S. Small Business Administration’s 7(a) loan program, the U.S. Department of Agriculture’s  Community Facilities Program, and  the U.S. Department of the Treasury’s CDFI Fund Bond Guarantee and New Markets Tax Credit Programs. Opportunities to obtain debt instruments from the social investing market have arisen via CDFI-centric ratings like those provided by Aeris. Opportunities to obtain debt instruments from the capital markets via S&P ratings have also arisen. These developments have proven to be of tremendous benefit, particularly to some of the larger, higher volume  CDFIs.

However, the CDFI field now includes more than 1,000 CDFIs. In many ways, the CDFI field is a field  still characterized by a number of small, place-based institutions with limited resources. The CDFI field cannot be expected to scale up solely through the growth of individual CDFIs. It includes only a handful of organizations that have grown to a large enough size to exert influence in their local or regional markets and none are of sufficient size to influence the market on a national level. If the CDFI industry is going to pursue scale, industry structure becomes more important to that process.

As the industry is currently structured, the pace of organizational growth will limit the field’s reach into the low-income markets targeted by its members. In order to reach more people with value-added services, the industry will have to pursue means other than individual organizational growth.

One emerging direction for the industry is the development of partnerships among CDFIs and the development of more comprehensive infrastructure for networks of organizations working cooperatively  to collectively deliver financial products or influence a market.

A number of experiments have begun to emerge in recent years — experiments that are beginning to address the problems of scale faced by the field. This publication documents eight partnership models and provides information about critical challenges for CDFI partnerships to navigate as the field continues to grow.

Michael Swack, Director
Center for Impact Finance
Carsey School of Public Policy, University of New Hampshire

Introduction: Scale and Sustainability in the CDFI Field: What is the Role of Partnerships?

CDFIs face distinct challenges of scale and sustainability that have been the topic of ongoing conversation and research for more than a decade.2 Many of the factors identified in early research that potentially limit CDFI sustainability and growth remain challenges today, including a lack of long-term, flexible capital, real or perceived reliance on government subsidy, high levels of need within the target markets that CDFIs serve and difficulty generating retained earnings from operations. Still, individual CDFIs have innovated to overcome these challenges, and the CDFI industry as a whole has experienced steady growth since the late 1990s.3

Within the CDFI industry, a relatively small number of individual CDFIs have developed self-sustaining revenue streams and subsequently scaled their operations, products and services up to meet greater demand in new geographic or target markets. As a proxy point of reference, 80 of the 300 CDFIs represented in the CDFI Fund’s FY2015 Institution Level Report data have self-sufficiency ratios above one and just four have total assets above $1 billion.4 This is somewhat unsurprising given challenges to CDFI growth, and can also be seen as a positive given the benefits that CDFIs may derive from keeping their operations on a scale that enables and encourages relationship-building with their clients. Depending on a CDFI’s unique business model and target market — and despite overall growth trends in the industry — it may be imprudent, impractical or impossible for a CDFI to pursue larger-scale operations. As Jeremy Nowak found in his 2016 analysis of the industry:5

By 2025, the industry may comprise as many as 20 organizations with assets of $1 billion or more and net assets or equity of more than $250 million. … [However] the majority of CDFIs will remain small due to choices they make, markets they cover, and/or their own management capacity. They will continue to play important roles in their environment and civic context, and offer retail network opportunities for larger CDFIs. The best scenario for the field is that the smaller CDFIs become networked through larger CDFIs to assist with deal sourcing, loan participations, and market  development.

Strategic decisions to retool their business model, offer new products and services, and enter new target markets allow CDFIs to pursue sustainable and larger-scale operations individually. Although a full conversation of the business strategies by which CDFIs can individually self-sustain and grow is beyond the scope of this research, it is important to note that CDFIs — like any other business — can be capable of scaling as an individual organization. But at the same time that individual CDFIs are pursuing their individual business strategies, networking and partnerships are also widespread practices in the industry that help maximize the effectiveness of CDFI investment, technical assistance and community development advocacy.

For the purposes of this research, networking is defined as the development of connections that allow CDFIs to operate interactively. Partnerships, meanwhile, are defined as two or more CDFIs working together in some capacity. So, CDFI networking may lead to partnerships, but the two are different. Networking is an important conduit for strong partnerships, and actors in the CDFI field are increasingly using technology to facilitate both networking and partnerships. A few examples of these virtual CDFI networking platforms can be found on the next page.

The driving motivators that encourage CDFI partnership formation have been well covered in existing research. In particular, research from the Opportunity Finance Network (OFN) defines four categories that drive CDFI collaboration: capacity building, place-based initiatives, sector-focused initiatives and technology.6 These driving factors are echoed throughout this publication and are in no way mutually exclusive — CDFI partnerships frequently engage in more than one joint activity and one group effort often leads to additional collaborative action.

For example, if a statewide CDFI partnership initially organizes around capacity building and peer-to-peer learning, a subset of member organizations may discover natural sector complementarities that allow for co-lending.

Table 1: Summary Information for the Eight CDFI Partnerships

CDFI Partnership

When did the partnership begin?

How many organizations participate?

Does the partnership have a formal legal structure?

ACE & Carver State Bank




ANDP & Reinvestment Fund





St. Louis CDFI Coalition





Native CDFI Network

logo for Native CDFI Network





Detroit CDFI Coalition





Maryland CDFI Roundtable





Logo for SCCA










For more information about the Richmond Fed’s Survey of CDFIs in the Southeast, please see: Community Scope 2017, Issue 2.


For more information about how CDFIs are defined, please see: Corcoran, Emily Wavering, “Community Development Financial Institutions in the Southeast: Surveying the Social Investment Landscape,” 2016. Examples of existing research on CDFI scale and sustainability include: Ratliff, Gregory A., Kirsten S. Moy, Laura Casoni, Steve Davidson, Cathie Mahon and Fred Mendez, “New Pathways to Scale for Community Development Finance,” Federal Reserve Bank of Chicago, 2004; “Approaches to CDFI Sustainability,” The Aspen Institute, 2008.

3 For detailed information on CDFI industry growth, please see: Nowak, Jeremy, “CDFI Futures: An Industry at a Crossroads,” Opportunity Finance Network, 2016; Corcoran, Emily Wavering, “Resilient Legacy, Connected Future: CDFIs in the Southeast,” Federal Reserve Bank of Richmond Community Scope 5(2), 2017.

The self-sufficiency ratio is defined as a CDFI’s total earned reve- nue divided by pre-tax operating expenses. CDFIs with missing revenue, asset or operating expense data were excluded. CDFI Fund, 2017, “2017 CDFI Program and NACA Program Data Release Data, Documentation and  Instructions."


Jeremy Nowak, 2016, “CDFI Futures: An Industry at a Crossroads,” Opportunity Finance Network, pg.  44.


CDFI Collaborations: Keys to Success,” Opportunity Finance Network, (2015).

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