Perspectives From Small-Town Mission-Driven Lenders

Smaller towns and more rural communities often face lower per capita private investment than more densely populated places. But there are opportunities to unlock investment and expand credit access in smaller communities through community development financial institutions (CDFIs). CDFIs are mission-driven lenders who serve low- and moderate-income communities with limited access to financial products and services.

From April 10 through June 13, 2025, the Federal Reserve Banks collected data from nearly 450 CDFIs as part of a recurring survey led by the Richmond Fed. The survey asked respondents to indicate if their organization works in urban, suburban, or rural places — or some combination of the three. If a respondent selected a combination of the three, a follow-up question asked them to indicate if their organization primarily dedicates resources and staff time to urban, suburban, or rural places. Of the 448 organizations represented in the survey sample, one-fourth (116 CDFIs) responded that they work exclusively or primarily in rural areas. For the purposes of this post, we refer to that subset of the sample as "rural CDFIs." Survey respondents who do not work exclusively or primarily in rural areas are referred to as "nonrural CDFIs."

What do the data from these institutions tell us? Like the sample as a whole, the majority of rural CDFIs reported increased demand through 2024. Rural respondents were more likely to cite proximity to capital sources as a challenge. Compared to nonrural respondents, rural respondents were less likely to rely on philanthropic investment and Community Reinvestment Act (CRA)-motivated investment from other financial institutions and more likely to use federal funds as a top funding source.

More Community Banks and Small Business Lenders

Rural CDFIs, like nonrural CDFIs, can take a variety of forms — most commonly, they are loan funds, credit unions and banks. In our survey sample, community banks make up a larger share of rural CDFIs (20 percent compared to nonrural CDFIs (8 percent). Small business financing is the top business line for rural CDFIs: Thirty-eight percent of rural respondents reported small business finance as their primary business line compared to 26 percent of nonrural CDFIs. It also follows that in our sample, rural CDFI banks are more likely than nonrural CDFI banks to primarily offer small business finance; outside of rural areas, CDFI banks primarily provide real estate finance. Consumer financing is also a core business line for both rural CDFIs and nonrural CDFIs. Thirty-six percent of rural respondents and 37 percent of nonrural respondents cited consumer lending as their primary business line. Rural respondent CDFIs were somewhat more likely to be smaller-asset institutions than nonrural respondents, but both groups had similar employment size. About half of both rural and nonrural CDFIs reported that they have 25 or fewer full-time employees.

Survey respondents were asked to indicate if demand for their products and services increased, stayed the same, or decreased in 2024. Compared to nonrural CDFIs, a larger share of rural CDFIs reported demand increases: Seventy-eight percent of rural CDFIs reported an increase in demand through 2024, compared to 69 percent of nonrural CDFIs. Increased demand for rural CDFIs was driven by increased demand for small business and consumer finance. For example, small business-focused CDFIs serving rural areas were almost twice as likely to report increased demand relative to their nonrural counterparts.

Fewer Funders, Increased Reliance on Federal Dollars

Rural CDFIs were far more likely than nonrural CDFIs to indicate that proximity to funders was an operational challenge. The CDFI Survey asked about broad organizational challenges, including challenges with staffing, technology, lending capital, and operational funding. Similar shares of rural, suburban, and urban CDFIs cited challenges across these categories. A series of follow-up questions in the survey asked about factors within each of these challenge areas to pinpoint specific roadblocks. For example, within challenges to operational funding, respondents could indicate the extent to which funding availability and reporting requirements hampered access. Notably, nearly twice as many rural CDFIs selected "not enough funders in my area" as a barrier to accessing operational capital compared to nonrural CDFIs.

CDFIs — particularly CDFI loan funds — aggregate grants and debt capital to fund their operations and to support their lending activity. Philanthropic dollars and CRA-motivated investment from banks are important funding sources that CDFIs leverage to serve their customers and communities. However, compared to their nonrural counterparts, rural CDFIs are less likely to use these sources. Half as many rural CDFIs indicated that investment from banks was one of their top three funding sources, and the share of rural CDFIs who cited philanthropy as a top funding source was 10 percentage points lower than nonrural CDFIs. The fact that fewer foundations and financial institutions have a physical presence in rural communities and small towns can limit rural investment, including investment through CDFIs.

At the same time, rural CDFIs were more likely than nonrural CDFIs to indicate that federal funding was one of their top three funding sources: About 7 in 10 rural CDFIs listed federal funding as a major funding source. Comments from survey respondents point to the ways in which rural CDFIs use federal funding. One respondent shared, "Federal funds have allowed our credit union to be more flexible in our loan underwriting, especially in disadvantaged and low-income rural communities. These funds have also allowed us to expand loan products, open branches and provide free financial counseling programs to the underserved." Another wrote, "[Federal funding] allows us to try new market growth strategies on a smaller scale and pick the strategies that best leverage funds." Although federal funding has long supported rural investment, CDFIs who rely heavily on federal funding to operate may face increased challenges in an environment of federal funding cuts and uncertainty.

Strengthening Outreach Through Funding Uncertainty

In addition to our point-in-time data collection through the CDFI Survey, the Richmond Fed's Community Development team is continually talking with CDFI leaders and other funders to keep a pulse on the economic and community development funding landscape. Recent anecdotal information from rural CDFIs has captured mixed changes in demand, ranging from weakening demand in small business finance to demand growth in housing and consumer finance. Rural CDFI contacts also emphasized the ways that they have historically leveraged federal funding programs. We will next survey CDFI leaders in 2027, but in the meantime, conversations will continue as the Richmond Fed connects with business and community leaders.

Views expressed are those of the author(s) and do not necessarily reflect those of the Federal Reserve Bank of Richmond or the Federal Reserve System.