Five Ways CDFIs Can Increase Equity in Lending Practices

Community Development Financial Institutions (CDFIs) were established to provide equitable loan access to nonprofits and businesses in underestimated communities, yet they still operate within a financial system that has historically disinvested communities. Capital Impact Partners is actively working to address these inequities by researching successful strategies implemented by various CDFIs to promote fair lending.

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Graphic with five colorful blocks each illustrating one of the five building blocks to increase equity in CDFI lending.

Community Development Financial Institutions (CDFIs) were born out of the civil rights movement to ensure that nonprofits and businesses — particularly those in underestimated communities and communities living with lower incomes — have equitable access to loans. Yet, CDFIs are part of a financial system embedded with discriminatory lending practices which need to collectively be addressed in order to fully achieve the intended goal of equalizing access to financial resources for all people.

Momentus Capital’s family of organizations, including Capital Impact Partners, CDC Small Business Finance and Momentus Securities, is working to help support economic mobility and wealth creation through more equitable access to capital for communities that have been long overlooked by traditional financial organizations.

In line with this commitment, and in recognition of discriminatory lending practices identified within CDFIs, Capital Impact Partners collaborated with Nonprofit Finance Fund (NFF) to identify and address policies and practices that contribute to it. We conducted research to understand how some local and national CDFIs have successfully taken steps to address inequity within their own lending practices.

There were four goals behind the partnership:

  1. Continue to deepen awareness of and insights about equity dynamics and build organizational structure to support it within our organizations.
  2. Develop new insights, tools, and approaches for embedding equity in investment practices.
  3. Engage broader CDFI peers in learning and training.
  4. Build links between the CDFI sector and broader national movements for equity.

Five Building Blocks: Ways CDFIs Can Center Underestimated Communities

Our research findings from this collaboration have been compiled into a new report (PDF) featuring five key building blocks, as well as crucial details and insightful examples of how other CDFIs have put these ideas into practice. The five building blocks are:

  1. Building trust with communities
  2. Client-service mindset that centers the needs of community-based borrowers
  3. Technical assistance tailored to projects and practitioners
  4. Flexible capital solutions to solve problems of community-responsive organizations
  5. Appropriately priced capital
Graphic with five colorful blocks each illustrating one of the five building blocks to increase equity in CDFI lending
These five building blocks serve as a resource to help CDFIs transition away from discriminatory lending practices and towards more equitable lending, particularly within underestimated communities.

“Systemic discrimination still pervades financial systems in the United States. The newly launched report (PDF) is an important and enlightening resource that our organization will learn from, and continue to use, in order to improve our own practices.” said Ellis Carr, president and CEO of Capital Impact Partners and CDC Small Business Finance, each part of the Momentus Capital branded family of organizations.

This report provides insights from participating CDFIs and suggests questions to challenge and guide CDFI lenders as they explore new ways to address inequities in lending and join broader movements for equity.

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