Five Ways CDFIs Can Increase Equity in Lending Practices

Community Development Financial Institutions (CDFIs) were born out of the civil rights movement to ensure that nonprofits and businesses — particularly those in communities of color and communities 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 Ventures Lending Technologies, 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 racial equity dynamics and build organizational structure to support it within our organizations.
2. Develop new insights, tools, and approaches for embedding racial 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 racial equity.

Five Building Blocks: Ways CDFIs Can Center Communities of Color

Our research findings from this collaboration have been compiled into a new report 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

“Systemic racism still pervades financial systems in the United States. The newly launched report 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 Momentus Capital.

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 racial equity.

To learn more about this resource and ways to lend and invest that center communities of color, read the full report.