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financial institution

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What Is a Community Development Financial Institution (CDFI)?

A Community Development Financial Institutions (CDFI) is a  private-sector financial organization in the United States that focuses mainly on personal lending and business development efforts in underprivileged local communities in need of revitalization.

By submitting an application to the US Department of the Treasury, CDFIs can receive federal funding. They can also obtain funds from individuals, corporate entities, and religious institutions in the private sector.

CDFIs are classified into four types:

Community Development Banks

By providing targeted loans and investments, community development banks help rebuild economically distressed communities. They are for-profit corporations whose boards have the representation of local communities.

Community Development Credit Unions

Community development credit unions encourage asset and savings ownership while also providing low-income people with affordable credit and retail financial services, often with a focus on minority communities. They are non-profit financial cooperatives that are owned and operated by their members.

Community Development Loan Funds

Community development loan funds (CDLFs) offer financing and development services to low-income businesses, organizations, and individuals. Loan funds are classified into four categories: microenterprise, small business, housing, and community service organizations.

Each loan fund is defined by the type of client it serves, although many institutions serve more than one type of client. CDLFs are typically non-profit organizations governed by boards of directors with community representation.

Community Development Venture Capital Funds

Community development venture capital funds offer equity and debt-with-equity features to small and medium-sized businesses in underserved communities. They can be for-profit or non-profit, and they must include community representation.

How Do Community Development Financial Institutions Work?

Community Development Financial Institutions (CDFIs) serve low-income and underserved urban and rural communities, as many of these citizens are underprivileged or have lacked access to responsible lending. Through community redevelopment, the goal is to assist this group of people in becoming more financially self-sufficient and contributing more to overall economic growth.

In the United States, there are currently over 1,100 chartered CDFIs, each with a focus on using innovative (and often less stringent) lending practices, educational efforts, and small business lending. The CDFI envisions an America where all people and communities have access to the investment capital and financial services they require to thrive.

CDFIs are typically controlled locally, with no interference from the central government.

The CDFI Fund for Community Development

The CDFI Fund is a federal program that promotes access to funds and local economic growth through its Community Development Financial Institutions Program, which provides underserved individuals and communities with loans, investments, financial services, and technical assistance.

The fund also provides tax credits to Community Development Entities, allowing them to attract private-sector investment and reinvest in low-income communities.

 

Lendistry is the only nationwide fintech CDFI, and they provide economic opportunities and progressive growth for small business owners and their underserved communities as a source of financing and financial education. If you have any questions or are interested in small business financing, please contact their team.

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Two Black-Led Banks Just Merged to Form a $1 Billion Lender

Two Black-Led banks, City First in Washington, DC and Broadway Financial Corporation in Los Angeles, CA announced today that they have entered into a transformational Merger of Equals agreement to create the largest Black-Led bank in the nation with more than $1 billion in combined assets under management and approximately $850 million in total depository institution assets.

Combining the two institutions will increase their collective commercial lending capacity for investments in multifamily affordable housing, small businesses, and nonprofit development in financially underserved urban areas while creating a national platform for impact investors.

Brian E. Argrett, chief executive of City First, will be chief executive of the combined company, which will use City First as its banking brand but keep the publicly traded Broadway Financial Corporation as its bank holding company. Wayne-Kent A. Bradshaw, Broadway’s chief executive, will be the chairman of the combined company.

black owned banks
Brian E. Argrett

Broadway and City First are Community Development Financial Institutions (CDFIs), and have a longstanding history of advancing economic and social equity through the provision of capital in low- to moderate-income communities. The combined institution will maintain its CDFI status, requiring it to deploy at least 60% of its lending into low- to moderate-income communities

Wayne-Kent A. Bradshaw

Since the beginning of 2015, City First Bank and Broadway Federal Bank have collectively deployed over $1.1 billion combined in loans and investments in their communities

“Given the compounding factors of a global pandemic, unprecedented unemployment and social unrest resulting from centuries of inequities, the work of CDFIs has never been more urgent and necessary,” said Brian E. Argrett.“As part of this historic merger, we are demonstrating that thriving urban neighborhoods are viable markets that require a dedicated focus, long-term commitment and critical access to capital.”

“The new combined institution will strengthen our position and will help drive both sustainable economic growth and societal returns,” said Mr. Bradshaw. “We envision building stronger profitability and creating a multiplier effect of capital availability for our customers and for the communities we serve.”

The new institution will maintain bi-coastal headquarters and will continue to serve and expand in the banks’ current geographic areas, with a desire to scale to other high-potential urban markets.

Shares of Broadway Financial were up 17 percent on Wednesday afternoon. The transaction, which is expected to close early next year, will leave Broadway stockholders with 52.5 percent ownership of the new company and City First shareholders with 47.5 percent ownership.

Tony O. Lawson

Related: Black Banks That Are Still Operating In 2020


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Meet the man in charge of over $100M recently donated to Black-Owned Businesses and HBCU’s.

The Local Initiatives Support Corporation (LISC) is a non-profit financial institution that provides capital to projects in low-income, disadvantaged, and underserved communities at affordable rates.

LISC supports community development initiatives in 35 cities and across 2,100 rural counties in 44 states. In 2018, they reported grants, loans, and investments totaling US$1.5 billion, leveraging $4.4 billion in total development and supporting over 700 partners across America.

They recently received $60 million from Lowe’s, $40 million from MacKenzie Scott (ex-wife of Jezz Bezos), and $25 million from Netflix.

We caught up with their CEO, Maurice Jones, to discuss what his organization does and what they plan to do with these funds.

 

 

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Tony O. Lawson


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Netflix is investing $100 Million in Black Owned Financial Institutions

Netflix on Tuesday announced plans to deposit 2% of its cash, or an estimated $100 million, into Black owned financial institutions and community development organizations, which have a better track record of lending to minority borrowers than mainstream consumer banks.

“We believe bringing more capital to these communities can make a meaningful difference for the people and businesses in them, helping more families buy their first home or save for college, and more small businesses get started or grow.
According to the FDIC, banks that are Black-owned or led represent a mere one percent of America’s commercial banking assets,” Netflix said in a statement.

As the first step in this $100 million commitment, Netflix will be holding $35 million of our cash in two vehicles:

  • $25 million will be moved to a newly established fund called the Black Economic Development Initiative. It will be managed by the Local Initiatives Support Corporation (LISC), a non-profit with a track record of developing underinvested communities. They will invest the funds into Black financial institutions serving low and moderate-income communities and Black community development corporations in the U.S.
  • $10 million will go to Hope Credit Union in the form of a Transformational Deposit to fuel economic opportunity in underserved communities across the Deep South. Bill Bynum, CEO of HOPE, has spent the last three decades advancing economic mobility in distressed communities.

“This capital will fuel social mobility and opportunity in the low- and moderate-income communities these groups serve. We plan to redirect even more of our cash to Black-led and focused institutions as we grow, and we hope others will do the same.”

 

-Tony O. Lawson


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