CDFIs & Community Development Financial Institutions Fund

The Community Development Financial Institutions (CDFI) Fund (12 U.S.C. §§ 4701–4718) is a program within the U.S. Department of the Treasury that provides financial awards, training, and technical assistance to specialized financial institutions — community development financial institutions (CDFIs) — that serve low-income communities, distressed areas, and underserved populations that mainstream banks often don't reach. There are over 1,400 certified CDFIs nationwide — community development banks, credit unions, loan funds, microlenders, and venture capital funds — that collectively manage over $450 billion in assets and provide loans, investments, and financial services in communities where conventional capital is scarce. The CDFI Fund also administers the New Markets Tax Credit (NMTC) program — a tax incentive that has attracted over $80 billion in private investment to low-income communities since 2000 by providing investors a 39% federal tax credit over 7 years for qualified investments in designated census tracts.

Current Law (2026)

Legal Authority

• 12 U.S.C. § 4701 — Findings and purposes (Congress finds that many urban, rural, and Native American communities lack adequate access to credit and capital; CDFIs can fill these gaps; the CDFI Fund will promote economic revitalization through targeted financial assistance)
• 12 U.S.C. § 4703 — Establishment of national Fund (creates the CDFI Fund as a government-owned corporation within Treasury to invest in and assist CDFIs)
• 12 U.S.C. § 4706 — Selection of institutions (CDFI Fund selects qualifying institutions through competitive application based on community development impact, organizational capacity, and financial sustainability)
• 12 U.S.C. § 4707 — Assistance provided by Fund (Fund may provide equity investments, deposits, credit union shares, loans, grants, and technical assistance to certified CDFIs)

How It Works

A CDFI is a specialized financial institution with a primary mission of community development — serving low-income people and communities with financial products that conventional banks don't typically offer. CDFIs take five main forms: community development banks (FDIC-insured banks focused on underserved areas), community development credit unions (serving low-income members), community development loan funds (nonprofit lenders for housing, small business, and microenterprise), community development venture capital funds (providing equity to businesses in low-income communities), and microenterprise development loan funds (small loans to very small businesses). Certification requires demonstrating a primary mission of community development, serving an eligible target market, providing development services alongside financial products, maintaining community accountability, and not being a government entity. The Treasury's CDFI Fund provides financial support through several channels: Financial Assistance (FA) awards — grants of up to $2 million for lending capital, loan loss reserves, and capacity building; Technical Assistance (TA) grants for organizational development and technology; Native Initiatives for CDFIs serving Native American, Alaska Native, and Native Hawaiian communities; and the CDFI Bond Guarantee Program, under which Treasury guarantees CDFI-issued bonds at favorable rates for long-term, low-cost lending capital.

The Fund's most powerful economic development tool is the New Markets Tax Credit (26 U.S.C. § 45D). The CDFI Fund allocates NMTC authority competitively to Community Development Entities (CDEs) — typically CDFIs — which then raise investment capital from banks and corporations who receive a 39% federal tax credit spread over seven years (5% annually in years 1-3, 6% in years 4-7). Because investors accept below-market financial returns — compensated by the tax credit — the CDE can deploy capital into businesses and real estate in qualifying census tracts (poverty rates above 20%, or median income below 80% of area median) at terms conventional lenders won't offer: grocery stores in food deserts, health clinics, manufacturing facilities in distressed communities, charter schools, and community facilities have all been financed through NMTC, complementing Community Development Block Grants in revitalizing underserved areas. Banks invest in CDFIs and NMTC projects partly for Community Reinvestment Act (CRA) credit — CDFI investments and NMTC participation demonstrate that banks are meeting the credit needs of their entire community, including low-income areas, as required under the CRA exam.

How It Affects You

If you're a small business owner in an underserved community who has been turned down by conventional banks: CDFIs exist specifically for this situation. CDFI lenders — community development banks, loan funds, and credit unions — serve borrowers that conventional banks won't: businesses in low-income census tracts, entrepreneurs without established credit history, startups without significant collateral, and businesses in sectors banks treat as high-risk (restaurants, daycare centers, food trucks, auto repair).

What makes CDFI financing different from bank loans:

• Lower credit score requirements: Many CDFI loan funds work with borrowers in the 550-650 credit score range that banks typically reject
• Flexible collateral: Microloans ($5,000–$50,000) often require no traditional collateral; larger loans may use business assets rather than personal real estate
• Bundled technical assistance: Most CDFIs include business coaching, financial training, and mentoring alongside the loan — not just capital but the support to use it effectively
• Community mission: CDFIs are accountable to the community they serve, not to shareholder returns; they can take on more credit risk for community impact

Typical CDFI loan products:

• Microloans: $5,000–$50,000 for startup or early-stage businesses; many CDFIs also serve as SBA Microloan Program intermediaries
• Small business loans: $50,000–$500,000 for established businesses from CDFI banks and credit unions
• Commercial real estate loans: $500,000–$5 million for community facilities and small commercial projects in low-income areas
• Equipment financing: Smaller CDFIs specialize in equipment loans for specific industries (food production, construction, manufacturing)

How to find a CDFI near you: The CDFI Fund's searchable database at cdfi.treas.gov lists all certified CDFIs by state, county, and type. The Opportunity Finance Network (OFN) at ofn.org also connects borrowers with CDFI lenders. For SBA Microloan program CDFIs specifically, see sba.gov/funding-programs/loans/microloans.

If you're a community organization, nonprofit developer, or local government trying to finance a project that conventional financing won't support — a grocery store in a food desert, a health clinic in an underserved neighborhood, a manufacturing facility in a distressed area, a charter school — the New Markets Tax Credit (NMTC) can bridge the gap between what a project generates and what it needs to be financially viable.

How NMTC works for your project: The NMTC provides investors a 39% federal tax credit over 7 years in exchange for equity investment in projects in qualifying census tracts (poverty rate above 20%, or median income below 80% of area median). Because investors accept below-market financial returns — the tax credit compensates them — the Community Development Entity (CDE, typically a CDFI) can pass along the benefit through below-market interest rates, longer loan terms, or partial loan forgiveness to the project.

In practice: a $10 million project might receive $7 million at favorable NMTC-subsidized terms and $3 million from other sources, making the overall financing stack viable where it otherwise wouldn't be. NMTC has financed 80+ grocery stores in food deserts, health centers, manufacturing plants, charter schools, and community facilities nationally.

How to access NMTC: CDEs receive NMTC allocation authority from the CDFI Fund through a competitive annual application. Contact CDEs operating in your area — the CDFI Fund maintains a list of current NMTC allocatees at cdfifund.gov/programs-training/programs/new-markets-tax-credit. Transaction minimums are typically $2-3 million; smaller projects may need to aggregate funding or find CDFIs with small-deal programs.

If you're a bank or corporate investor looking for CRA credit and tax benefits: CDFI investments and NMTC participation are among the most efficient ways to generate Community Reinvestment Act credit while earning a financial return through tax benefits.

CRA credit for CDFI investments: Federal bank regulators (OCC, Fed, FDIC) give meaningful CRA credit for equity investments, deposits, and loans to CDFIs — qualifying under both the investment and lending tests. The 2023 CRA Final Rule, which would have updated this framework, was preliminarily enjoined by the N.D. Tex. in March 2024 and the agencies issued a joint proposal in July 2025 to rescind it and revert to the 1995 CRA regulations; for now the 1995 CRA regulations remain operative.

NMTC tax economics: A $10 million NMTC investment yields $3.9 million in federal tax credits over 7 years. With a typical 7-year yield-to-maturity of 3-4% on the investment, the effective all-in return for a bank investor is roughly 12-15% depending on state tax treatment — well above what comparable community investments typically return. Contact the NMTC Coalition at nmtccoalition.org for current allocatee lists and deal flow.

If you're in a Native American, Alaska Native, or Native Hawaiian community: The CDFI Fund's Native Initiatives program addresses compounding barriers to financial access in tribal communities — including federal trust land that cannot be used as conventional collateral, limited credit bureau data on tribal members, geographic isolation, and often no financial institution presence on the reservation. CDFIs certified for Native communities provide home purchase loans structured around trust land, small business financing for tribally-owned enterprises, and financial education.

The Native CDFI Network at nativecdfi.net maintains a directory of CDFIs serving tribal communities. If your community has no CDFI, the CDFI Fund's Technical Assistance grants can help a tribe or tribal nonprofit build the organizational capacity to apply for certification.

If you're a low-income household looking for alternatives to payday lenders or high-rate credit: CDFI credit unions and community development banks offer financial products specifically designed for low-income and credit-challenged members.

Common CDFI products for individuals:

• Credit-builder loans: $500-$2,000 where proceeds are held in a savings account until the loan is repaid — the payment history rebuilds your credit score without new debt risk. Score improvements of 30-60 points in 12 months are typical.
• Affordable small-dollar loans: Alternatives to payday loans at APRs of 18-36% (vs. 300-400% for payday loans) for emergency expenses
• Matched savings accounts: Some CDFIs participate in Individual Development Account (IDA) programs, where savings are matched 2:1 or 3:1 for use toward a home purchase, small business startup, or education
• Affordable mortgages: CDFI loan funds and banks provide home purchase loans to borrowers who don't qualify for conventional Fannie/Freddie products — people with thin credit files, nontraditional income documentation, or purchasing in markets conventional lenders avoid

See also SBA Loan Programs for additional federal small business financing. To find CDFI products available to individuals: search the CDFI Fund's locator at cdfi.treas.gov by zip code, or contact your local Community Action Agency at communityactionpartnership.com for referrals to CDFI products in your area.

State Variations

CDFIs operate within state regulatory frameworks:

• State banking and credit union regulators oversee CDFI banks and credit unions alongside federal regulators
• Some states have created their own CDFI programs or tax credits that supplement federal CDFI Fund awards
• State tax treatment of NMTC investments varies — some states offer complementary state NMTCs
• State lending laws (interest rate caps, licensing requirements) affect CDFI loan products
• State Community Reinvestment Act equivalents may provide additional incentives for bank investment in CDFIs

Implementing Regulations

• 12 CFR Part 1805 — CDFI Fund Community Development Financial Institutions Program (eligibility, application, certification, financial assistance awards, technical assistance, reporting)

• 12 CFR Part 1808 — CDFI Bond Guarantee Program (55 sections — the Treasury-backed bond financing program that allows CDFIs to issue long-term bonds guaranteed by the U.S. government, providing a low-cost, high-volume funding source for CDFI lending in underserved communities; governed by the Small Business Jobs Act of 2010, 12 U.S.C. § 4713a):

  • § 1808.100 — Purpose: the program supports CDFI lending by providing Treasury guarantees for bonds issued by CDFIs; a Treasury guarantee means the bondholder (typically an institutional investor) faces no credit risk — Treasury will pay if the CDFI defaults — allowing CDFIs to access capital markets at near-Treasury rates, substantially lower than market rates for comparable non-guaranteed issuers
  • § 1808.200 — Qualified Issuers: a CDFI applying to issue CDFI Bonds must be designated as a "Qualified Issuer" by the CDFI Fund; qualification requires demonstrating organizational capacity (track record, staffing, systems), financial soundness (adequate capital ratios, low delinquency), a reasonable plan for deploying bond proceeds in eligible community development lending, and compliance with applicable laws; a single Qualified Issuer may issue multiple bonds in a program year
  • § 1808.201 — Designated Bonding Authority (DBA): the CDFI Fund may designate a single entity as the DBA — an intermediary authorized to issue bonds on behalf of multiple CDFIs in a pooled structure; pooling allows smaller CDFIs to access the Bond Guarantee Program without incurring the fixed costs of a standalone bond issuance; the DBA holds the bonds, on-lends proceeds to participating CDFIs, and manages the bond repayment waterfall
  • § 1808.202 — Eligible CDFIs: CDFIs seeking Bond Loans (proceeds on-lent from bond issuance) must be CDFI Fund-certified, serve an eligible target market (investment areas or targeted populations), have a history of community development lending, and meet minimum financial health criteria; Eligible CDFIs repay their Bond Loans to the Qualified Issuer/DBA on a schedule that matches the bond's amortization
  • Eligible purposes: bond proceeds must be used for community development lending — loans to nonprofit organizations, small businesses, commercial real estate in low-income communities, affordable housing, and community facilities; the eligible purposes specification ensures capital reaches the program's community development mission rather than being deployed in conventional commercial markets
  • Bond terms: CDFI Bonds are long-term instruments — typically 10 to 30 years — reflecting the long-duration nature of community development investments; the extended term allows CDFIs to finance affordable housing and commercial real estate projects without maturity mismatch; interest rates are set at the comparable Treasury rate plus a small spread for administrative costs
  • Bond size: minimum Bond Loan per CDFI is $10 million; minimum bond issuance per program year is $100 million; these minimums reflect the fixed costs of Treasury guarantee documentation and administration; the program is designed for CDFIs with sufficient capacity to deploy multi-million dollar pools of capital into eligible lending

• 12 CFR Part 1807 — Capital Magnet Fund (CMF — the CDFI Fund competitive grant program that leverages private capital for affordable housing and community development, established by the Housing and Economic Recovery Act of 2008 (HERA), 12 U.S.C. § 4569):

  • § 1807.101 — Program summary: the CMF awards competitive grants to certified CDFIs and qualified nonprofit organizations (not investor-owned for-profit entities); awardees must leverage their CMF award with private capital — the statute requires that every $1 of CMF funds attract at least $10 in private investment for affordable housing or economic development activities; this 10:1 leverage requirement is the CMF's defining policy feature
  • § 1807.200 — Applicant eligibility: an applicant must be either a CDFI Fund-certified CDFI or a nonprofit organization with a primary mission of developing or managing affordable housing; CDFIs that are also banks, credit unions, loan funds, or venture capital funds are eligible; the CMF is not restricted to loan-fund CDFIs — bank CDFIs (such as community development banks) may apply
  • § 1807.300 — Eligible uses: CMF award proceeds must be used for Affordable Housing Activities (construction, preservation, or rehabilitation of rental housing; down payment assistance; affordable homeownership activities) or Economic Development Activities (loans to small businesses, community facilities, or commercial real estate in low-income areas); at least 70% of each CMF award must finance affordable housing activities; the remaining 30% may fund economic development
  • § 1807.301 — Affordable housing standards: housing financed with CMF must be affordable — for rental housing, tenant income must not exceed 120% of area median income (with at least 40% of units serving households below 60% AMI); for homeownership, buyer income may not exceed 120% AMI; affordability restrictions must remain in place for a minimum of 10 years for homeownership and 15 years for rental projects
  • § 1807.400 — Award period and use of funds: CMF awardees have 5 years from the award date to deploy their funds in eligible activities; undeployed funds must be returned to the CDFI Fund; extensions may be granted for good cause; awardees must maintain audited financial records demonstrating compliance with leverage requirements throughout the award period
  • § 1807.601 — Compliance monitoring: the CDFI Fund conducts ongoing monitoring of CMF awardees, including review of annual reports, site visits, and financial audits; awardees that fail to meet leverage requirements or use funds for ineligible purposes must repay the award with interest

  CMF awards are funded by mandatory allocations from Fannie Mae and Freddie Mac — each GSE must transfer 4.2 basis points of its total new business (unpaid principal balance of mortgages purchased) to the CMF annually under HERA. This funding mechanism ties CMF capitalization to housing market activity: in years with high GSE volume, the CMF receives more funding automatically; the CMF received approximately $100–300 million annually before housing market fluctuations changed GSE business volumes. Unlike the Low-Income Housing Tax Credit, the CMF provides direct grants rather than tax credits, making it particularly valuable for nonprofit developers who lack the tax liability to use LIHTCs directly. CMF awards are typically combined with LIHTC equity, HOME funds, and CDFI Bond financing to assemble the capital stacks for affordable housing developments.

• 12 CFR Part 1806 — Bank Enterprise Award (BEA) Program: a CDFI Fund grant program that provides monetary awards to FDIC-insured depository institutions (banks and thrifts) that increase their lending and service activities in distressed communities — distinct from the core CDFI Program (Part 1805), which awards CDFIs themselves. The BEA Program is designed to incentivize mainstream commercial banks to expand community development activity in designated "distressed communities" where conventional banking services are limited. Key provisions:

  • § 1806.200 — Applicant eligibility: any FDIC-insured depository institution may apply; the applicant does not need to be a certified CDFI; eligibility is open to large national banks, regional banks, community banks, and savings associations — the program is explicitly designed to reach beyond the CDFI sector to the broader banking industry
  • § 1806.300 — Eligible Activities: BEA Program Awards must be used for one or more of four categories: (a) CDFI Related Activities — equity investments, loans, or technical assistance to certified CDFIs operating in distressed communities; (b) Distressed Community Financing Activities — mortgage loans, small business loans, consumer loans, and service activities in designated distressed communities directly from the bank's own portfolio; (c) Service Activities — basic banking services (low-cost checking and savings accounts, financial literacy programs) provided to residents of distressed communities; (d) Equity Investments — investments in CDFIs or qualified community development entities that serve distressed communities
  • § 1806.400–1806.402 — Award calculation: BEA Awards are calculated based on the increase in a bank's qualifying activity in distressed communities between the current assessment period and the prior comparable period — the program rewards growth, not just absolute level of activity; a bank that doubles its CDFI lending in distressed communities receives a larger BEA Award than one with a stable (even large) portfolio; the CDFI Fund sets award rates (dollars per dollar of activity increase) that vary by activity type; CDFI-Related Activities typically receive the highest award rates (e.g., $0.15–$0.25 per dollar of CDFI investment) because they channel capital through the CDFI ecosystem
  • § 1806.500 — Distressed Community definition: the BEA Program defines a "distressed community" based on census tract characteristics — high poverty rates (poverty rate of at least 30%, or at least 20% where the tract is in a county with unemployment at 1.5× the national rate), low-income population (at least 50% of residents below 80% of the area median family income), or significant unemployment; the CDFI Fund publishes a list of qualifying census tracts used for each application round
  • § 1806.600 — Application process: BEA applicants submit annual applications to the CDFI Fund documenting qualifying activities during the prior calendar year; the CDFI Fund verifies activity data against call reports (FFIEC 051/041 or FDIC data), HMDA data, and supporting loan-level documentation; awards are announced and disbursed after verification

  The BEA Program operates as a performance-based subsidy, rewarding mainstream banks for increased community development activity without requiring them to become certified CDFIs. Unlike the Community Reinvestment Act (which mandates a certain level of community development activity), the BEA Program provides a positive financial incentive (a grant) for going beyond baseline CRA performance. Banks participating in BEA may also receive CRA credit for the same activities, making BEA a complementary tool for banks with aggressive CRA strategies. Annual BEA award rounds are competitive — the CDFI Fund has appropriated between $20–30 million annually for BEA awards in recent years, distributed among hundreds of applicant banks. Recent rulemakings: no major amendments since the current rule was adopted; the CDFI Fund updates the list of qualifying distressed community census tracts annually.

• 12 CFR Part 1815 — CDFI Certification and Award Administration (application procedures, record-keeping, compliance monitoring, and reporting for CDFI Fund financial assistance programs)

• 31 CFR Part 35 — Pandemic Relief Programs (22 sections — Treasury's implementing regulations for three pandemic-era financial institution relief programs administered in coordination with the CDFI Fund and Treasury): the COVID-19 pandemic generated emergency legislation creating new capitalization programs for CDFIs and small banks that went beyond the standard CDFI Fund competitive grants. Part 35 establishes the rules for three of these programs:

  • Coronavirus State and Local Fiscal Recovery Funds (CSLFRF) (42 U.S.C. §§ 802–803, sections governing Treasury administration): the largest pandemic relief program Treasury administered — providing over $350 billion directly to states, counties, cities, and tribal governments under the American Rescue Plan Act of 2021; Part 35 establishes Treasury's administration framework for these transfers, including eligible uses, reporting requirements, and recoupment procedures; eligible uses included premium pay for essential workers, public health expenditures, infrastructure (water, sewer, broadband), and revenue replacement; CDFIs were eligible recipients of CSLFRF sub-awards from state and local governments for community development lending
  • Emergency Capital Investment Program (ECIP) (12 U.S.C. § 4703a — enacted by the Consolidated Appropriations Act, 2021): a $9 billion program that provided direct capital investments in Community Development Financial Institutions (CDFIs) and Minority Depository Institutions (MDIs) — community banks and credit unions serving low- and moderate-income communities and communities of color; unlike the standard CDFI Program grants (which typically run $2 million), ECIP investments were in the range of $50 million to $300 million per institution; Treasury invested in preferred stock or subordinated debentures; institutions receiving ECIP capital were required to deploy it in qualifying lending activities serving low-income borrowers and underserved communities; the dividend/interest rate is 2% for the first two years dropping to 0.5% if lending targets are met — creating a strong financial incentive to deploy capital in qualifying lending; Part 35 governs ECIP application procedures, qualifying lending standards, reporting requirements, and the recapture provisions if lending commitments aren't met
  • Small Business Lending Fund (SBLF) (12 U.S.C. §§ 5701–5710 — enacted in 2010 but extended and modified by pandemic legislation): originally created after the 2008-2009 financial crisis to encourage community bank small business lending, the SBLF framework was incorporated into Part 35 alongside the newer pandemic programs; the SBLF provided Treasury capital to banks and CDFIs in exchange for preferred stock; the dividend rate decreased as the institution's small business lending increased above its baseline — linking Treasury's cost of capital to the program's community development outcome

  The pandemic capital programs represent a qualitative shift in the federal government's engagement with CDFIs — moving from grant-based support (CDFI Program awards, CMF, BEA) to direct equity and debt investments at institutional scale. ECIP in particular allowed Treasury to make equity investments in CDFI banks and credit unions that dwarfed anything the standard CDFI Program could provide, providing a level of capitalization that lets these institutions compete more effectively with mainstream banks in their target markets. Recent rulemakings: Part 35 was substantially revised at 88 FR 65026 and 88 FR 80589 (both 2023) to finalize CSLFRF eligible use and reporting requirements.

Pending Legislation

CDFI funding and expansion provisions appear in broader financial services and community development legislation. See Community Reinvestment Act and Community Development Block Grants.

Recent Developments

The Emergency Capital Investment Program (ECIP) — created during COVID-19 — provided $9 billion in Treasury investments to CDFIs and minority depository institutions (MDIs), dramatically expanding the sector's capital base. CDFI certification has grown rapidly, with over 1,400 certified institutions (up from about 1,000 a decade ago). The NMTC was made permanent in recent tax legislation after years of temporary extensions — providing certainty for the program's future. The CDFI Fund has also increased its focus on climate-related investments, supporting CDFIs that finance energy efficiency, renewable energy, and climate resilience projects in low-income communities. CDFIs also play a growing role in financing Low-Income Housing Tax Credit developments. Treasury has modernized CDFI Fund application and reporting systems, reducing administrative burden on applicant institutions.