State-level coalitions are demonstrating how CDFI partnerships with state and local governments, philanthropy and new allies can reduce reliance on federal funding and expand community impact. This article is part of a series highlighting the impact of CDFIs and how the sector is adapting to the current environment. 

Walk down any main street in Michigan and you’ll find businesses — like Terri’s Cakes in Detroit or Four Leaf Brewing in Clare — that might not exist without the support of community development financial institutions (CDFIs). Created through bipartisan legislation 30 years ago, CDFIs were designed to serve communities overlooked by traditional banks. Today, more than 1,400 CDFIs nationwide — and 55 here in Michigan — provide affordable financing to small businesses, first-time homebuyers and community projects that keep neighborhoods vibrant.

CDFIs have long relied on federal partners such as the U.S. Treasury’s CDFI Fund, the Small Business Administration (SBA), and Department of Housing and Urban Development (HUD), alongside philanthropic, bank and corporate investors. These federal investments remain critical, but with federal funding facing uncertainty, we can’t depend on Washington alone to meet the growing needs of the communities we serve. The survival and success of CDFIs depends on expanding support at the state and local levels.

Michigan’s model shows what’s possible

In Michigan, we’ve begun to chart this path. Two CDFI coalitions — the Michigan CDFI Coalition and the Detroit CDFI Coalition — have worked with legislators to establish the Michigan CDFI Fund, which has already awarded $89 million in grants to strengthen lending capacity, operations and technical assistance. That fund is just the beginning. Together with state and local partners, we are exploring creative ways to close capital gaps and respond to urgent needs, such as:

• A statewide CDFI loan fund combining public, philanthropic and private capital.
• A Community Redevelopment Tax Credit to revitalize business corridors.
• A small business interest buydown and collateral fund to expand entrepreneurship.

Detroit offers additional proof that local collaboration works. Partnerships between the city, philanthropy and CDFIs have fueled programs like the Strategic Neighborhood Fund, Motor City Contractor Fund and the 0% Interest Home Repair Program —  initiatives that blend resources and expertise help stabilize housing and support small contractor businesses.

As CDFIs continue to play an important role in our communities and their economic success, it’s vital that we work together to not only sustain our organizations but grow our capacity. Michigan’s experience shows what’s possible when CDFIs work hand-in-hand with state and local leaders, and partners in our sector can adapt similar approaches by:

• Partnering with local and state governments to seed new capital programs
• Adjusting policy so existing programs are accessible to CDFIs
• Engaging non-traditional partners — such as hospitals and anchor institutions — whose missions align with community development
• Leveraging limited public and foundation dollars to unlock larger, blended finance programs

National networks of state coalitions have begun forming to share strategies, provide advocacy training and exchange policy insights. Our partners in Michigan are already learning from peers in Pennsylvania, Virginia, California, New York and beyond. Together, we hope to scale local innovations into a more resilient national CDFI system.

Building resilience for the future

In this moment of dramatically shifting policy landscapes and volatile financial markets, CDFIs must diversify funding sources and innovate beyond “business as usual.” By building stronger partnerships at every level and cultivating a broader set of funding streams — from municipal programs to statewide coalitions — we can reduce our vulnerability to federal funding uncertainty and build more durable institutions.

Small businesses are the engine of our economy, and CDFIs help keep that engine running. By acting locally and creatively, we can ensure these institutions remain strong for our neighborhoods and cities to thrive.

Jenn Hayes is the senior vice president of public policy at Invest Detroit, chairs the Detroit CDFI Coalition, and helps lead policy work for the Detroit and MI CDFI Coalitions.