Community development financial institutions (CDFIs) are vital investors in cities across America, but could they have a greater impact if they better pulled in dollars from public finance sources?  

As long-standing lenders with a mission, CDFIs specialize in providing loans to individuals, organizations, and businesses in under-resourced or disadvantaged rural and urban communities often underserved by mainstream banks. They also provide other forms of fair, responsible financing that further economic potential. CDFIs can also function as trusted intermediaries that invest in a wide range of important sectors like housing, infrastructure, small businesses, and others. 

CDFIs traditionally rely upon a myriad of funding sources, such as the U.S. Treasury CDFI Fund, the Community Reinvestment Act, grants from private foundations, funding from corporations, and many other private and philanthropic sources, to capitalize their operations and fund their lending and financing activities. 

But it’s unclear whether CDFIs fully leverage a significant source of money that flows through American state and local governments at scale, namely from public finance sources.

Public finance, in its simplest form, is the field of economics concerned with how governments spend and raise money from sources such as taxes, charges, fines and fees. It also includes intergovernmental sources such as federal aid, the federal CDFI fund, state aid, shared revenues flowing from a higher level of government, or funding raised with private sector actors. This private money includes that raised from municipal bonds and public-private partnerships, among other avenues. 

There are several examples of CDFIs that have leveraged public finance resources as part of their community investment strategies. For example, Craft3, has leveraged state revolving funds – a long-standing public finance vehicle to finance water and sewer infrastructure projects in the State of Washington. Enterprise Community Partners and other CDFIs have sold municipal bonds to fund projects guided by social values. 

LISC, IFF, Newtown Macon and other CDFIs leverage federal aid, sometimes in concert with revolving loan vehicles, to accelerate investments in broadband infrastructure projects, affordable housing, and other purposes. 

The examples noted above are just a few that highlight the potential that exists when CDFIs tap into funding available via public finance, particularly when used in tandem with their traditional community investment funding sources, to grow their resource base as impact investors. Yet, outside of data concerning the CDFI Fund, which has provided more than $70 billion since its founding in 1994, it is unclear to what degree CDFIs leverage public finance on a national scale. 

More work is needed to understand when such practices are used, if all CDFIs in a region or state are leveraging available resources, or whether there are meaningful variations and differences in the types of CDFIs that can leverage public finance resources, perhaps by size, sector focus, or location. It is also unclear what barriers, if any, exist when CDFIs attempt these practices.

Considering and examining these issues is vital in this moment when many CDFIs have new opportunities to partner with governments to leverage unique, time-bound, historic federal aid resources from the $1.85 Trillion American Rescue Plan, the $1.2 Trillion Infrastructure Investment and Jobs Act, the Inflation Reduction Act, the Justice40 Initiative, as well as other federal programs infusing money at scale to American governments to encourage equitable investments. 

This moment challenges us to ask, are CDFIs fully aware of the existing opportunities to draw funding from federal, state and local public finance sources? What would it take to reimagine CDFIs’ role as stakeholders in the public finance ecosystem and support those that want to tap into public finance more fully to grow their mission investor resource base? 

As a first step in answering those questions, The Kresge Foundation is hosting a roundtable to start to survey national CDFI leaders as part of a new research effort to understand how they make choices regarding the resources they pursue, and to learn how and whether public finance is being considered. 

We aim to understand the CDFI activity landscape in ways that are attentive to the challenges, barriers and constraints that may inhibit CDFIs’ awareness and ability to participate in the public finance ecosystem. We also want to understand what is needed to better support and enhance the capacity of CDFIs to access federal funds and other traditional forms of public finance more expansively — an underutilized strategy that can position CDFIs to drive greater investment in American communities with the greatest need.

If you’re interested in sharing your knowledge on this subject, sharing resources we should see, or attending a roundtable, please share your interest using this form. 

Aaron Seybert is managing director of the Social Investment Practice at The Kresge Foundation. Read his full biography here. Lourdes Germán is a Senior Advisor to the Kresge Foundation’s Social Investment Practice, American Cities Program and Detroit Program. She also serves on the Harvard University Graduate School of Design faculty and is Executive Director of the Public Finance Initiative. Read her full biography here.