On a recent March morning in Albuquerque, New Mexico, La Montañita Food Co-op prepared to welcome customers to its new location at Avanyu Plaza, a commercial corridor owned by the 19 Pueblos of New Mexico.

The move was an investment in local ownership, food security, jobs and community asset building. For La Montañita, success is measured not only by sales but by whether residents gain economic opportunity and whether wealth remains rooted in the community. Several community development financial institutions (CDFIs) came together to finance the project: Shared Capital Cooperative in St. Paul, Minnesota; LEAF in Boston, Massachusetts; Capital Impact Partners; and Rochdale Capital in Arlington, Virginia.

These lenders don’t spend their days financing the largest corporations or the most visible deals in the market. Instead, they review loan applications from cooperatives and entrepreneurs that traditional lenders turned away, help borrowers strengthen their finances, provide technical assistance, and find responsible ways to say “yes” when conventional financing says “no.” Together, they support community-owned enterprises that preserve local identity, expand economic opportunity and strengthen neighborhoods through ownership and self-determination.

That work is becoming harder.

Community development finance sector faces difficult times

CDFIs across the United States are under intense pressure. Demand for capital is rising as small businesses, affordable housing developers and families in underserved communities face tightening credit from mainstream banks. All while the CDFIs serving as trusted intermediaries filling that gap are being asked to do more with less.

The pressure is most acute for small CDFIs. While large CDFIs get the attention, the technology budgets and most of the capital, small CDFIs often get the hardest-to-reach borrowers, the thinnest staff and the least institutional support.

Federal funding for CDFIs is volatile, with the administration’s FY2026 budget proposal targeting deep cuts to the CDFI Fund even as Congress has so far preserved much of its bipartisan support. As Opportunity Finance Network President and CEO Harold Pettigrew has put it, that bipartisan backing endures because CDFIs work, but “the urgency and scale of the need” has only intensified. Delayed Bank Enterprise Award and Small Dollar Loan Program cycles, along with a pivot toward performance-based, place-based priorities like the new Rural Financial Assistance Program, are compounding the strain and forcing CDFIs to adapt in real time. With fewer Community Reinvestment Act dollars in play, grants and below-market capital are harder to secure, and inflation is eroding stagnant revenue.

Staff burnout is increasing amid shifting compliance requirements, delayed award timelines and the emotional toll of serving communities in crisis. With CDFI leaders managing greater demand, shrinking resources and exhausted teams all at once, burnout is now a structural risk to lending capacity, not just an individual wellness issue.

Meanwhile, the data and technology landscape is also outpacing many CDFIs’ capacity, widening the gap between community capital needs and what mission-driven lenders can deliver.

As Kresge’s own conversations with CDFI leaders have surfaced, the sector’s traditional dependence on Treasury, Small Business Administration, and Housing and Urban Development dollars is no longer sufficient on its own. CDFIs are diversifying through state and local partnerships, blended finance and even non-traditional allies like hospitals and other anchor institutions. But diversification alone cannot solve a systemic capital shortage. The sector needs predictable, flexible, risk-tolerant capital — not transactional, one-off grantmaking — to plan, retain talent and respond before communities reach a breaking point.

These pressures are hardest on the communities CDFIs serve. Under-resourced areas are especially vulnerable because CDFIs often provide the only source of affordable credit where banks have pulled back or never lent at all. Many CDFIs, particularly smaller loan funds, also lack the standardized data, technology and underwriting infrastructure needed to demonstrate their strength, tap secondary capital markets and compete for new performance-based federal funding.

Leadership support must also be a priority. CDFI leaders are navigating political scrutiny, shifting regulatory priorities, board tension, staff trauma and technological change, often at the same time. Leadership support is not overhead; it is essential to a CDFI’s ability to deploy capital responsibly and to serve, as the sector often does, as a first responder in moments of economic difficulty.

What the sector needs now

Short-term, transactional grants cannot solve a long-term capital gap. CDFIs, trade associations and foundations share a responsibility to strengthen the institutions that finance communities other lenders overlook.

Foundations could:

• Make flexible, risk-tolerant, multiyear capital standard practice, including general operating and unrestricted support that reduces administrative burden and lets CDFIs focus on lending rather than survival.
• Invest in people and infrastructure: leadership development, executive coaching, culture initiatives and data systems.
• Build trust-based partnerships that let CDFIs innovate, not just survive.

Trade associations could:

• Expand partnership models that connect smaller loan funds to larger, better-capitalized peers, pairing local knowledge with broader access to capital.
• Offer training, shared services and sector-wide standards.
• Strengthen leadership pipelines through coaching and peer networks.

Across the sector, anchor institutions and partners could:

• Provide place-based CDFIs with long-term, patient investment matched to their markets.
• Help all CDFIs use public finance tools such as municipal bonds, tax increment financing and other government revenue streams that remain underutilized.

CDFIs are facing one of the toughest environments in recent memory, but the path forward is clear, and the evidence is on their side: impact and financial performance aren’t at odds, they reinforce each other. CDFIs need capital and partnerships to do the work sustainably — not praise for doing more with less. Stronger partnerships, flexible and risk-tolerant capital, and deeper investment in people, infrastructure and leadership can help stabilize the institutions that stabilize communities.

The CDFI sector is ready for bold action. Its partners must act with the same urgency. Because when foundations, trade associations and anchor institutions choose flexible capital, the payoff looks exactly like Avanyu Plaza: a grocery store owned by the community it serves, made possible only because a handful of small CDFIs said yes.

John Holdsclaw IV is president & CEO of Rochdale Capital, a certified CDFI whose mission is the promotion of cooperative and community ownership and providing capital access in low wealth communities. Elizabeth Davidson is a social investment portfolio manager in The Kresge Foundation’s Social Investment Practice.