Banking leaders must stand behind the CDFI Fund

On March 14, President Trump signed an executive order directing the CDFI Fund (and six other government programs) to reduce their operations to the minimum needed to perform their statutory duties..In plain language, this means that the CDFI Fund—which in 2024 alone helped CDFIs finance more than 100,000 businesses, 45,000 affordable housing units, and nearly $25 billion in loans and investments — may lose vital support. Though the order doesn’t eliminate the Fund entirely, and this year’s funding levels remain untouched, it raises urgent questions about the Fund’s future. Prominent stakeholders have already expressed concern, from the co-chairs of the bipartisan Senate Community Finance Caucus to community banking industry groups to Treasury Secretary Scott Bessent.But this is an issue that should be taken up by banking leaders nationwide. After all, cutting funds for CDFIs will not only lead to job losses, slowdowns in economic development, and the potential for more reliance on government subsidies, but will also impact the country’s larger financial institutions that increasingly fund CDFIs to obtain Community Reinvestment Act (CRA) credits.The CDFI fund’s impact, explainedCDFIs began to form in the 1970s and now comprise over 1,400 certified institutions, including community banks, credit unions, loan funds, and venture capital funds. Their aim is to provide access to capital and financial services in areas often overlooked by traditional banks, like rural communities. Through a combination of loans, investments, and tailored support, CDFIs empower individuals and businesses in these communities to attain affordable housing, launch and grow businesses, finance the purchase of new products, and even build schools and health care facilities. This in turn fuels job creation and economic development, thereby reducing long-term dependence on government assistance.The creation of the CDFI Fund in 1994 recognized the work these institutions were already doing and helped CDFIs attract additional funding. The multiplier effect has proven immensely successful: recipient institutions now leverage $8 in funding from other sources, like private investors and large banks, for every dollar they receive from the Fund—a model of efficiency in taxpayer dollar allocation. Larger financial institutions in particular have become a predominant source of CDFI funding, as it helps meet their goals under the CRA.The good this capital can do is clear: according to the CDFI Fund’s most recent annual report, recipients of its financial assistance financed 557,698 units of affordable housing, 42,000 commercial real estate projects, 17.9 million personal loans, and 1.3 million small businesses from 2010 to 2024.The Fund has also spurred the creation of more CDFIs in communities that need them. “These grants are important in that they allow for leverage, unlock the balance sheet, allow for a technology investment, invest in a new branch,” said Brett Theodos, senior fellow and director of the Community Economic Development Hub at the Urban Institute, said in March.A model of public-private partnershipThe CDFI Fund isn’t about government handouts. Instead, it’s a model of public-private collaboration, which itself has been at the core of our country’s banking system since at least 1934, when federal deposit insurance stemmed the tide of U.S. bank failures.CDFIs came into force decades later to combat redlining and open the banking system to low-income communities. In the ‘70s, a Chicago-based community bank “pioneered the concept of pulling in deposits from outside its service area with the explicit mission to use those deposits to serve an area lacking access to credit otherwise.”Yet, until the CDFI Fund was created, these institutions lacked systemic support and relied solely on personal relationships to grow. As noted above, the Fund catalyzed the expansion of CDFIs and their funding sources. Losing its support would take the wind out of these institutions’ sails at a time when the communities they serve need them the most. It would also handicap the impact that private investors (and commercial and individual depositors) have when guiding their dollars to the financial institutions that serve the communities they want to see flourish — not by taking traditional government subsidies, but by cultivating self-sustaining economic ecosystems.Don’t throw out the baby with the bathwaterGovernment efficiency is a noble goal — but we don’t have to drastically cut the CDFI Fund to achieve it. For instance, the application process for the CDFI Fund is time consuming for both the Fund and its applicants, requiring at least 17 components, four different deadlines across two months, and accounts at three separate federal websites.Every application is then assessed by at least three reviewers, including internal staff and external contractors. This could be an area ripe for operational improvements. That alone, however, does not cancel out the monumental impact that the Fund and its partnering institutions provide to the U.S. economy. A bipartisan group of policymakers agrees; now it is time for bankers themselves to contact their elected officials and affirm their support for the Fund’s mission.Kelly Brown is chair and CEO of Milwaukee-based financial services firm Ampersand, Inc.