If your bank is looking to make a meaningful impact while meeting CRA requirements, Community Development Financial Institutions (CDFIs) are natural partners. CDFIs specialize in reaching borrowers and neighborhoods that traditional banking often can’t serve, like small business owners without credit histories, families seeking affordable housing, or communities long excluded from mainstream finance. By partnering with CDFIs, banks can extend their reach into these underserved markets, support future customers, and demonstrate a tangible commitment to community development. And because CRA recognizes CDFI partnerships as qualified activities, banks can be confident that their efforts will receive credit during examinations.
What is a CDFI?
Community Development Financial Institutions (CDFIs) are private financial institutions with a mission to serve communities left out of traditional banking options. CDFIs can be for-profit or nonprofit institutions, but they all share the goal of promoting community development and providing financial and educational services. The majority of CDFIs are loan funds, though they may also take the form of banks, credit unions, holding companies, or venture capital funds.
To be certified, and potentially funded, by the U.S. Treasury, CDFIs must maintain accountability to one or more defined target markets that have historically lacked access to capital. These target markets may include:
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low-income census tracts or individuals,
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ethnic groups such as Native American, Native Alaskan, or Pacific Islander individuals,
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persons with disabilities, or even other
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certified CDFIs.
CDFIs are well positioned to support hard-to-reach populations, and through 2022, CDFIs have supported over 850,000 businesses and microenterprises, created more than 3 million jobs, and built more than 2.4 million affordable housing units.
How Can You Support CDFIs?
1. Volunteering
For those seeking to strengthen community ties while meeting CRA service goals, partnering with CDFIs through volunteering can be a powerful approach. Your bank can provide valuable expertise by offering financial literacy training, serving on CDFI boards, or participating in loan committees—activities that directly support underserved communities while fulfilling CRA service requirements. When your staff shares their time and knowledge, they not only help CDFIs expand their impact but also deepen relationships with potential future clients. If your bank isn’t present through these service opportunities, another institution will be, and those community connections will be harder to build later.
2. Equity Equivalent Investments (EQ2s)
If you’re looking to deepen your impact in underserved markets while receiving CRA credit, providing an Equity Equivalent Investment (EQ2) to a CDFI is a powerful strategy. An EQ2 is a long-term, deeply subordinated loan with equity-like features that strengthens a CDFI’s capital base. Unlike grants, which are limited and slow to accumulate, EQ2s provides flexible capital that allows CDFIs to take on riskier, longer-term lending and better serve disadvantaged communities. This strengthened capital structure not only lowers the cost of borrowing for CDFIs but also attracts additional investment, multiplying the impact of the bank’s initial contribution. For banks, EQ2 investments offer favorable rates, CRA consideration, and a direct role in expanding economic opportunity where it’s needed most. EQ2s can meet both investment and lending test requirements simultaneously. Providing EQ2s gives you the chance to build stronger community partnerships and long-term market presence.
3. Loan Purchases
Banks can also meet their CRA lending goals by purchasing CDFI-originated loans, either directly from a CDFI or through a trusted third party like Scale Link. These purchases, whether structured as whole loans or participations, count as units on the CRA lending test, and the CDFIs may choose to retain or release servicing.
CDFIs are institutions that have been certified to show that they provide financial services to underserved communities. By purchasing CDFI-originated loans, banks support their CRA goals and ensure funds are going to the people in their community who need it most.
Scale Link facilitates nonrecourse participations between 90 and 100%, with CDFIs retaining servicing to maintain their borrower relationships. In addition, Scale Link requests a donation alongside the purchase to further support CDFIs’ ability to expand lending in underserved communities. This approach allows banks to efficiently increase their CRA-qualified activity while strengthening local markets and fostering long-term community impact.
Scale Link purchases small business loans directly from Community Development Financial Institutions (CDFIs) when they need liquidity. When banks need to acquire CRA-eligible loans, Scale Link supplies qualifying loans in their assessment area through a simple, reliable process. This streamlined approach to buying and selling small business loans enables CDFIs to significantly increase the flow of liquidity to entrepreneurs while maximizing the impact of CRA-qualifying purchases for bank buyers. This solution centralizes expertise and volume so bank partners create CRA impact they can count on.
Partnering with CDFIs is more than a way to meet CRA requirements; it’s a way for banks to play an active role in shaping stronger, more resilient communities. By sharing expertise through volunteering, providing flexible capital with EQ2 investments, or purchasing loans that expand access to credit, banks can directly support the growth of small businesses, affordable housing, and community infrastructure in places that need it most. These partnerships not only deliver measurable CRA impact, but they also help banks build trust, deepen local relationships, and cultivate the next generation of customers. Scale Link makes these partnerships efficient and impactful by connecting banks with high-quality, CRA-eligible opportunities nationwide.
Track and Manage Your CRA Data
For banks looking to streamline CRA tracking and reporting, tools like Kadince can be a helpful complement. Kadince can help you:
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Import, geocode, map, and categorize loans
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Route potential community development loans through a qualification process
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Analyze lending distribution and identify performance gaps
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Securely store supporting documentation
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Measure progress toward real-time goals and benchmarks
To learn more about how Kadince makes it easy to track and manage loans, schedule a demo.
When banks and CDFIs work together, they bridge gaps in access to capital, create pathways for economic mobility, and foster inclusive growth. Banks have both the responsibility and the opportunity to move beyond compliance and become true partners in community development.
None of Kadince, Inc., its affiliates, or its respective employees, directors, officers, and agents (collectively, “Kadince”) are responsible or liable for any content or information incorporated herein. Read full disclosure.
