Navigating the Uneven Terrain of Community Development Finance: A Revealing Exploration

This excerpt is from the groundbreaking book "Community Capital: Race, Equity and the Credit Union Movement" by Clifford N. Rosenthal and Michael McCray, Esq., CPA, set to be published in 2024 by American Banner (AB) Books. It offers a candid and insightful look into the challenges and complexities faced by community development credit unions (CDCUs) in accessing crucial funding through the CDFI (community development finance institution) Fund, a program intended to support economic development in underserved communities.

Uncovering the Disparities in Community Development Finance

The Establishment of the CDFI Fund: A Glimmer of Hope

Clifford Rosenthal, the former executive director of the National Federation of Community Development Credit Unions (now Inclusiv), had long championed the creation of the CDFI Fund, seeing it as a vital source of capital for the credit unions serving low-income and predominantly BIPOC (Black, Indigenous, and People of Color) communities. The establishment of the CDFI Fund in 1994 was a significant milestone, offering the promise of much-needed resources to support the growth and sustainability of these vital financial institutions.

Disillusionment and Disappointment: The Uneven Distribution of CDFI Funds

However, the initial round of CDFI Fund awards in 1996 proved to be a bitter disappointment for Rosenthal and the CDCUs he represented. Despite their extensive experience and deep roots in the communities they served, only a handful of CDCUs received funding, while the majority of the awards went to nonprofit loan funds, many of which were relatively new to the field. Rosenthal was perplexed by this outcome, as he had envisioned the CDFI Fund as a means to nurture and expand the network of credit unions serving communities of color.

Confronting the Systemic Biases: The Challenges of the CDFI Fund's Framework

Rosenthal's disappointment was compounded by the realization that the CDFI Fund's application process, procedures, and evaluation metrics were inherently biased towards the larger, more established nonprofit sector, putting the smaller, community-based credit unions at a disadvantage. The Fund's focus on "impact" over "equity" meant that the credit unions' decades-long track record of serving the most marginalized communities was not given the weight it deserved.

The Racial Divide: Confronting the CDFI Fund's Director

The racial dynamics of the situation came to a head when Rosenthal's African American board chairwoman, "Evelyne," confronted the CDFI Fund's director, an Asian American woman, accusing the Fund of being racist. This confrontation, while uncomfortable for Rosenthal, highlighted the deep-seated frustrations and sense of betrayal felt by the credit unions serving communities of color, who had long experienced the sting of disappointment at the hands of government programs.

Navigating the Complexities: Rosenthal's Struggle for Equity

Rosenthal found himself in a difficult position, torn between defending the CDFI Fund's intentions and advocating for the needs of the credit unions he represented. He argued that the Fund's focus on "performance" as measured by professional applications and fundraising track records overlooked the real-world "performance" demonstrated by the credit unions through their decades of service in the most challenging low-income markets.

Persistent Efforts: Rosenthal's Ongoing Battle for the CDFI Fund's Equitable Allocation

Throughout the 1990s, Rosenthal continued to engage with the CDFI Fund, advocating for a more equitable distribution of resources. While the Clinton administration and its appointees were generally supportive of the Fund's mission, the playing field remained uneven, with the majority of the funding consistently going to the larger, White-led nonprofit loan funds, rather than the smaller, community-based credit unions serving communities of color.