Image credit: Andy Quezada For Unsplash. This year, an astonishing 2,500 individuals gathered in the vibrant city of Los Angeles, California, to participate in the highly anticipated 40th-anniversary conference of the Opportunity Finance Network (OFN). The OFN stands as the leading national community development loan fund trade association, and this milestone event drew a massive crowd.

Uniting for 40 Years of Community Development Finance Growth

How the CDFI Sector Came to Be: A Legislative History

Community development finance holds a significant place in the financial landscape, with its roots tracing back at least a century. The first US-based credit union was founded in Manchester, NH, in 1909. However, the term "CDFI" is a more recent development, emerging from the passage of federal law in 1994, which gave birth to the CDFI Fund within the US Department of the Treasury. This fund has played a pivotal role in the sector's growth.During the conference, Jeannine Jacokes, Cliff Rosenthal, and Mark Pinsky detailed the creation of the CDFI Fund. Rosenthal, who led a federation of community development credit unions (now called Inclusiv), wrote a concept paper in 1988 calling for the establishment of a "neighborhood banking corporation" that would evolve into the CDFI Fund six years later. In 1991, then-Arkansas Governor (and later President) Bill Clinton endorsed the concept.Rosenthal emphasized the importance of timing. The April 1992 uprising in Los Angeles following the "not guilty" verdict for the police officers who beat Rodney King created public pressure to address urban issues. "We were a solution that many people were looking for at that time," he recalled.Even with public visibility and Democratic Party control, passage of the CDFI Fund was not straightforward. Jacokes worked for the US Senate Finance Committee and identified four major challenges. One was defining a broad enough "CDFI" to include low-income community-focused institutions. Another was deciding where to house the program. Disputes also arose over the nature of awards, with advocates winning the right for "equity" awards. However, they lost the battle to allow for a race-conscious focus in lending due to Republican opposition.Even after these issues were resolved, there were other challenges. Loan fund leaders were skeptical of federal support, and consumer advocates worried about weakening the Community Reinvestment Act. The Clinton administration responded by strengthening the CRA in the CDFI Fund bill. Republicans also extracted concessions.

Finding a Balance Between "Movement" and "Industry"

The tensions within the CDFI sector have persisted over the years. In a conference panel, two CEOs of CDFIs - John Holdsclaw IV of Rochdale Capital and Matthew Roth of the Community Reinvestment Fund - engaged in a debate, with Holdsclaw representing the "movement" side and Roth advocating for the "industry" side.Aisha Benson, CEO of Nonprofit Finance Fund, emphasized that the sector has elements of both. The movement-industry debate is not new, as noted by Holdsclaw, citing a 2013 article. Industry focuses on setting standards and boundaries, while a movement is more values-based and inclusive. Holdsclaw argued that CDFIs must remain feisty and address poverty.Roth acknowledged the movement roots but advocated for positioning CDFIs as an industry to attract more investment. A central question is where CDFI leaders focus their attention - at the community level or with banks and the government. In the early days of the CDFI Fund, a decision was made to focus on establishing field legitimacy at the expense of BIPOC-led CDFIs. Now, the focus is on achieving rapid growth.Many CDFIs do remarkable things, but not all. For example, while a Mississippi-based CDFI originated over 80 percent of its mortgages to people of color, a 2021 analysis showed that the rate of mortgage lending to Black borrowers by CDFI banks in Mississippi is less than 13 percent.

A Third Wave of CDFI Development?

OFN CEO Harold Pettigrew argued that CDFIs are entering a third wave of development. The first wave corresponded to the first decade of the CDFI Fund, and the second wave focused on performance and industry growth. The third wave, he said, will bring unprecedented opportunities and challenges.One challenge is managing the $6 billion in federal funds from the Clean Communities Investment Accelerator program, part of the 2022 Inflation Reduction Act. The funds were awarded in 2024, but a broader challenge awaits, as Oswaldo Acosta of City First Enterprises warned. The money won't be transformative if CDFIs don't change their business models.Typically, lenders are reactive, but CDFIs need to be proactive in convening people at the local community. The 2024 US election results also pose an additional challenge, as CDFIs have traditionally enjoyed bipartisan support but may face funding cuts. The challenge of balancing movement energy and industry acumen remains.