February 15, 2022

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Dear Chairwoman Waters and Ranking Member McHenry:

We write to applaud your decision to hold a hearing on the transformative power of CDFIs and the impact they have on disadvantaged communities. We also write to provide our views on why continued investment in CDFIs is important.

CEO Action for Racial Equity (CEOARE) is a fellowship of more than 100 companies that mobilizes a community of business leaders with diverse expertise across multiple industries and geographies to advance eight public policy issues in four key areas where long-standing racial disparities are widening: education, healthcare, economic empowerment, and public safety. The fellowship is grounded by its mission, which is to identify, develop and promote scalable and sustainable public policies and corporate engagement strategies that will address systemic racism, social injustice and improve societal well-being. By working with nonprofit organizations, academics, community leaders and decision makers, CEOARE is committed and dedicated to sharing, co-creating, and improving policies that represent all Americans and can close deeply rooted gaps faced by Black Americans.

One of the fellowship’s main priorities is: “Expanding Economic Opportunity through Community Development Institutions (CDFIs).” CEOARE fully supports the funding and expansion of CDFIs, which provide a critical on ramp to access banking services, provide financial security and improve the quality of life for people who are underserved by traditional financial institutions. In fulfilling their core mission, CDFIs are highly adept at providing affordable financial products and services to economically disadvantaged communities. CDFIs have played a critical role in response to the COVID-19 pandemic – being described by many as financial first responders[1]. They helped boost economic activities in communities that have been impacted by the pandemic, and CDFIs deployed much needed capital to entrepreneurs and small business owners – protecting and securing precious jobs.

Why are CDFIs needed

A growing gap exists between the financial services available to the economic mainstream and those offered to low-income people and communities. CDFIs help bridge that gap by bringing affordable capital and financial services to underserved people and communities. CDFI financing leads to the creation of businesses, jobs, affordable housing and more – all of which contribute to strong/healthy local communities.

• Small Business: CDFIs can be a valuable source of financing and investment in community businesses – including small microenterprises, small businesses, and nonprofit organizations.
• Banking/Financial Services: Community development credit unions and banks provide underbanked communities with traditional banking products and services (savings accounts/ personal loans).
• Homeownership: CDFIs offer a range of financial products and services, such as mortgage financing for low-income and first-time homebuyers, as well as homebuyer counseling.
• Financial Literacy: CDFIs nurture long-term relationships to increase financial literacy, determine savings goals, and necessary steps to build credit while accessing affordable small dollar loans.

CDFIs have a positive and transformational impact on people and communities, which underscores the importance of significant federal support. They play an essential role in economic empowerment and reducing the racial wealth gap. Nearly two-thirds of CDFI customers are people of color and 84% are low-income households[2]. In many ways, CDFIs operate as financial game changers by addressing numerous racial disparities:

 Nearly half of Black households (47 percent) are unbanked or underbanked, which over the course of a financial lifetime can cost nearly $40,000 in fees[3].

• Black-owned businesses were around 1.7 times more likely to apply for financing from a CDFI, compared to a white-owned business[4]. The reality is that Black-owned businesses typically encounter constraints when attempting to secure access to capital from traditional financial institutions[5].
• The median Black household held $24,100 in net worth compared to $188,200 for the typical white household[6].

There is a sense of urgency, by lawmakers, nonprofit organizations, CEOARE, and others, to remedy these generational issues and help Black Americans open bank accounts, start businesses, and accumulate wealth – thus, ending a perpetual cycle of financial exclusion. We are confident that impactful and sustainable solutions can be achieved through intentional collaboration between federal lawmakers, CDFIs, and Minority Deposit Institutions (MDIs) – inclusive of the equitable distribution of funding to minority/Black-owned CDFIs and MDIs.

CEOARE has voiced its support for increased funding of $360 million for the CDFI Fund for FY22 and continues to support increasing funding to the CDFI fund. According to U.S. Treasury Secretary Janet Yellen, every dollar injected into a CDFI catalyzes eight additional dollars in private-sector investment[7]. The critical funding provided by the CDFI Fund should prioritize and enable equitable funding to minority led CDFIs.

In conclusion, CDFIs play a significant role in meeting the needs of people and businesses in communities that are underserved by traditional financial institutions. They help provide opportunities for financial inclusion – resulting in wealth-building opportunities through a range of affordable financial products and services. Assuredly, these specialized institutions can have a transformative impact on the Black community, now and in the future. Continued investment in these institutions  will enhance the ability of CDFIs to continue transforming, uplifting, and rebuilding America’s disadvantaged communities.

We appreciate your work to address this important issue.

Sincerely,

CEO Action for Racial Equity

Citations

[1] CDFIs: America’s First Responders to Economic Crisis. (2020, Sept. 4). CNote. https://www.mycnote.com/blog/cdfis-americas-first-responders-to-economic-crisis/

[2] Community Development Financial Institutions (CDFI) Fund. (2020, November). Agency Financial Report Fiscal Year 2020. Department of Treasury. Retrieved from https://www.cdfifund.gov/sites/cdfi/files/2021-04/CDFI_FY20_AFR_508_Compliant.pdf

[3] Moss, E., McIntosh, K., Edelberg, W., & Broady, K. (2020, Dec. 8). The Black-white wealth gap left Black households more vulnerable. Brookings. https://www.brookings.edu/blog/up-front/2020/12/08/the-black-white-wealth-gap-left-black-households-more-vulnerable/

[4] de Zeeuw, M.G. & da Motta, V.E. (2021) Minority-owned enterprise and access to capital from Community Development Financial Institutions. Community Development Innovation Review,15(1), 5-21. https://www.frbsf.org/community-development/files/minority-owned-enterprises-and-access-to-capital-from-community-development-financial-institutions.pdf

[5] Ibid.

[6] Dettling, L.J., Hsu, J.W., Jacobs, L., Moore, K.B., Thompson, J.P., & Llanes, E. (2017, Sept. 27). Recent trends in wealth-holding by race and ethnicity: Evidence from the survey of consumer finances. Board of the Governors of the Federal Reserve System. https://www.federalreserve.gov/econres/notes/feds-notes/recent-trends-in-wealth-holding-by-race-and-ethnicity-evidence-from-the-survey-of-consumer-finances-20170927.htm

[7] U.S. Department of the Treasury. (2021, June 15). U.S. Treasury Awards $1.25 Billion to CDFIs to Support Economic Relief in Underserved Communities Affected by COVID-19 [Press release]. https://home.treasury.gov/news/press-releases/jy0228