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Community
Development Financial Institutions
A
central challenge in moving to scale in institutional innovation
is financing: how to fund large-scale community-anchored enterprise.
Community Development Financial Institutions (including community
development loan funds, community development banks, community
development credit unions, and micro-enterprise loan funds
and enterprise development) are organized to serve economically
distressed communities within a targeted geographic area (or
sometimes a targeted constituency). They have as their primary
mission the development of communities and their residents,
providing access to credit to those often denied financial
services by traditional banking institutions. Currently, more
than 300 CDFIs in 45 states manage more than $1 billion in
capital and have loaned more than $3 billion in total. Because
these financial intermediaries have community development
as their primary goal, they are willing to make loans that
would be considered unbankable by conventional institutions.
To date,
where alternative financing has existed, it has been largely
restricted to micro-credit programs aimed at small-scale entrepreneurs.
As valuable as this is, it does not directly address essential
issues such as how to embed assets within the community (as
entrepreneurs become successful, they often leave their original
communities for a better life) nor how to provide meaningful
levels of financing to large-scale enterprises. Little more
than a decade ago, micro-enterprise loan funds were a radical
new idea; can new types of institutionally-oriented alternative
financial mechanisms achieve equal prominence in the coming
years?
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