Economic Find: Finance for Need, Not Greed

Community Development Financial Institutions (CDFI) support economic development in poor communities that are under-served by traditional banks.  CDFIs typically engage in what is known as “sub-prime lending” — lending to people and enterprises that don’t qualify for a traditional loan because they are considered too risky.  CDFIs take these risks because their mission is to nurture community economic development, especially in low-income neighborhoods, not just to maximize profits. And by various measures, they still outperform traditional financial institutions.

For example, among the 200 credit unions in the National Federation of Community Development Credit Unions (CDCU), which serve mostly low-income communities, delinquent loans are about 3.1 percent of assets, compared to a national delinquency rate on all sub-prime loans of 18.7 percent. This impressive track record is primarily due to responsible lending practices and support provided by these credit unions.

The growth of CDFIs gives us hope that finance for need, not greed will continue to gain legitimacy and public support, especially in the face of the reckless and irresponsible behavior of the big banks.

 

 

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Created by Member Economist Emily Kawano

November 2011

 

Sources:

Community Development Financial Institutions: Current Issues and Future Prospects. http://www.federalreserve.gov/communityaffairs/national/CA_Conf_SusCommDev/pdf/zeilenbachsean.pdf

The CDFI Data Project. 2008.
http://opportunityfinance.net/store/downloads/cdp_fy2008.pdf