Innovative Banking: A Win-Win for Nonprofits and Marginalized Communities

Banking with a CDFI

Community Development Financial Institutions (CDFIs) are mission driven, private sector institutions that provide the capital and banking services essential for economic development in marginalized communities. Just as many low-income communities are considered “food deserts,” because they lack healthy food options, these communities are also “capital deserts” because few traditional banks open branches there. Without local banks, it’s difficult to obtain the home mortgages or small business loans needed to create economic opportunity.

CDFIs fill the void by lending capital raised from private, public, and philanthropic sources. Many CDFI borrowers wouldn’t qualify for loans at traditional banks because of their weak credit history. But at CDFIs, borrowers not only get the loan, but they’re also able to get lower interest rates than those offered by traditional banks. CDFIs also provide financial literacy training to help borrowers successfully manage their loans and business.

CDFI Accounts Spark Economic Growth

When banks make home mortgage, small business, or other loans, they are putting money into the community, which in turn, creates new economic activity and jobs. However, the amount of money small banks and CDFIs can lend is limited by the money they receive from checking accounts, savings accounts, and other investment deposits. By opening an account with a CDFI, your nonprofit is providing new money the CDFI can lend, growing the economy in marginalized communities.

Your balances and investments are 100% guaranteed by the FDIC up to the limit, which is currently $250,000, so you can bank without risk of loss.

How Do You Find a CDFI?

The United States Treasury department, through the CDFI Fund, certifies financial institutions meeting certain criteria as a Community Development Financial Institution. There are 172 CDFIs with over 950 branches across the country.

Another Banking Option

Minority Depository Institutions (MDIs) are institutions which are 51% owned by minority individuals or a majority of the board is composed of minorities, and they serve a minority community. Banking with an MDI helps close the racial wealth gap by supporting minority business, which in turn, provides expanded employment opportunities for minorities.

MDIs can provide your nonprofit with a full range of banking services, and the FDIC insures balances up to the $250,000 limit.

There are 142 MDIs operating 1,400 branches across the country, 35 of which are also CDFIs. The FDIC provides a full list of MDIs here.

Banking with a Community Development Financial Institution or Minority Depository Institution are simple, free ways to use the full power of your nonprofit to expand economic opportunity.

Aside from programmatic work, how is your nonprofit advancing economic growth?