Community Development Bankers Association Supports Banks Serving Underserved Communities

In a Nutshell: Underserved communities can lack access to banking products and services that promote financial stability. Community Development Bankers Association (CDBA) supports financial institutions across the country that cater to low-income communities. The association works closely with federal legislators and the Community Development Financial Institutions Fund. CDBA desires more financial institutions to offer services to marginalized communities.

Technology has changed the way financial services companies operate. As financial institutions innovate and develop new solutions, an unfortunate side effect of the banking industry’s growth is that some communities have been marginalized or ignored.

Community Development Bankers Association (CDBA) began in the early 2000s and is the national trade association of the community development bank sector. The organization has enjoyed stable leadership — Jeannine Jacokes has been CDBA’s CEO since it began.  

The association started shortly after the establishment by the U.S. Treasury Department of the Community Development Financial Institutions (CDFI) Fund, which offers community development banks resources and programs that invest federal dollars to help them support economically disadvantaged communities.

We spoke with Brian Blake, CDBA’s Chief Public Policy Officer, to learn more about the association’s efforts to aid banks serving marginalized communities. Blake said Jacokes was one of the CDFI Fund’s first employees. 

Community Development Financial Institutions, often called CDFI banks, are certified community development banks that devote at least 60% of their total lending, services, and other activities to benefit low-income and underserved communities. Blake said Community Development Bankers Association works closely with CDFI banks.

“The original idea was that CDBA would focus on advocacy to the CDFI Fund itself and also to the banking regulators to ensure that regulations written for large banks didn’t harm institutions meant to serve an entirely different consumer demographic,” Blake said.

The Community Development Financial Institutions Fund supports equitable access to banking products and services for low-income individuals.

“The appropriations that go to the CDFI Fund support grant programs that provide incentives to take the edge off of operations in areas with high poverty,” Blake said.

The CDFI Fund’s grants and programs open opportunities for consumers to access credit that they wouldn’t otherwise be able to, Blake said. 

The fund’s Small Dollar Loan Program helps connect consumers with affordable lending solutions. Blake said the program can prevent people from using payday lenders and other forms of credit that can subject borrowers to unfavorable terms and conditions.

Consumers can struggle to find housing options that suit their budgets. The CDFI Fund helps low-income communities access housing solutions through its Capital Magnet Fund Program, which has created more than 63,000 affordable housing options in the U.S., including more than 55,600 rental housing units and 7,400 homeowner-occupied units.

The federal government doesn’t award CDFI banks large sums of money without understanding how the institutions intend to use the funds. Blake said CDFI banks have a clear idea of how they’ll use the funds they apply for.

“All of the CDFI banks take a lot of pride in being good stewards of the money they’re granted,” Blake said. “We like to say that the CDFI Fund is one of the federal government’s best public-private partnerships, especially when you look at the leverage that CDFI banks provide.”

Lawmakers in recent years have introduced more legislation focused on making it easier for CDFI banks to raise and deploy capital, Blake said. The Community Development Investment Tax Credit Act intends to help attract private capital to CDFI banks.

Blake said the act may create opportunities for anchor institutions, such as hospitals and national banks, to invest in CDFI banks and receive a return on their investment.

CDBA’s involvement in helping CDFI banks extends to advocacy work.

“We take our banks to Capitol Hill to tell their stories,” Blake said. “There’s so much that they do that’s storytelling, and we find that legislators really respond to hearing from them.”

The stories CDFI banks share can influence lawmakers to support them further.

“When a CDFI bank can show up and tell legislators how they’ve created affordable housing opportunities, it causes lawmakers to want to do more to help them,” Blake said.

Bank consolidation has left many communities without local banks that serve their interests. Blake said CDFI banks practice old-fashioned community banking.

“CDFI banks don’t ignore technology, but their primary focus is making sure their products and services meet community needs,” Blake said.

CDFI banks have an altruistic mission to help their communities thrive, but they can also generate revenue. Blake said many small businesses elect to bank with CDFI banks because they can’t receive the products and services they need from national financial institutions.

CDFI banks encourage small businesses to borrow from them because it helps contribute to a healthy local economy.

“CDFI banks that are committed to the health of their communities and act with integrity are going to build up their deposits and asset base, which will cause their institution to grow and attract more attention,” Blake said.

CDFI banks can also improve morale within the communities they serve.

“I think the overall sort of way a community looks at itself can be positively affected if the community has a CDFI bank at its center,” Blake said.

CDBA is successful when the number of CDFI banks and their assets increase. Blake said CDBA desires more banks to shift their focus to serving low-income communities.

Community Development Bankers Association examines states with few CDFI banks. Blake said many institutions that could be prime candidates for the CDFI Fund’s programs may not know they can access them.

The tendency of traditional banks to build branches in areas with wealthier populations may prevent them from reaching many low-income communities.

“New branches usually go into areas where a traditional bank can get the most deposits and serve the most affluent members of a community,” Blake said.

Digital banking services enable financial institutions to serve a larger footprint without expanding their branch network, which may further limit banking opportunities for marginalized communities.

“We’re happy with the number of CDFI banks in the country, but we’d certainly like to see the rate of growth for CDFI banks increase,” Blake said.

Community Development Bankers Association supports initiatives that help underserved communities access safe banking products. Many CDFI banks participate in the Bank On platform, which links consumers with safe and cost-effective banking solutions.

Blake said it’s important for marginalized communities who may not trust financial institutions to have access to bank accounts with low or no minimum balances and minimal fees.

“The thing that strikes me about studies of the underbanked is that, while product design and delivery channels matter, it seems like the biggest diversion many people have is the lack of trust in the banking system,” Blake said. 

CDFI banks may have to gain the trust of underserved communities to be successful.

“The challenge for CDFI banks is to reestablish the trust that brings people to these banks first,” Blake said. “It’s not just a challenge to build the right products. You have to do a lot of work to build trust within communities as well.”

Community Development Bankers Association has come a long way since its formation at the beginning of the 21st century. 

Blake said the association is starting to see results from approximately $7 billion in investments from the U.S. Department of the Treasury in the form of Emergency Capital Investment Program (ECIP) funds into CDFI banks and Minority Depository Institutions.

Blake said ensuring that CDFI banks take up a more significant space in the banking industry will require strategic deployment of Emergency Capital Investment Program funds. 

“When you look at this field and how banks lend and focus on people in places that have been ignored, we’re going to see a very different industry in eight years compared to the one we see now,” Blake said. “It’s going to be something to watch.”