Community Development Financial Institutions

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* Article: * The Quest for Community Controlled Capital: Community Development Financial Institutions (CDFI) in the U.S. By Clifford N. Rosenthal.

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The Birth of Community Development Finance in the U.S.

The Great Recession and the massive bailout of the largest, “systemically important” banks gave birth to Occupy Wall Street, an outraged cry against the concentration of wealth and the mal-distribution of capital in the United States. But decades before Occupy Wall Street, a diverse group of social activists had begun to create another way of banking: the community development financial institutions (CDFI) movement.The streams that fed the CDFI movement date to the 1970s and before, but it was only in the 1980s that the movement began to take shape. The National Federation of Community Development Credit Unions (or, the National Federation), which brought together low-income and minority credit unions, was a driving force.

It was joined by an emerging association of non-regulated, not-for-profit community loan funds, and by several community development banks, the most renowned of which was South Shore Bank, whose motto was “Let’s Change the World.” Except for Bill Clinton, CDFIs would have remained a small, struggling movement on the margins of public policy in the U.S. But as governor of the poor Southern state of Arkansas in the 1980s, Clinton had learned of and became a great admirer of the Grameen Bank of Mohammed Yunus and South Shore Bank in Chicago. He and his wife, Hillary Clinton, helped the start-up of Southern Development Bank in Arkansas and a micro-enterprise fund. Bill Clinton’s presidential campaign in 1992 promised to create a “network of 100 community development banks” to replicate the success of South Shore Bank and the Southern Development Bank in Arkansas. Meanwhile, the loose coalition of credit unions, loan funds, and several banks had formulated a plan for the creation of a federal fund that would invest in these institutions. Immediately after Clinton’selection as president in November 1992, these two streams merged. The community lenders, which formalized as the Coalition of CDFIs, successfully urged President Clinton to expand his vision beyond start-ups and create community development banks to include CDFIs, including credit unions, loan funds, and micro-enterprise funds. In September 1994, the CDFI Fund was signed into law, operating under the U.S. Department of the Treasury and dedicated to investing in community development financial institutions of all types. Today, more than 1,000 mission-driven organizations are officially certified by the CDFI Fund as CDFIs. And twice or three times as many institutions do similar work without benefit of the official certification of the federal CDFI Fund. Their collective assets amount to tens of billions of U.S. dollars."