Community development financial institutions (CDFIs) were created to address gaps in the financial sector by providing affordable lending products and financial services to underserved communities that are low income, low wealth, and undercapitalized. This brief explores how CDFIs can be leveraged to strategically expand opportunity for wealth creation within Black, Latinx, and Indigenous communities. It both outlines innovative strategies that are currently being utilized to position CDFIs as wealth-building mechanisms and recommends how philanthropy and financial institutions can invest to narrow the racial and ethnic wealth gap through investments to expand small business.
Southern-Focused Brief
Community Development Financial Institutions (CDFIs) in the Southern United States arise from and operate within a unique combination of circumstances that make them particularly well positioned for philanthropic investment that creates meaningful and lasting impact on small businesses, jobs, and local economies. A companion publication to Leveraging CDFIs to Increase Wealth Generation and Equity.
There is an urgent need to change the current course of the racial and ethnic wealth gap given the financial implications for the country. The most significant racial and ethnic wealth-related disparities are in real estate, investment, and private business assets. Thus, targeted small-business asset accumulation is a viable strategy to increase wealth equitably.
How Philanthropy Can Help Catalyze Small Business Growth Through CDFIs To Narrow The Racial Wealth Gap
Philanthropy can fund strategies and innovative initiatives that, together, improve CDFIs’ capacity to grow wealth-building businesses in community.
1. Support CDFIs led by people of color in accessing federal government programs through administrative grant support to increase capacity.
2. Optimize resource sharing and expertise utilization through talent-sharing programs.
3. Expand wraparound services and ecosystem building programs.
4. Promote organizational responsiveness and sustainability through flexible capital solutions, allowing CDFIs to provide the right capital for growing businesses.
5. Foster accountability by standardizing data collection and reporting processes.
6. Support innovative solutions for employee ownership, longevity, and succession planning in minority-owned businesses.
Conclusion
Sustained commitment to uplifting and investing in CDFIs and the Black, Latinx, and Indigenous small business owners they support requires a long view in funding that considers the whole community’s health and the cost to our entire U.S. economy. Patient reasonably priced capital is essential. Time for solutions to work and community dynamics to change, with transformative, patient investments, gives CDFIs the capacity to pilot, take risks, inform, innovate, and impact.
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