A year ago, Karlene Sinclair-Robinson, chief financial officer of Community Business Partnership, a community development financial institution (CDFI) in Northern Virginia, was lending and conducting educational seminars for small businesses and entrepreneurs.
Now, it is contributing to its final closure on December 31.
This nonprofit has been in operation for nearly 30 years, but the Trump administration withheld $324 million in funding allocated by Congress to the nearly 1,400 CDFIs across the country, including them in a supposedly “progressive” program (opens in new tab) that promotes a “partisan agenda,” “gender extremism,” and “climate radicalism.”
Later, at the beginning of the government shutdown, Russell Vought, director of the Office of Management and Budget, issued staff reduction notices to all staff at the CDFI Fund, the agency that awards grants and certifies CDFIs, indicating that their employment contracts would end on December 13.
“There are other CDFIs that may only have a year’s breathing room. If they don’t receive additional funding, they won’t survive beyond next year,” said Sinclair-Robinson, author of “Spank The Bank: THE Alternative Guide to Business Financing.”
Community loans in danger
Congress created the CDFI Fund in 1994 to establish institutions to serve the economic development needs of rural, minority, and low-income communities with limited access to traditional banking. These institutions—nonprofits, credit unions, and small banks—rely on a combination of federal funds, grants, and corporate philanthropy.
In a survey conducted by the Federal Reserve Bank of Richmond earlier this year, 74% of the 448 CDFIs reported relying on federal funds to make loans to underserved borrowers. Now, with federal funding suspended and the program’s future in doubt, the nation’s lenders are in dire straits, weighing mergers and service cuts to survive.
Some CDFIs will survive without federal support, but that was not an option for the Community Business Partnership, which received 90% of its funding from local, state and federal governments. Its corporate and philanthropic partners also suddenly reduced their contributions by up to 50% amid uncertainty about the program’s continuity.
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Because CDFIs are funded by grants, philanthropy and corporate partnerships, rather than federally insured deposits, they can take greater risks with borrowers than community banks. Without them, small business owners and entrepreneurs might turn to credit cards or quick loans to raise capital, said Nicole Elam, executive director of the National Bankers Association, an organization that represents Black-owned banks.
“Banks prioritize profitability,” Elam said. “A CDFI is more mission-oriented to specifically serve underserved communities.”
Bipartisan support for credit institutions
Historically, CDFIs had bipartisan support in Congress and across administrations.
North Carolina Republican Senator Thom Tillis, a supporter of the program and a member of the Senate Banking Committee, described the decision to withdraw funding as “amateur.”
“It’s not smart. CDFIs are present all over rural America, in many Republican states and districts. So, in my opinion, this was not the right way to make a business decision, and it doesn’t appear that politics were taken into account,” he told reporters on Capitol Hill.
Republican Senator Mike Rounds, a member of the Bipartisan CDFI Caucus, said these institutions are an important part of the financial ecosystem in his rural state of South Dakota. “We need them to be operational again,” he declared.
In October, a group of 105 Republican members of Congress sent a letter urging the administration to “continue to meet the legal obligations of the CDFI Fund that are essential to ensuring that private investments reach our states and districts.”
With information from Reuters
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