While community banks across the nation dedicate themselves to serving local communities and their unique needs, minority depository institutions (MDIs) and community development financial institutions (CDFIs) specialize in promoting economic growth in underserved and minority markets.

A recent Treasury Department report—which highlights a pandemic-era program designed to help MDIs and CDFIs lend to financially underserved borrowers—demonstrates the deep impact these mission-driven institutions can have on local communities.

Background on MDIs and CDFIs

MDIs are depository institutions of which 51% or more of the voting stock is owned by minorities—or have a majority-minority board of directors—and that serve a community with a predominantly minority population. These are generally smaller banks that hire from within their community, speak the languages spoken there and understand the culture and traditions of their customers. MDIs provide more mortgages to minority families than any other lending institution.

CDFIs are financing entities with a primary mission of promoting community development in areas with a high concentration of low- to moderate-income (LMI) individuals. Among other requirements, CDFIs must demonstrate that 60% or more of their activities serve target markets, such as LMI census tracts.

The common characteristic between MDIs and CDFIs is that their mission is to serve communities in need. Naturally, there is some overlap, with roughly 40 institutions carrying both designations.

While banks pursue MDI or CDFI certification for various reasons, one key reason is accessing federal programs designed to help them serve their communities more deeply. The Emergency Capital Investment Program, or ECIP, is a good example.

While CDFI certification offers access to federal programs and some regulatory benefits—such as a CDFI exemption from certain Qualified Mortgage requirements—these designations are underutilized by qualifying community banks.

Emergency Capital Investment Program overview

The Treasury Department launched the ECIP in 2021 to help MDIs and CDFIs support small businesses and consumers in their communities amid pandemic-era dislocations. Through ECIP, the Treasury invested more than $8.5 billion in CDFIs and MDIs, and that money was delivered as investment in preferred stock or subordinated debt issued by the participating institutions.

Beginning two years after issuance, the investments pay a dividend or interest rate of 2%, though this can be reduced if participating institutions increase their “qualified” or “deep impact” lending to minority, rural, urban low-income and underserved communities and borrowers. The additional credit recognizes that the kind of lending that will be most effective often requires more time and resources from the lender.

Report shows lending’s positive effect

The Treasury Department reported in April that lenders participating in ECIP initiated $17.8 billion in loans to business and individuals in need during 2022, showing the impact of these investments on local communities.

For example, participating institutions originated 1,157 construction and land development loans worth $911 million that fell into the “qualified” lending category. That means they went to LMI borrowers, small businesses or farms, or they funded affordable housing or other such community investments.

Another 1,642 loans worth just over $1 billion fell into the “deep impact lending” category, which means they went to low-income borrowers, underserved businesses or residents of “persistent poverty counties” or they funded deeply affordable housing or similar projects.

ECIP has also strengthened MDIs’ and CDFIs’ ability to expand affordable home mortgage programs, provide more robust financial literacy platforms, build relationships with new financial partners, and implement technology enhancements.

Streamlining CDFI certification

While CDFI certification offers access to federal programs and some regulatory benefits—such as a CDFI exemption from certain Qualified Mortgage requirements—these designations are underutilized by qualifying community banks.

An ICBA study identified several hundred ICBA member community banks that do not have CDFI designation but are likely eligible to receive it based on their location in LMI census tracts.

Given the burden and complexity of the certification process, ICBA and its Minority Bank Advisory Council continue to advocate for policies that will provide more opportunities for community banks—and the communities they serve—to benefit from these designations.

For example, ICBA successfully fought back against proposed updates to the CDFI certification that would have strictly prohibited CDFI banks from originating balloon mortgages. And we’re pushing for a memorandum of understanding between banking regulators and the CDFI Fund to streamline the application process, similar to an existing agreement with the National Credit Union Administration.

Getting certified as a CFDI or MDI

Community bank leaders can find more information on CDFI certification at cdfifund.gov, and the FDIC explains how to be recognized as an MDI at fdic.gov.We encourage qualified members to pursue CDFI and MDI designation, which will help community banks fulfill their missions of making a deep and meaningful difference in their communities.