How CDFIs and MDIs Are Navigating Uncertainty

Ken Hale, president and CEO of BOM Bank in Natchitoches, Louisiana, can cite examples of customers who have benefited from his bank’s small loans the way a proud father rattles off his kids’ sports achievements. 

There was the entrepreneur who launched her sewing business with a $500 loan. The guy who started a food truck selling pork cracklings who is now living the American dream. Multiple customers who have borrowed money to start lawn mowing or landscaping businesses.

“We’re a $1.4 billion bank, so we’re a pretty decent sized institution,” Hale says. “But we still make $500, $1,500 and $2,500 loans all the time. In the grand scheme of things, that may not be a lot of money. But to some people, that really makes a difference.”

BOM Bank is a community development financial institution (CDFI), a designation that helps the bank access federal grants and lessens some lending regulations. If BOM were to lose those grants, which might be in jeopardy based on recent Trump administration actions, Hale says the community bank’s small lending programs would be significantly curtailed.

“Let’s say we were going to do a hundred of those small business loans,” he says. “We might do [50] of them [if we lose CDFI funding].”

CDFI institutions are not the only ones affected by the administration’s actions. Minority depository institutions (MDIs) might also be under pressure, though not yet as heavily as CDFIs. Community banks with one or both designations are maneuvering to deal with the risks or stay under the radar.

The state of play for CDFIs

The CDFI Fund, which paid out over $785 million in awards in 2024, is designed to help communities that are struggling financially. Banks with the designation must make at least 60% of their loans in census tracts that are low-income or economically distressed, among other requirements.

The program started with the passage of the Riegle Community Development and Regulatory Improvement Act of 1994, and that legislation itself is not at risk. But the CDFI Fund was on the list of agencies that President Trump “deemed unnecessary” in his March 14, 2025, executive order. The order stated that the “non-statutory components and functions” of governmental entities including the CDFI Fund, “shall be eliminated to the maximum extent consistent with applicable law, and such entities shall reduce the performance of their statutory functions and associated personnel to the minimum presence and function required by law.”

Despite the order, Michael Emancipator, senior vice president and regulatory counsel for ICBA, is optimistic the CDFI program will survive.

“I don’t think [these actions] are fatal for the program,” Emancipator says. “The CDFIs are immensely, bipartisanly popular with Congress, and OMB [the Office of Management and Budget] reiterated that all the programs are legal and above board. And even within the administration itself, secretary of the Treasury [Scott] Bessent has gone out of his way to talk about the value of CDFI banks.”

Concrete action related to Trump’s order has been limited. Staffers at the fund received layoff notices during the government shutdown in November, but those were rescinded after the shutdown ended.

The impact of funding cuts

Perhaps the most challenging aspect of the situation is that the funding CDFIs expected in 2025 had not been disbursed as of late November.

Hale explains the significance of promised but withheld funds is that CDFI grants generally fund programs that banks have already been running; the money essentially reimburses the banks.

“If the administration wants to cut funding going forward, I understand, and we can negotiate that like you do in politics,” he says. “But grants that have already been approved and were supposed to be paid have been held up. 

“What I’m hearing from a lot of banker friends of mine from smaller, more rural areas,” he continues, “is that it’s really hitting them hard, because they already did all the work and stuck out their necks to help people, and now they’re not getting their grant money.”

Another potential financial risk, explains Emancipator, is related to the Emergency Capital Investment Program (ECIP), which disbursed $9 billion through capital infusions to CDFI and MDI banks. Eventually, the recipients of those investments will be eligible to buy them back from the Treasury Department at a discounted rate, approximately 50 basis points, he says.

“The concern is that that eligibility might be renegotiated,” he says. “It might not be available to them as it was laid out in the initial launch of the program. 

“I’ve had conversations with banks that received hundreds of millions of ECIP awards, and that would be a substantial impact on their institution if they’re not able to purchase that back from the Treasury.”

Amplifying the power of grants

Carlos P. Naudon, president and CEO of $3.15 billion-asset Ponce Bank, N.A., in Bronx, New York, appreciates the advantages that being both a CDFI and MDI brings to his community bank. The grants are great, of course, but that’s only the beginning.

“The grant is like capital,” Naudon explains. “You get a million dollars, but we don’t just lend a million dollars. We leverage it 10 times, so then we are able to lend $10 million. So, we can amplify the impact of the CDFI grants.”

At Ponce Bank, the CDFI funds are mostly used to support lending for construction of affordable housing. Loans to small businesses in Ponce Bank’s borough, the Bronx, are also enhanced with CDFI grant money.

Given Ponce Bank’s size, losing CDFI funding would not be a crushing blow to its activities, however.

“Losing a million dollars in awards is not going to put us in jeopardy, especially given our capital position,” Naudon says. “But it would certainly reduce some of the things that we could do.”

CDFI benefits beyond grants

CDFI banks benefit from the designation in ways other than funding. One of these benefits is that CDFIs are exempt from the qualified mortgage rule, making it easier to lend to homebuyers who fall outside normal underwriting requirements, Emancipator explains. 

“ICBA has also pushed for exemptions for CDFIs and MDIs from Section 1071 [of the Dodd-Frank Act], the small business loan data collection rule, and we have a good shot of achieving that goal,” Emancipator says. “The regulatory carve-out for CDFIs from the qualified mortgage rule, and the other carve-outs we are advocating for, would stand even if there were no CDFI funds to distribute.”

Another important benefit of CDFI and MDI certification is that other depository institutions can receive Community Reinvestment Act (CRA) credit by depositing funds into CDFI or MDI banks.

“A lot of the funding we get because we are a CDFI is, in a sense, indirect, because it’s from other financial institutions that need CRA credit,” Naudon notes.

These additional CDFI benefits presumably are safe unless the underlying legislation changes or, to a certain extent, CDFI Fund staff layoffs become reality.

MDIs are also facing less-tangible challenges

MDIs are financial institutions where more than half the voting stock is held by minority individuals or where the majority of the board of directors comprises minority individuals, and the community served is composed mostly of minorities. 

Section 308 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 defines “minority” as “any Black American, Asian American, Hispanic American or Native American.” 

This designation has not been specifically targeted for elimination by the Trump administration. However, MDIs are eligible for funding through the Bank Enterprise Awards program, which is part of the CDFI Fund yet allows any FDIC-insured bank to apply for grants. In 2025, $35 million was allocated for the program, and its funding appears to be at the same risk as all CDFI funding.

“There are some MDIs that are going to suffer the repercussions of having less funding if those awards are cut,” says Kianga Lee, director of governmental relations operations at ICBA. 

Furthermore, like CDFIs, MDIs can receive deposits from institutions seeking CRA credit. Even if the CRA program itself remains untouched, wariness of associating with anything related to diversity, equity and inclusion (DEI) in this environment might give some institutions pause.

“MDIs have private partnerships with a lot of organizations that were interested in closing the wealth gap,” Lee says. “MDIs received capital investments and deposits from them. But now that these DEI orders have been issued, they’ve seen some of their funding slow down.”

Citizenship rhetoric has an impact, too

Jill Sung, CEO of $320 million-asset Abacus Federal Savings Bank in New York City, is keenly aware of the risks mission-focused banks like hers are facing in the current environment. Abacus, which serves a largely Chinese immigrant community, is an MDI but not a CDFI.

“What we are concerned about generally is that we’re serving a certain population that may or may not be affected by the different things going on,” Sung says. 

She says a problem her community bank is facing is that because the employment status of non-citizens, even those who are here legally, might be in question now, Abacus must be more cautious lending to them.

Another problem is that some potential or current clients might be reluctant to participate in the formal banking system given the current government climate.

“I think the general thing is uncertainty,” Sung says. “People who are nervous about the financial system are going to be scared and not participate in it. We want people to be part of the financial system, right? That’s what creates stable communities.”

For her, the bottom line is that the current climate is forcing her community bank to deal with issues that do not foster growth.

“We’re getting more distraction, more chaos in the mix, and that’s not good,” she says. “We get distracted dealing with all of that, as opposed to being able to serve our customers.”

It’s the mission that matters

Hale from BOM Bank is passionate about being able to lend money to communities in need. We spoke to him while he was sitting in his vehicle in a town his bank serves.

“Where I’m sitting right now is a 100% Black community, impoverished as you can possibly imagine,” Hale says. “These are the kind of markets that all of us CDFIs operate in. 

“If you sat right here and looked at this area, you would say, ‘Man, if this bank can get X amount of dollars and deploy these funds in this little community to help these people open a sandwich shop or start a lawn service, it would make things so much better.’”

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