How CDFI banks plan to use federal funding

President and CEO Thomas Ogaard (right) of Native American Bank says federal funding for community development financial institutions will drive the bank’s long-term growth. Photo: Erin Lassahn

Congress recently passed an infusion of stimulus dollars for community development financial institutions. These two new funding programs are preparing community bank CDFIs for huge growth opportunities.

By Beth Mattson-Teig

Community development financial institutions, or CDFIs, are poised to capture billions in new federal funding that could be transformative for community bank CDFIs and the low- and moderate-income communities they serve.

Quick stat


bank CDFIs currently exist. ICBA estimates another 800 to 900 banks could also qualify

Source: U.S. Treasury Department

The additional funding is a result of the flurry of fiscal stimulus that the government has injected into the economy in the wake of the COVID-19 pandemic. “This kind of support is exceptional and may be a once-in-a-lifetime opportunity to access additional funding,” says Thomas Ogaard, president and CEO of $165 million-asset Native American Bank in Denver. “We are absolutely going after the support that Congress has passed.”

Ogaard expects the money to fuel growth and lending capacity for Native American Bank—a CDFI—not only in the near term, but over the next decade. The community bank’s mission is to provide access to capital for Native tribes, tribal corporations, Alaska Native corporations and Native American customers. Its current loan pipeline spans nearly $120 million, and 95% of its lending is done on or near tribal reservations, which include some of the poorest areas of the country. The bank is especially focused on projects that offer access to healthy foods, housing, land acquisition and nongaming hospitality projects.

In particular, CDFIs are zeroing in on funds available through two new programs approved by Congress in 2021. First, the newly established CDFI Rapid Response Program (RRP) has begun providing $1.25 billion in RRP grants to support eligible activities, such as financial products, financial services, development services and certain operational activities. It is also allowing CDFIs to build their capital and loan-loss reserves. The U.S. Treasury announced in June that it had awarded grants to 863 certified CDFIs, including 149 bank organizations that received a total of $267.1 million in grant money.


Focusing on the underserved

The second key program garnering attention is the Emergency Capital Investment Program (ECIP), which will be administered by the Treasury Department. The ECIP will provide up to $9 billion in capital directly to CDFIs or minority depository institutions (MDIs) to, among other things, provide loans, grants and forbearance for small businesses, minority-owned businesses and consumers. The ECIP has a particular focus on low-income and underserved communities that may have been disproportionately affected economically by the pandemic.

In addition, the Treasury has said it will set aside $2 billion for CDFIs and MDIs with less than $500 million in assets and an additional $2 billion for CDFIs and MDIs with less than $2 billion in assets.

“This is huge for CDFI banks and all CDFIs because it is completely new money with not a lot of restrictions on how they can deploy it,” says Michael Emancipator, ICBA’s vice president and regulatory counsel. He adds that the money will allow these institutions to accelerate existing programs or create new and different products and services. It effectively gives banks a clean sheet of paper to come up with new and innovative ways to funnel investment into their communities.

While the RRP grants will be released in a lump sum, ECIP funding is debt that is available only to bank and credit union CDFIs and MDIs. Under ECIP, the bank holding company would issue preferred stock or subordinated debt to the Treasury Department for its investment in the bank with a 10-year window for the debt to be repaid. “Depending on how the funds are used, there is a real opportunity to leverage that money,” Emancipator says.

For example, if all the $9 billion in funds were allocated to lending, it could be leveraged to create $90 billion in new lending activity based on a typical 1:10 capital ratio. On a micro level, if one bank receives $50 million, it would allow it to lend $500 million. “So, we are excited to see community bank CDFIs try to take advantage of this program,” Emancipator says.

A catalyst for CDFI certification?

The surge in federal funding for community development financial institutions (CDFIs) could act as a catalyst that encourages other community banks to pursue CDFI certification. If more become certified, it could compel Congress to further increase funding for the program.

“We see the CDFI program as a big benefit for those community banks that do have the designation, and we hope that the CDFI Fund will be allocated even more money in the years to come,” says Michael Emancipator, ICBA’s vice president and regulatory counsel.

According to the Treasury Department, there are 168 CDFI banks among the 1,234 certified organizations. ICBA research comparing bank locations with census codes for low- and moderate-income (LMI) neighborhoods shows that there may be 800 to 900 community banks that could be eligible for CDFI certification.

“The number of bank CDFIs has been growing over the years, but we would like to see that dramatically increase,” Emancipator says. “We want to get as many banks certified as CDFIs as possible so that they can access that money.”

To become a certified CDFI, community banks need to fill out an application and meet certain eligibility requirements. They must:

  • have a primary mission of promoting community development
  • provide both financial and educational services
  • serve and maintain accountability to one or more defined target markets
  • maintain accountability to a defined market
  • be a legal, nongovernmental entity at the time of application (with the exception of tribal governmental entities).

The CDFI Fund conducts monthly certification calls intended to serve as a forum for potential CDFI applicants, certified CDFIs and other stakeholders to ask questions and discuss the certification process. Visit for more information.

Putting capital to work

Since its inception in 1994, the CDFI Fund has provided more than $3.9 billion to certified institutions through a variety of monetary award programs; awarded $61 billion in tax credit allocation authority through the New Markets Tax Credit Program; and guaranteed more than $1.7 billion in bonds through the CDFI Bond Guarantee Program. The new funding will allow CDFI banks to help more people and businesses in the communities they serve, as well as help to finance bank expansion.

“[New federal funding] will give us the opportunity to potentially triple our capital base, which could triple our total asset size. So, it could be very transformational.”
—Travis C. Rouse, M&F Bank

The potential to secure significant additional funding would be a “game-changer” for M&F Bank, says Travis C. Rouse, senior vice president, chief sales and lending officer at the $357 million-asset community bank headquartered in Durham, N.C.

“It will give us the opportunity to potentially triple our capital base, which could triple our total asset size,” he says. The community bank, whose CDFI recertification is pending, currently has a capital base of about $40 million. Over time, that could be leveraged to achieve a total asset size of nearly $1 billion. “So, it could be very transformational,” Rouse adds.

Once recertified, M&F Bank will be the only CDFI-designated bank in North Carolina. A key part of its mission is serving and empowering economically distressed communities. Of its deposits, 71% are redeployed in local communities via loans. The bank’s CDFI initiatives will focus primarily on small and medium-sized business lending in underserved areas. “We think that is where we can have the most impact in terms of reducing the wealth gap,” Rouse says.

M&F Bank is planning to apply for the ECIP and has applied for a Financial Assistance (FA) Capital Assistance Grant through the Treasury CDFI Fund. The bank aims to use the additional funding to grow lending to small and medium-sized businesses, as well as to do more to support affordable housing projects, including financing larger projects. It plans to hire lenders and invest in technology to support that planned growth. “We see this as an opportunity to impact the markets that we serve in a number of different ways,” Rouse says.

CDFIs: Speak out

It’s important for community banks to take advantage of the advocacy opportunity to promote the benefits of how those funds can make a positive impact in underserved communities. CDFI banks need to tell the stories of how those funds are being deployed in their local communities, as well as acknowledge the role that federal programs play in helping to facilitate the good they’re doing, says Michael Emancipator, ICBA’s vice president and regulatory counsel.

“The way that we are able to get CDFI grant money to community banks is through the appropriation process,” he says. “Anything that we can do to get that message out there creates a more virtuous cycle to get more funds into the hands of these CDFI banks.”

Beth Mattson-Teig is a writer in Minnesota.