As Crises Deepen Inequity, CDFIs Act as a Counterforce in Order to Build Community Assets

By Diane Borradaile, Chief Lending Officer

For generations, systemic racism has kept many people of color from achieving even a basic standard of living, which includes social services that help communities thrive.

As we wrote in the first of our series looking at the repercussions of the COVID-19 pandemic on communities of color, the disproportionate impacts on communities of color have made these deep inequalities undeniable nationwide.

For example, studies show that people of color are far more likely to be denied a home loan than White people. The inability to acquire a home loan has far-reaching implications, as wealth and economic stability are intrinsically linked to housing and homeownership, according to Lisa Rice, executive vice president of the National Fair Housing Alliance. The loss of household income due to the pandemic could jeopardize homeownership for those Black Americans who do own a home, as well as destroy opportunities to pursue homeownership (or the ability to accumulate assets necessary to do so) for those who rent.

The trend is similar for business owners of color. In 2018, the Federal Reserve Bank of Atlanta reported that 38 percent of Black-owned small businesses and 33 percent of Latinx-owned businesses that applied for financing did not receive any, compared with 24 percent of Asian-owned businesses and 20 percent of white-owned businesses. COVID-19 has only exacerbated this issue. Businesses owned by people of color saw a particular lack of support during the pandemic, especially Black-owned businesses. Out of the original $349 billion stimulus package, the Minority Business Development Agency received only $10 million, nowhere near enough to support businesses owned by people of color nationwide.

Health visitor and a senior woman during nursing home visit

The effects of COVID-19 and historical racism on access to quality health care and education for people of color has led to lower life expectancy and many other negative outcomes.

The effects of COVID-19 and historical racism on access to quality health care and education for people of color has led to lower life expectancy and many other negative outcomes.

And, as a New York Times opinion piece starkly reminds us, we have been here before: “Stories today of entire families dying of COVID-19 correlate with similar accounts of Black “house infection” a hundred years before.”

In the wake of the pandemic and worldwide movements calling for racial justice, people and organizations are demanding the transformation of policies, practices, and institutions to build power for communities of color.

To recover from the effects of the pandemic and achieve racial and economic equity, communities nationwide – particularly historically disinvested communities – need national acknowledgement and redressing of institutional prejudice that has stymied opportunity and imperiled the lives of people of color. To operationalize redressing systemic discrimination, disinvested communities need financial investments, in the form of lending for community and economic development, affordable housing, small businesses, and more.

Extractive policies and practices have drained opportunity from communities

Man stands in new store with blueprints

To operationalize redressing systemic discrimination, disinvested communities need financial investments.

Many organizations – lenders, philanthropic organizations, foundations, and others – are not proximate enough to the communities that they serve to understand or leverage the communities’ own assets to address challenges. In many cases, these organizations have made no to little investment in communities with low incomes and communities of color, and in fact, have often been complicit in denying economic mobility in these neighborhoods.

Case in point…institutions have a long history of employing policies that negatively impact communities of color and communities with low incomes. Many lending practices since Reconstruction – implemented with the passage of government policies – have kept communities of color from financing the futures that they wanted. Redlining and other forms of racism embedded in government programs, Jim Crow laws and the Black Codes, mismanagement of legislation like the GI Bill, and more have done irreparable and generational damage to the prospects of Black families, and many other policies have stifled the ability of Indigenous, Latinx, and other people of color to thrive as well.

Community Development Financial Institutions (CDFIs) are perfectly placed as community partners to ensure that financing gets to the community members fostering community-based projects. CDFIs act as a counterpoint to exploitative financial practices that disadvantage community members, recognizing potential and supporting locally grown solutions that support true opportunity.

In the midst of the COVID-19 pandemic, few sectors have proven to be better placed to help ensure the continued economic health of communities than CDFIs. Here are some great examples:

DMV Good Food Fund Innovative Response Fund (Capital Impact)

Home First (IFF)

AIM Healthy (NFF)

D.C. Co-op Impact Award (Capital Impact)


CDFIs Fill the Breach to Transform Lending to Serve Community Needs

Those who know the history of the CDFI sector are not surprised. Indeed, it was in the face of a crisis of another kind that organizations like ours were created. CDFIs were formed out of the civil rights movement as private financial institutions focused on increasing economic prosperity for disinvested communities and communities experiencing poverty by providing affordable lending for community projects. Over time, their work has evolved to address key issues of economic, social, racial, and political justice.

Woman stands in front of new construction

CDFIs have worked as a counterpoint to systems that exacerbate racial and socioeconomic disparities, by transforming the lending process to benefit long-disinvested communities.

Ever since that time, CDFIs have worked as a counterpoint to systems that exacerbate racial and socioeconomic disparities, by transforming the lending process to benefit long-disinvested communities. For decades, CDFIs have invested in community development and economic justice in places where other institutions either proved ineffective, gave up or intentionally exploited residents of color.

Since 1982, Capital Impact Partners has followed this mission across the country. Through our work, we seek to break down community barriers to success by addressing key social and economic justice issues such as affordable housing, health care, education, and inclusive, healthy food systems. Committing to “be of” the communities that we serve has led us to take a deep, place-based approach to creating communities of opportunity. Because many traditional lenders deem disinvested communities to be “too risky” for lending (residue of redlining, etc.), it is incumbent upon CDFIs to provide financing to fill that gap and support communities to achieve not only their goals, but eventual parity with communities where investments are flowing. Particularly in times (like the COVID pandemic) when communities are hardest hit and need the greatest support, CDFIs can work directly with community members and organizations to continue fostering community access and economic mobility.

When Traditional Investment Dried up, CDFIs Sprang into Action in Detroit…

We saw this after the Great Recession when Detroit was teetering on the verge of bankruptcy. Investment in the city, tenuous for decades, had dried up, and the number of vacant buildings and lots reached 100,000, further contributing to plummeting property values.

Rather than focus on other parts of the country thought to be “safer,” we instead joined with the Kresge Foundation, Skillman Foundation, and Midtown Detroit under the “Living Cities Integration Initiative” to launch a focused effort of collaboration and lending concentrated on the city’s main thoroughfare, the Woodward Corridor. Through that effort, a number of key projects came about, including the Auburn, which you can learn more about in this video (4:00 mark).

Woman sitting in her bookstore

We worked with a number of partner CDFIs to finance millions of dollars in market-rate and affordable housing to shelter residents, mixed-use developments that create community hubs and drive economic opportunity, schools that invest in the future of Detroit’s children, and much more. Soon after, larger lenders like JPMorgan Chase came onboard further pledging major commitments to the city. A brief history of those earlier years of CDFIs leading the way can be seen in this video.

While the city eventually began to turn things around, there was – and is – a long way to go and so we have doubled down on our approach, adding a variety of new efforts to ensure diversity to support a new future of the city, including our Equitable Development Initiative and associated Diversity in Development – Detroit Loan Fund. These new tools and our old ones underpin Capital Impact’s activities in other neighborhoods for continued growth, supporting projects like housing developments The Murray-Hubbard Farms and 655 W. Willis during the pandemic to ensure that momentum does not slow.

…CDFIs Are Supporting Affordable Housing Across California…

California has experienced a significant housing crisis, seemingly more severe than the rest of the country, especially as it includes a mismatch between restricted supply and demand fueled by economic growth that results in some of the most expensive cities in the country. The increased cost of housing has caused more people to move farther out from cities, which has increased housing prices in communities that previously supported families with low and moderate incomes. Residents earning low incomes are finding it harder and harder to acquire and maintain affordable housing.

San Francisco Bay Area

As part of the Partnership for the Bay’s Future, Capital Impact is working to preserve and produce affordable housing across the San Francisco Bay area, including our latest development in Redwood City.

To address that issue in the San Francisco Bay Area, a coalition of organizations formed the Partnership for the Bay’s Future, which has created one of the country’s largest investment funds to address the regional affordable housing crisis. The goal of the Partnership is to expand and protect the homes of up to 175,000 households over the next five years and preserve and produce more than 8,000 homes over the next five to 10 years in San Francisco, San Mateo, Santa Clara, Alameda, and Contra Costa counties.

As part of this Partnership, Capital Impact is working to preserve and produce affordable housing across the Bay Area. In one of our latest projects, we financed a 10-unit housing development in Redwood City, where gentrification is a considerable problem for long-term residents with low incomes. Through this project, all of the units will remain affordable for households earning 60 percent of the Area Median Income for 55 years.

…And CDFIs and Mission-driven Organizations Unite to Expand Inclusive Food Systems in the Washington Metro Area

Along with affordable housing, healthy food is a vital element of overall wellbeing, and inclusive food systems ensure that everyone in a region has access to high-quality, fresh food near their home. In the Washington, D.C. area, several communities have significantly lower access to healthy food options. In particular, D.C.’s Wards 7 and 8 have only three grocery stores for more than 150,000 residents.

The pandemic has made food security more precarious, especially for workers who lost their jobs and students who access most of their meals through school. Additionally, with residents less able to purchase food from local businesses, the existing food ecosystem could become more limited, with businesses losing revenue and being forced to close. The loss of food businesses would have a particularly hard impact on communities where healthy food access is already low.

Market staff help woman shop for groceries

Good food businesses in the Washington, D.C. region have been ensuring that individuals and families have access to healthy food in their communities throughout the pandemic.

To address the need for food security in the region, organizations, governmental agencies, and residents began coming together to expand opportunities for local, “good food” businesses and ensure healthy food opportunities for residents.

In June, we announced the launch of an Innovative Response Fund, providing $100,000 in awards to key partners in order to sustain and stabilize mission-aligned good food enterprises in the Washington Metropolitan Area. Food insecurity in Washington, D.C. alone is reported to be up 16 percent in 2020 from the year before, and up 10.6 percent since the COVID-19 pandemic began. Given with the generous support of the William R. Kenan, Jr. Charitable Trust, the awards are allowing local good food enterprises to reposition and pivot in response to the COVID-19 pandemic and its impacts on the regional food economy. The Innovative Response Fund is an initiative of our forthcoming DMV Food Justice Fund, which will focus our work to expand inclusive food systems in the D.C. region.

Looking to Collaboration and Partnership for a Community-centered Future

In 1968, the Kerner Commission, appointed by President Lyndon B. Johnson to assess the cause of riots the year before, identified racism as the cause of inequities that pervaded communities of color and communities with low incomes. The Commission recommended sweeping changes to housing policies, urban planning, education, anti-poverty programs, and policing.

Protests and actions to enact those changes continue today. Racial equity and economic justice are vital to creating the world in which we want to live, and Capital Impact and other CDFIs are focused on using financing, technical assistance, and other programs to help communities achieve equity, inclusion, and access to critical services that have been denied for decades. Specifically, Capital Impact and CDC Small Business Finance are creating a new alliance to deliver a full suite of lending products and programs that support community efforts to create strong, vibrant, and healthy places of opportunity. As we have for decades, CDFIs will continue to work hand-in-hand with the communities we serve to create the equitable, inclusive, and prosperous future that we all deserve.