Community Development Innovation Review
May 19, 2021
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Capital-Raising Among Depository Minority-Owned CDFIs Before the Covid-19 Pandemic
Capitalization is a fundamental aspect of viability of banks, at all periods, but especially so for smaller banks during periods of financial crisis. Minority banks, including those that are certified as Community Development Financial Institutions (CDFIs) were hit particularly hard during the financial crisis. Even as the economy recovered, analysis of data up to 2013 suggested that Minority Depository Institutions (MDIs) tended to lag behind various measures of performance compared to other community bank peers, even after controlling for primary markets served. In this paper, we focus on the capital-raising experiences of MDIs that are also CDFIs. These institutions have a CDFI certification, which is a designation conferred by the U.S. Treasury CDFI Fund for non-government financial institutions whose primary mission is community development. CDFIs may take the form of banks or thrifts, credit unions, loan funds, and venture funds. What distinguishes CDFI banks from other federally-insured and regulated institutions is that they must direct at least 60 percent of their financing to low- and moderate-income or underserved communities. Hence, a sizeable portion of mission-driven MDIs tend to be CDFIs.
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