Social Enterprise Business Idea Series

[Part 1 of a weekly series that discusses social enterprise business ideas]

Community Development Financial Institutions (CDFI's) are a social entrepreneurial goldmine.  Nationwide CDFI's serve economically distressed areas by providing credit, equity, and financial services that are generally unavailable through traditional financial institutions.  According to the Coalition of Community Development Financial Institutions, the CDFI term maybe new; however, the concept is one that is rich throughout American history.  The concept was used by Immigrants habituating in New York's lower East side in the 1800s and African American's forming the first community development credit unions in the 1930s.  Communities have always sought credit solutions due to the inability to access traditional lending methods.

In the 1960s, the Johnson Administration started a campaign against poverty, aptly titled the "war on poverty."  It was within this campaign that many community development corporations (CDCs) were established and funded with programs from the Office of Economic Opportunity.  It was the success of many of these CDCs that set the path for the community development financial industry.  In 1994, a government agency called the CDFI Fund was established.  The purpose of this fund was to offer individual/local CDFIs and their community partners through a competitive bidding process.  This focused governmental effort on strengthening community development through specialized financing caused the confidence of the industry to be bolstered and additional support to be administered.  Today, CDFIs continue to grow and impact rural and urban communities across the country.     

Many have called the CDFI industry a socially responsible investment.  Patrick Ferraro of Guidestar.org calls the industry "compassionate capitalism."  Whatever you choose to call it, Community Development Financial Institutions are good social business and one that is growing in popularity.  According to the Opportunity Finance Network, a membership organization for community financial institutions, CDFI assets in America have grown from $7.6 Billion in 2001 to 23.5 Billion in 2008.

Those assets are concentrated in four types of institutions.  They consist of community development banks, credit unions, loan funds and venture capital funds.  CDFIs are generally certified by the Community Development Financial Institution Fund at the US Department of Treasury.  While most of the larger institutions are certified by the Treasury, it is believed that there are hundreds of other institutions across the country that are serving the needs of low-income citizens, but have yet to apply for Federal CDFI funds, or they lack various criteria to become nationally certified.   

While starting a financial institution is not an easy task, for those interested in taking on such a social venture will be interested to know there are professional associations available for training and assistance.  Some of which include:  The Association for Enterprise Opportunity, the Community Development Finance Association, the CDFI Coalition, Opportunity Finance Network, and the Community Development Venture Capital Alliance.  Any of those organizations can offer sound advice and additional resources for persons eager to learn more. 

If you are not willing or able to take on such a large commitment you can participate in other ways that support the works of local CDFIs.  A simple act of taking your personal or business banking needs to that of a local community development bank or credit union will ensure that the profits you help generate will be reinvested through the development and assistance of low income communities.  For a more hands on approach a person can always invest, and/or donate to a local CDFI or volunteer their time to organizations that help low-income families.

As always let me know what you think.
Photo Courtesy of:  ruralnetwork.ning.com