Washington, D.C.— Today, the House Small Business Committee Subcommittee on Economic Growth, Tax, and Capital Access, led by Chairwoman Sharice Davids (D-KS), held a hearing examining the roles of Community Development Financial Institutions (CDFIs) and Minority Depository Institutions (MDIs) in small business lending.
“The pandemic taught us a critical lesson in the power of community financial institutions to reach communities that other lenders neglect,” said Chairwoman Davids. “Moving forward, we must examine the SBA programs that empower CDFIs and MDIs and find ways to improve them. For example, efforts like the Community Advantage Loan Program, the 504/CDC Loan Guaranty Program, and the Microloan Program have proven effective in helping CDFIs and MDIs get capital to underserved communities.”
CDFIs and MDIs are financial institutions that work to reach groups that traditional lenders often neglect. CDFIs provide a range of financial products and services on a fair and transparent basis in economically distressed markets, such as mortgage financing, flexible underwriting, and loans and investments to small businesses in low-income areas. MDIs are depository institutions where 51 percent or more of the stock is owned by minority individuals, including Black Americans, Asian Americans, Hispanic Americans, and Native Americans.
During the pandemic, CDFIs and MDIs played a critical role in getting relief to the communities that COVID hit the hardest. Members of the Small Business Committee fought for set-asides in multiple relief bills to appropriate funds so that community lending institutions, including CDFIs, could participate in PPP on equal footing with all lenders. As a result, CFIs were the only type of PPP lender that performed above program average when it came to the percentage of loans less than $150,000, percent of loans made in LMI areas, and percent of loans made in rural areas.
The hearing gave subcommittee members the chance to examine the impact these institutions make in their communities and what actions Congress can take to empower them.
“We have a moment of opportunity here to serve minority businesses and entrepreneurs better in the future. And CDFI credit unions are key to helping these businesses not just survive but to grow and thrive,” said Aissatou Barry-Fall, President & CEO of Lower East Side People’s Federal Credit Union. “We need to work together with Government Agencies like SBA, CDFI Fund and the Treasury Department to create a framework that more effectively helps CDFI lenders mitigate our risk, build our balance sheets to continue to meet the demand, and access sources of capital.”
“The single most effective way for Congress and the Federal Reserve to significantly expand capital access for small and underserved businesses is to focus on making significantly more capital available to CDFIs and MDIs,” said Everett Sands, Founder & CEO of Lendistry in Brea, CA. “One unmistakable lesson of the determined economic relief efforts led by Congress over the past year in response to COVID is that small and underserved businesses are far and away more successful in accessing capital from CDFIs and MDIs than from other sources.”
“It is important to note that an average of 70 percent of minorities do not have a bank branch in their neighborhood, coupled with 94% of Black small businesses being sole proprietors that are typically unbanked or underbanked,” said Robert James II, Chairman of the National Bankers Association. “Given the challenges faced by small businesses, especially minority-owned small businesses, it is imperative to assess which type of banks are best placed to provide access to capital for minority communities. National banks may not be fastest in reaching this constituency.”