Community Development Investment in the USA

Abstract

One of the primary objectives of the community development financial institution (CDFI) industry (and an explicit objective of the New Markets Tax Credit [NMTC] program) is to increase the provision of capital—loans and investments—to economically underserved communities across the country. These are communities, center city neighborhoods, innumerable small towns, and wide swaths of the nation’s rural landscape plagued by high rates of poverty, unemployment (or underemployment), and lag in economic development, especially in comparison with many communities in economically vibrant areas, where employment is plentiful, incomes are high, housing markets are healthy, and the economic future is bright. Distressed, economically backward areas, where CDFIs (and community development entities [CDEs] in the NMTC program) now focus their attention and energies, are communities largely underserved, or only sporadically so, by mainstream financial institutions. CDFIs, it is frequently noted by the leadership of the CDFI industry as well as by analysts that follow the industry, primarily act to “step into the breach” between the real and the perceived need and opportunity for economic and housing development initiatives in low-income, frequently minority communities and the actual flow of investments from mainstream, regulated financial institutions to these areas. Bluntly, CDFIs (and CDEs) seek to provide investments and finance a wide array of projects—residential, commercial, and community development facilities—in underserved areas across the country, to communities and populations that, as we documented in Chap. 1, suffer from one of many aspects of market failure.