Becoming a Certified Community Development Financial Institution and Participation in the Community Development Capital Initiative
March 5, 2010
Authored by: Bryan Cave
On February 3, 2010, the Treasury Department announced the final terms of the Community Development Capital Initiative (“CDCI”), a new TARP program that will invest lower-cost capital in certified Community Development Financial Institutions (“CDFIs”). A certified CDFI is a financial institution that works in markets that are underserved by traditional financial institutions and is certified by the Department of the Treasury’s CDFI Fund.
In order to become a certified CDFI, an institution must meet each of the following certification criteria:
Primarily Serve One or More of the following CDFI Designated Target Markets
1. Investment area, which includes, but is not limited to, geographic boundaries that (i) have a population poverty rate of at least 20%; (ii) have an unemployment rate 1.5 times the national rate; or (iii) are located within an Empowerment Zone or Enterprise Community.
2. Low-income targeted populations, which are comprised of populations with income of not more than 80% of the metropolitan area median family income, or, for rural areas, not more than the greater of 80% of either the area or statewide non-metropolitan median family income.
3. Other targeted populations, which requires that the financial institution provide financial products to an identifiable group of individuals that lack adequate access to capital and have historically been denied credit. The CDFI Fund has designated the following targeted populations:
- African Americans
- Alaska Natives residing in Alaska
- Asian Americans
- Native Americans
- Native Hawaiians residing in Hawaii
- Other Pacific Islanders residing in other Pacific Islands
- Other (reviewed and approved on a case-by-case basis)
Primary Mission of Promoting Community Development
A CDFI certification applicant must demonstrate that at least 60% of its activities are directed toward its identified Target Market. In addition, a CDFI certification applicant that is a holding company may qualify as a certified CDFI only if the holding company individually and collectively with its affiliates and subsidiaries meets each of the required criteria.
Be a Financing Entity
A regulated financial institution automatically satisfies this requirement. As a result, a regulated financial institution need only submit its banking charter with its application, no other documentation is required to satisfy this requirement.
Provide Development Services in Conjunction with its Financing Activities
Development services include technical assistance or training activities that prepare borrowers to access the institution’s financial products. There must be a direct link between the institution’s development services activities and its financial products. The CDFI Fund requires that at least 50% of the applicant’s assets are provided through a combination of development services and financial products directed at the institution’s designated Target Market.
Maintain Accountability to its Defined Target Market
An applicant must demonstrate that it is accountable to its designated Target Markets through one of the following:
- The institution’s board of directors or advisory board, provided that the institution’s board members are representative of each Target Market designated by the applicant.
- Other methods, including focus groups, community meetings, etc., provided that the institution can demonstrate that these methods are incorporated into its decision-making process.
Be a Non-Governmental Entity and Not Under Control of Any Governmental Entity
An applicant must demonstrate that it is not an agency or instrumentality of the United States or any State or political subdivision. The institution must demonstrate that it is not controlled by any governmental entity.
CDFI Certification does not constitute an opinion as to the financial viability or effectiveness of an institution. Consequently, there are no minimum capital requirements and the CDFI Fund does not engage in any safety and soundness discussions with bank regulators during the certification process.
Once an institution becomes a certified CDFI, it is eligible to participate in programs offered directly through the CDFI Fund and the CDCI, which is offered through the Treasury Department. The initial hurdle, however, will be qualifying as a certified CDFI.
If you are interested in completing a CDFI Certification Application or participating in the CDCI, the application details are below:
- CDFI Certification Application Deadline – an institution must submit its application for certification as a CDFI to the CDFI Fund no later than 5:00 p.m. (EST) on April 16, 2010.
- CDCI Application Deadline – an institution must submit its application with its appropriate federal banking regulator no later than 5:00 p.m. (EST) on April 2, 2010.
- CDFI Certification Applications may be found here.
- Required supporting documentation can be found here.