2023 CDFI Survey
CDFIs play a central role in ongoing work towards an equitable economic recovery as they help consumers, small businesses, and communities access funding. From April 24 through June 2, 2023, the Federal Reserve fielded the 2023 CDFI Survey. The effort gathered information from 453 CDFIs on how demand for their services has changed in the last year, challenges that limited their ability to meet demand, and how they are addressing challenges.
Read the full 2023 Key Findings Report at FedCommunities.org, the Federal Reserve System's gateway to community development insights.
Key findings include:
- Demand for CDFI products remains strong. Three out of four CDFIs saw an increase in demand over the past year, and a similar percentage expect demand to continue increasing into next year.
- CDFIs have largely met demand, but for some, their ability has been limited. Among CDFIs that saw increased or steady demand, 40 percent reported fully meeting it, 42 percent mostly, and 18 percent partially. Encouragingly, many CDFIs were optimistic about meeting increased demand in the coming year.
- The biggest challenges to fully meeting demand varied across CDFIs. Loan funds frequently cited the increasing cost of lending capital as a challenge, as well as restrictive and insufficient operational funding. Credit unions were more likely to cite hiring and retention challenges, along with challenges related to borrower qualifications and technology.
- CDFIs have continued to innovate to address these and other challenges. Examples include tapping into recent federal funding programs to expand loan products, hiring specialized staff to meet operational needs, integrating online platforms with back-office technology, and taking nontraditional approaches to underwriting.
- Capturing outcome measures to demonstrate the impact of these innovations remains elusive for many CDFIs. Nearly all CDFIs are capturing output metrics closest to their operations, like client counts and the dollar value of financial products. But various impediments constrain CDFIs from measuring outcomes such as the financial performance of clients or the number and quality of jobs created.
The 2023 CDFI Survey effort is a partnership of the Federal Reserve, the CDFI Fund, Opportunity Finance Network, the CDFI Coalition, the Native CDFI Network, the Community Development Bankers Association, Inclusiv, First Nations Oweesta Corporation, NeighborWorks America, and several state-level CDFI coalitions.
Question or comments? Please contact Surekha Carpenter.
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A Closer Look at Rural CDFIs
Authors: Nicholas Haltom and Stephanie Norris
The Richmond Fed is committed to understanding the challenges and opportunities in small towns and rural communities. Community development financial institutions (CDFIs) often play an important role in these places, where there are often fewer financial institutions and economic development resources compared to urban areas. Of the 451 CDFI respondents included in the Federal Reserve's 2023 CDFI Survey Key Findings Report, 115 respondents (25 percent) reported that their CDFI is focused on serving rural areas. More than half of these CDFIs reportedly serve rural areas exclusively. Like the pool of respondents overall, most rural CDFIs experienced increased demand for financial products over the past year and were largely able to meet that demand. However, there were notable differences in the challenges faced by rural and nonrural CDFIs that reflect the different environments of rural CDFIs. Here, we take a closer look at what we learned about rural CDFIs from the 2023 CDFI Survey.
Who Are the Rural CDFIs?
Rural CDFIs include survey respondents who reported having an entirely rural service area as well as respondents who reported devoting most of their resources to rural parts of a mixed geographic service area. Forty-three percent of the rural CDFIs in our survey sample were loan funds (compared to 50 percent of nonrural CDFIs), and 32 percent were credit unions (compared to 36 percent of nonrural CDFIs). Community development banks/thrifts comprise 18 percent of rural CDFI respondents but only 7 percent of nonrural CDFI respondents. The remaining 6 percent of rural CDFIs were a mix of holding companies and other institutions. Fourteen of the rural loan funds were also native CDFIs, and 15 of the credit unions were cooperativas serving Puerto Rico.
Rural and nonrural respondents represented CDFIs of all sizes, but rural CDFIs were more likely to fall into the smaller asset size categories than nonrural CDFIs. When asked about their CDFI's primary business line, the majority of both rural and nonrural CDFIs reported either small business lending or consumer finance. Business lines varied by CDFI type, with credit unions predominantly offering consumer finance products, and most loan funds offering financial products to small businesses. (See chart below.)
To What Extent Have Rural CDFIs Met Demand?
Like their nonrural counterparts, many rural CDFIs reported an increase in demand for their financial products over the past year. And similar to the overall sample, rural CDFIs were able to meet much of that demand, although ability varied by CDFI type. Among rural CDFIs that saw increased or steady demand over the previous 12 months, depository institutions (credit unions and banks/thrifts) were more likely than rural loan funds to have met all or most of demand. (See chart below.)
Rural CDFIs that were unable to fully meet demand for products were hindered by challenges similar to nonrural CDFIs: Lending capital was top of mind for rural loan funds, and staffing was top of mind for rural credit unions. Among banks/thrifts, borrower qualifications and staffing were top challenges. (See charts below.)
However, rural respondents also shared distinct challenges that reflect the structural characteristics of small towns and rural areas. Outside of lending capital, rural loan funds were more likely than other loan funds to cite staffing as a significant factor affecting their businesses. Among the small number of rural credit unions unable to fully meet demand, 12 of 13 cited technology as at least somewhat of a factor, putting it above any other factor. Rural credit unions were also much more likely to cite operational funding challenges than nonrural credit unions. For rural community development banks/thrifts, borrower qualifications particularly stood out from other factors as a significant challenge to meeting demand. Challenges related to borrower qualifications may be amplified in rural areas due to staffing issues. Eight of the 10 banks/thrifts that cited borrower qualifications also cited that "too few staff" was a challenge to providing development services, which often include helping borrowers improve their credit worthiness and ability to take on loans.
Specific challenges in these areas also provide insight into the unique environment of rural-serving CDFIs. When it comes to capital for lending and operations, rural CDFIs were more likely to cite a lack of funders in their area than nonrural CDFIs. For example, 65 percent of rural loan funds cited insufficient funders for lending capital, and 71 percent said the same for operational funding; this is compared to 32 percent and 35 percent of nonrural loan funds, respectively.
In terms of staffing, 92 percent of rural credit unions with challenges said that current staff were leaving for higher pay, making it by far the top staffing issue (the share was 61 percent of nonrural credit unions); this likely relates to operational funding challenges that were also more commonly cited by rural credit unions than nonrural credit unions. The next most cited challenge for rural credit unions was a lack of qualified candidates, which was also the top staffing challenge for rural loan funds.
With regard to technology, nearly all rural credit unions with technology challenges in our sample were concerned about cybersecurity (compared to 63 percent of nonrural credit unions); rural credit unions and loan funds were also more likely than their nonrural counterparts to say that their clients/customers lack access to broadband.
What Would Change the Game for Rural CDFIs?
Many rural CDFIs leverage innovative strategies and partnerships to serve their customers and clients, but barriers remain. When we asked rural CDFIs about one or two things that would best enable them to serve their communities more fully, the most frequent responses echoed those of nonrural CDFIs: reduced or streamlined regulatory requirements, increased access to low-cost and flexible capital, and stronger operational funding support for staffing and technical assistance (TA).
However, some responses reflected challenges that are particularly acute in rural areas. Respondents frequently cited the need for resources to build operational capacity, including staffing and technology. In the words of one rural loan fund, "[We need] additional operating support to invest in technology and staff/org capacity so we can expand our loan products and TA services efficiently." Several respondents mentioned that they need more operational funding to be competitive in the hiring market.
While CDFIs across geographies mentioned access to low-cost capital, some respondents cited barriers unique to rural areas. An increase in the quantity and diversity of funding options was one possible solution. "Access to a larger pool of financial resources would significantly bolster our ability to provide flexible financing options to a wider range of clients/customers," offered one rural loan fund respondent. One survey respondent mentioned that the lack of funders in the immediate area was a major impediment and that better aligning funders and investors to persistent poverty regions would be helpful.
Rural CDFIs are often geographically isolated relative to their urban peers. Several respondents mentioned the need to collaborate within communities and more broadly across the CDFI industry. Respondents noted that industry-level coordination could help with financial education for clients and customers as well as share what CDFIs can offer. "I would like to see a more centralized, national repository to help promote the CDFI mission of providing educational and technical services to individuals in highly rural areas with lack of access and resources to attend in person," noted one respondent from a rural community development bank. Another respondent desired "better access to the CDFI Fund staff and support," while other CDFIs prioritized sharing knowledge and learning from each other. Specifically, one respondent mentioned that a peer learning exchange would be especially valuable to help their CDFI move into new product areas.
Looking Ahead
About two-thirds of rural-serving CDFIs expect demand to increase over the next year. Their ability to meet that demand will largely depend on continued innovation and support. Early next year, we will publish a series of three articles leveraging results from the 2023 CDFI Survey. The first will dive deeper into rural CDFIs; the second will explore how CDFIs are innovating to serve low- and moderate-income communities; and the third will focus on how CDFIs are measuring impact and outcomes.