Opinion: The best-kept secret in economic development

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In communities across Minnesota, a quiet economic revolution has been happening for decades. While Wall Street and the White House dominate today’s headlines, Community Development Financial Institutions (CDFIs) have diligently worked to empower Main Street businesses since landmark legislation created the CDFI Fund in 1994.

For too long, the CDFI Fund has been the best-kept secret in economic development. But with potential budget cuts looming, it’s time to spotlight this remarkably cost-effective program and ask a crucial question: Can we afford to lose it?

The CDFI Fund is a U.S. Treasury Department program that provides the financial backbone for community development lenders like CDFIs in Minnesota (including the one I lead) and across the country. It provides the seed money that allows us to take smart risks.

Though only about 0.005% of the federal budget, the CDFI Fund’s impact on our communities is remarkable. Every federal dollar we receive brings in $8 to $10 from private sources, including major banks. This makes the fund one of our most cost-effective economic tools at the federal level.

With more than a 30-year career in financial services and dedication to community development, I witness daily how CDFIs complement traditional banking and lending services to reach more Minnesota communities. These include urban, rural and suburban communities starved for investment and jobs.

CDFIs provide a vital alternative to high-interest payday loans and other exploitative lending services for the underbanked. I have met with hundreds of business owners and entrepreneurs, and I understand their barriers to starting and growing small businesses.

How big of a difference do CDFIs make? In 2024 alone, my colleagues and I at the Metropolitan Economic Development Association (MEDA) served nearly 628 clients, representing $19.9 million in loans to small businesses. We do this because wealth creation is the most potent antidote to poverty and the most significant “leg-up” over barriers to economic opportunity.

CDFIs provide what I call “catalytic capital.” When MEDA backs a project, other investors gain confidence, creating a chain reaction. Private banks become partners, and foundations add their support. Our initial investment multiplies many times over.

What makes our work different is our approach to risk. We specialize in borrowers with unconventional profiles, offer custom terms and hands-on help, and look beyond traditional metrics to see potential. A small business will find in us a partner that understands both financial and community value.

The CDFI Fund’s reach extends nationwide. Five states alone — Florida, Mississippi, Louisiana, Texas and North Carolina — have received more than $80 billion in CDFI-supported investment. Minnesota had received over $122 million in CDFI Fund investments as of 2017. These aren’t handouts but strategic investments in America’s economic infrastructure.

CDFIs build lasting economic systems by partnering with banks, nonprofit organizations, government agencies and community groups. Many major banks are significant investors in CDFIs, providing crucial capital through loans, deposits and equity investments. This collaborative approach creates sustainable change vs. quick fixes.

The CDFI Fund stands out as a strong bipartisan priority in today’s divided politics. Republicans represent eight of the 10 districts receiving the most CDFI investment, while the Senate CDFI Caucus includes 14 Republicans and 14 Democrats.

Despite this success, the CDFI Fund faces threats. It has funding for this year, but recent executive actions have targeted it for cuts. The Senate wants to increase its funding to $354 million, recognizing its value.

Cutting the CDFI Fund would have far-reaching consequences for Minnesota small-business owners and entrepreneurs. Small-business financing would become more limited, financial services for underserved communities would be reduced, and communities would lose crucial investments in people and jobs.

The CDFI Fund represents American pragmatism at its best. It’s a market-based approach that is responsive to local needs, accessible to the underbanked and attractive to private investors. For the communities where CDFIs operate, the CDFI Fund is not just a budget item. It’s the foundation of economic development that works where it’s needed most.

Thriving community-based businesses across America are the keys to a stronger, more resilient and more participatory economy. The CDFI Fund makes this possible. Preserving it isn’t optional — it’s necessary for the continued economic vitality of communities throughout our nation.

Dorothy Bridges is president and CEO of the Minneapolis-based Metropolitan Economic Development Association (MEDA), a mission-based nonprofit and Community Development Financial Institution (CDFI).