Community Development Financial Institutions, or CDFIs, are entering a period of profound transition. For decades, these mission-driven lenders have expanded access to capital in communities underserved by traditional finance, helping finance small businesses, affordable housing, health centers and other critical community assets.
Throughout our long tenure in the housing and community economic development industry, we have never seen the sector challenged quite like we do today. The president’s recent budget proposal to cut $204 million from the CDFI Fund could truly reshape how the sector operates in the years ahead.
This is all unfolding as the need for community development investment is growing in the United States. Rural, tribal and historically marginalized communities have experienced decades of disinvestment. Poverty, unemployment and declining local industry remain persistent. Aging populations strain healthcare systems, while infrastructure and small business support often fall short.
The United States does not lack capital. But it does lack a coherent system to direct that capital toward long-term community development priorities.
After World War II, the United States helped design some of the world’s most influential development finance institutions. But decades later, America has never built anything comparable at home. It’s time to change that.
The blueprint
Development finance institutions around the world offer lessons on how America can strengthen its CDFIs, state public banks and broader domestic capital infrastructure to address growing disparities and infrastructure needs.
For example, the World Bank finances public sector projects such as infrastructure, education and health systems, while the International Finance Corporation mobilizes private capital to support enterprise and market development. Together, they demonstrate how public investment and private finance can operate through complementary but coordinated channels to support long-term economic growth.
National development banks provide additional lessons. Germany’s KfW has financed energy transitions, small businesses and infrastructure modernization through long-term, low-cost capital. The Brazilian Development Bank has mobilized large-scale investment for industry and regional development. The European Investment Bank supports innovation, climate infrastructure and regional cohesion across the European Union.
These institutions differ in structure and governance, but they share a principle: Coordinated development finance systems that align public and private capital can mobilize resources at a scale that fragmented financial markets cannot achieve. Markets alone rarely direct investment toward long-term social priorities without institutions designed to guide that capital.
The United States has never built a comparable domestic architecture. Instead, it relies on a patchwork of federal programs, private markets and community-based lenders such as CDFIs. While these institutions have driven innovation and maintained strong local partnerships, they remain underpowered relative to the scale of investment needed.
The road ahead
Federal policymakers, states, institutional investors, philanthropy and community finance institutions should begin aligning around a shared national development finance strategy focused on resilient infrastructure, inclusive economic growth, healthcare access, energy transition and community stability.
That strategy should include modernizing capital rules and secondary markets for community lenders, expanding blended finance partnerships, supporting state-level development finance innovation, and creating clearer pathways for institutional capital to participate in place-based investment strategies.
A modernized domestic financing ecosystem could then address the investment gap through a coordinated, two-part model. One arm would focus on financing public goods and long-term community assets, including infrastructure, housing, healthcare, energy and climate adaptation. Funding could come from federal appropriations, philanthropic capital and mission-aligned investors seeking measurable social and environmental outcomes.
A parallel arm would support local enterprise with loans, guarantees and equity-like instruments to small businesses, community facilities and regional industries. Operating with clearer expectations of financial sustainability, this side would mobilize private capital while building on the local expertise and community relationships that CDFIs already maintain.
Elements of this approach are already beginning to emerge. Green banks are increasingly leveraging public funds to attract larger private investment for clean energy and resilient infrastructure. Public banks and state infrastructure authorities — such as the Bank of North Dakota and California’s iBank — demonstrate how state governments can mobilize long-term capital for regional priorities. These institutions could complement CDFIs by providing scale and balance sheet strength, while CDFIs contribute local knowledge and trusted community relationships.
Strengthening the CDFI sector and embedding it in a more coordinated domestic development finance system would not solve every challenge facing the country. But it could help direct and better coordinate capital toward the long-term social, economic and environmental investments necessary to support more durable and inclusive economic and community growth.
The United States helped shape the global architecture of development finance. The challenge now is applying those lessons at home.
Maulik Doshi is a managing director at Steward Redqueen, an impact advisory firm. He previously worked at BlackRock, Freddie Mac and RiskSpan focused on the intersection of housing finance and capital markets analytics.
Alanna McCargo is a senior fellow for inclusive capitalism at the Clinton Foundation and former president of Ginnie Mae.
Guest posts on ImpactAlpha represent the opinions of their authors and do not necessarily reflect the views of ImpactAlpha.
