Community Development Financial Institutions (CDFIs) and Minority Depository Institutions (MDIs) rely on government funding to carry out their missions — making government support critical to their future.

It was good news for CDFIs and MDIs when, on December 21, 2020, the incoming Treasury Secretary, Janet Yellen, met with CDFI and MDI representatives and committed to increasing their small business lending capacity. The meeting was a promising sign that for the next four years, CDFIs and MDIs can likely expect continual support of the CDFI Fund.

Then, more good news came when the Consolidated Appropriations Act was signed into law a week later on December 27, setting aside $12 billion for CDFIs and MDIs.

Major highlights of the Consolidated Appropriations Act for CDFIs and MDIs

Of the $12 billion set aside, $3 billion will go toward the CDFI Fund, and $9 million will go toward establishing an Emergency Capital Investment Program (ECIP).

The $3 billion for the CDFI Fund: This $3 billion is intended to support economic and community development in low-income and distressed communities. To achieve this, it will fund grants and other assistance to CDFIs through seven established programs.

Of the $3 billion, $1.25 billion must be used to respond immediately to the economic impact of the COVID-19 pandemic — with a portion earmarked to benefit Native communities — and $1.75 billion may be used to expand lending, grantmaking and investment activities.

The CDFI Fund generally operates on approximately $270 million of standard budget appropriations, so this Consolidated Appropriations Act funding is significant.

The $9 billion for the ECIP: Administered by the Treasury, the ECIP will provide low-cost, long-term capital investments to CDFIs and MDIs that are depository institutions so these organizations can continue their efforts to deliver banking services to unbanked and underbanked communities.

Notably, institutions of smaller sizes will have access to the funds: $4 billion will be set aside for institutions with under $2 billion in total assets, and half of this money will specifically be set aside for institutions with under $500 million in total assets.

Also dependent on institution size is the cap on the funding amount. The cap is 7.5% of total assets if those assets exceed $2 billion, while the cap is 22.5% of total assets if those assets are less than $500 million.

The Consolidated Appropriations Act also restricts what the funding can be used for. Provisions dictate that the government will issue rules restricting executive compensation, share buybacks and dividend payments to recipients of capital investments under the program.

Provisions also dictate that no dividends, interest or other payments will be required in the first 24 months; and no dividends, interest or other required payments should have a rate exceeding 2% per year for the first 10 years. Rates can vary from 0.5%–2% based on evidence of lending growth to the target populations.

How do CDFIs and MDIs receive ECIP funding?

If your CDFI or MDI would like to receive funding from the ECIP, you will need to submit an application. Because the application period must begin within 30 days of enactment, you can probably expect a late January date.

The application will require you to submit an investment and lending plan that:

• Demonstrates that not less than 30% of your institution’s lending over the past two fiscal years was made directly to low- and moderate-income borrowers, or to borrowers that create direct benefits for low-and moderate-income populations as measured by the total number and dollar amount of loans.
• Describes how your institution’s business strategy and operating goals will address community development needs in communities that may be disproportionally impacted by the economic effects of COVID-19.
• Includes a plan to provide community outreach and communication.
• Details how your institution plans to expand or maintain significant lending activities to low-and moderate-income borrowers, minority communities and historically disadvantaged borrowers — especially those who may be disproportionately impacted by COVID-19.

We recommend that your institution submit your application information completely and as early as possible.

The application period is now open and applications are being accepted here related to the CDFI Fund.

The process for ECIP applications is still being finalized, and continue to monitor changes and updates here.

Wipfli can help

With deep experience serving financial institutions and nonprofit organizations, Wipfli is perfectly positioned to help CDFIs and MDIs achieve their goals and work toward achieving their missions. Whether it’s applying for and receiving government funding, securing your institution against rising cyberattacks or performing efficient and effective audits, we can assist with meeting your needs.

For more information about stimulus funding or navigating the COVID-19 pandemic, visit our COVID-19 resource center.

Related content:

PPP and other SBA loan provisions in Consolidated Appropriations Act of 2021

Financial institution fraud is 43% more successful

How internal audit can help organizations during difficult times