2023 CDFI Survey Key Findings

Since 2019, the Federal Reserve has been surveying Community Development Financial Institutions (CDFIs) across the nation. Through the CDFI Survey, the Fed and survey partners seek to learn more about how these institutions, which serve financially underserved individuals and communities, are faring and evolving. To administer the 2023 survey, the Fed partnered with the CDFI Fund, Opportunity Finance Network, the CDFI Coalition, Inclusiv, the Community Development Bankers Association, the Native CDFI Network, First Nations Oweesta Corporation, NeighborWorks America, and several statewide CDFI coalitions and networks.

Survey results have shown that demand for CDFIs’ products and services has continually grown for years. In the 2019 survey, almost three-quarters of respondents said demand had increased from 2018. An even larger share (86%) foresaw demand continuing to increase in 2020. Although CDFIs’ business slowed briefly at the onset of the pandemic, the 2020 COVID-19 CDFI Survey revealed that the resulting economic environment spurred many financially underserved individuals and businesses to seek banking or lending services, and demand for CDFIs quickly regained momentum. As demand for their products and services continued to grow, CDFIs expressed wanting to offer additional products and services. In the 2021 survey, 76% of respondents said they wanted to expand their offerings but could not on a sustained basis. Limited staffing was frequently reported as a top inhibitor to growth. Lending capital was the secondary issue.

The 2023 survey, which was fielded from April 24 to June 2 and gathered information from 453 respondents (nearly a third of the industry), finds CDFIs again facing increased demand but in a different economic environment. Rising interest rates have pushed the cost of lending capital to the forefront as a challenge for many CDFIs. Meanwhile, the tight labor market and rising wage environment has added to previously reported staffing challenges and the need for operational funding. On the other hand, CDFIs have continued to innovate and have received unprecedented levels of federal funding and increasing congressional support. There are also growing examples of state-level support to CDFIs, including statewide CDFI coalitions and funding pools. What have the recent headwinds and supports meant for the ability of CDFIs to meet demand? And what does the road ahead look like?

Key findings from the 2023 CDFI Survey

Recent state of the industry

For most CDFIs, demand for financial products has increased

Results from the 2023 CDFI Survey show that demand has continued to increase for most CDFIs. Three-quarters of respondents reported an increase in demand for financial products during the preceding 12 months. Reports varied by primary business line—demand for home purchase and improvement lending increased for only half of the CDFIs with that primary business line, whereas all of the CDFIs focused on community facilities finance saw an increase in demand.

Demand also varied across CDFI types. Three types of CDFIs made up 93% of respondents: loan funds (48%), credit unions and cooperativas (35%), and community development banks and thrifts (10%). In the remainder of this report, references to credit unions include cooperativas based in Puerto Rico. (See the respondent breakdown for additional details.)

Loan funds, many of which provide small business loans and residential real estate finance, were most likely to report an increase in demand. Eighty-three percent reported an increase in overall demand and an additional 12% reported demand for products remained steady.  Seventy-one percent of credit unions, which focus predominantly on consumer loans, reported an increase in overall demand for their products, and 18% reported stable demand. Among community development banks and thrifts, 58% reported an overall increase in demand while 30% said demand had been stable.

CDFIs have mostly met demand, but some have been limited

Respondents were asked the extent to which their CDFI was able to meet demand over the preceding 12 months: fully, mostly, moderately, or only somewhat able to meet demand. Among those CDFIs reporting overall demand increased or stayed the same, 40% responded that they were “fully” able to meet demand, 42% responded “mostly,” and 18% responded “moderately” or “somewhat.” Higher shares of banks/thrifts and credit unions (97% and 91%, respectively) than loan funds (74%) reported their CDFIs were fully or mostly able to meet demand.

Still, respondents mostly meeting demand were not immune from challenges common to the industry. CDFIs that weren’t able to fully meet demand cited a range of challenges that hindered their ability to respond to client needs. When asked about the factors that prevented them from fully meeting demand, 45% of these CDFIs reported that lending capital was a significant factor. The next most commonly cited significant challenges were staffing (31%) and operational funding (30%), followed by borrower qualifications and technology (each 21%).

There were notable differences in these factors for CDFIs that were on the cusp of meeting demand compared to those that reported a larger shortfall. While lending capital led the way as the most significant challenge for both groups of CDFIs, it was a particular challenge for CDFIs that were only moderately or somewhat able to meet demand. For CDFIs that were mostly able to meet demand, staffing challenges were a larger issue.

Top challenges varied by CDFI type

Respondents representing loan funds and credit unions, which together account for 84% of respondents unable to fully meet demand, expressed different top challenges. Of course, differences are to be expected, given that CDFI loan funds and credit unions tend to have different primary business lines (as previously discussed) and different sources of capital. Credit unions rely heavily on member deposits while loan funds regularly source capital from banks, the government, foundations, and other sources. Loan funds reported lending capital as the most significant factor limiting their ability to meet demand. For credit unions, staffing and borrower qualifications were the top significant challenges, but the distribution was more evenly split across the five factors.

Lending capital

The most frequently reported challenges around lending capital overall were cost of capital, insufficient equity capital, and insufficient debt capital. The cost of capital was the top challenge for loan funds, and insufficient capital was a critical barrier across the board. One emerging strategy some CDFIs are taking to increase access to capital is selling loans on secondary markets. Secondary market transactions—in which a CDFI’s loans are sold to banks or other investors—allow the CDFI to free up its balance sheet for additional lending.  Approximately 21% of respondent CDFIs for which demand increased or stayed the same reported selling loans in the preceding 24 months, and an additional 27% have considered it as a strategy. Loan funds, which made up the majority of these respondents, were less likely than credit unions to cite access to secondary markets as a challenge.

Staffing

Staffing challenges were the most frequently reported barrier to fully meeting demand among credit unions. A lack of qualified candidates was common among both credit unions and loan funds, and respondents from both types of institutions that were moderately or somewhat able to meet demand reported their inability to offer competitive pay to attract candidates. Nine of the 11 credit unions that were moderately or somewhat able to meet demand reported that limited hiring resources posed a barrier to meeting the needs of their customers.

Operational funding

Operational funding challenges were more common among loan funds than credit unions. The top challenge among those mostly able to meet demand across both types of institutions was that operational funding was restricted to specific uses, meaning CDFIs lacked the flexibility to choose how to allocate funds to pay for staff, marketing, rent, or other expenses. Some CDFIs struggled to access funding in the first place. Those that were only moderately or somewhat able to meet demand were more likely than those that could mostly meet demand to report insufficient funders and funders unwilling to offer operational funding.

Technology

Technology challenges were not the highest concern among respondents, but 21% said it was a significant impediment to meeting demand and an additional 44% said it was somewhat of a barrier. Respondents cited a range of specific challenges relating both to back-office operations and to client-facing technology.

Among loan funds, integrating technology with existing systems was a top challenge for CDFIs that were mostly able to meet demand. Credit unions and loan funds both reported that the cost of technology was a factor, with credit unions mostly able to meet demand saying it was the top technology challenge. Cybersecurity concerns were close behind for credit unions. Both types of institutions that were only moderately or somewhat able to meet demand frequently noted that finding the right vendor or technology was a challenge.

Borrower qualifications

On the demand side, challenges related to borrower qualifications hindered the ability of 67% of respondents CDFIs to meet demand. Credit unions were more likely than loan funds to report borrower qualifications as a significant factor limiting their ability to meet demand.

Credit unions and loan funds faced different borrower challenges reflecting the business lines in which they primarily work. Loan funds, many of which lend to small businesses, reported higher rates of insufficient collateral, insufficient debt service coverage, and limited equity capital among their borrowers. Credit unions mainly serve consumer finance clients and were more likely to mention credit report and loan affordability challenges among their borrowers.  

Challenges extend from products to development services

CDFIs offer development and technical assistance services such as financial education, credit counseling, and business development assistance to address qualification challenges and help borrowers use their credit and capital effectively. These services often require significant operational resources and staff time, and even CDFIs that were able to fully meet demand for financial products reported challenges providing sufficient development services. In fact, only four such respondents reported no challenges. The most frequently cited challenge was too few staff, especially for CDFIs that were only moderately or somewhat able to meet demand.

In the face of challenges, CDFIs are innovating

CDFIs also had the opportunity to describe recent accomplishments and share how innovative products, practices, and partnerships helped them overcome their challenges.

The COVID-19 pandemic was one of the underlying reasons for increased demand over the past two years. Many CDFIs reported being proud of their ability to access and rapidly deploy COVID-19-era funding, such as the Paycheck Protection Program (PPP), Emergency Capital Investment Program (ECIP), CDFI Rapid Response Program (RRP), and CDFI Equitable Recovery Program (ERP). The availability of these funds allowed CDFIs to increase their lending volume, dramatically in some cases. One CDFI shared: “Participation in [ECIP] has already driven large loan volumes to distressed communities… [this capital infusion] has allowed [the CDFI] to increase its lending limits and pursue more impactful deals in affordable housing and small business.”

At the same time, CDFIs raised additional lending capital by applying for other sources of funding and building relationships with funders by:

Several CDFIs discussed how they met their staffing needs. In most cases, these CDFIs created a new, specialized position or hired new staff with specialized skills. For example, one credit union created a new position for a “Vice President of Community Partnerships to help [them] develop more partnerships with the communities [they] serve,” while another “added Certified Financial Counselors at all branches.” A few CDFIs that weren’t in a position to hire new employees developed creative solutions to resolve their human resource needs. Two CDFIs partnered to cover the salary for a shared employee who provides technical assistance and originates loans for both entities. A small loan fund with under five employees contracted with experts “to fulfill the aspects that create a well-rounded organization.”

In terms of technology, several CDFIs shared that they created opportunities for their clients to access their accounts, products, or services online or using a mobile app. To some extent, this was a necessity when in-person interactions were limited. But CDFIs also anticipate that online options will make them more accessible long-term, as one respondent shares: “Providing fully online membership and lending solutions [allow us] to meet members where they are.” Other respondents have integrated their new online platform with more streamlined back-office technology. For example, one respondent developed an automated, web-based loan application that feeds directly into an underwriting and scoring program that generates a recommendation for CDFI staff.

CDFIs spoke extensively about ways that they have created solutions for borrower qualification challenges. For example, some CDFIs have developed loan products like “a 0% credit builder loan to make building credit accessible to anyone” and improve borrowers’ ability to qualify for conventional loans in the future. Others designed unique, flexible loan products to accommodate borrowers with limited or unconventional collateral or with challenged credit histories. One loan fund described such a product:

“[We offer] a mortgage product for individuals lacking both typical citizenship documentation and credit history to allow them to purchase their homes and begin building generational wealth, while also helping to stabilize neighborhoods. We do this by allowing our borrowers to provide alternate documentation to determine credit-worthiness, such as bank statements and utility and rent payment records… Our underwriting takes longer because of our unique approach, but it ensures both that credit-worthy borrowers are not denied financing, and that we are minimizing our risk despite our non-traditional approach.”

CDFIs also shared examples of how they have created or scaled development services opportunities. A cooperativa mentioned that they enroll and graduate employees in a financial counseling course. Other CDFIs pool their resources to address a community need. For example, two CDFIs joined forces “to deliver an accelerator training program specifically to established [local] beauty salons and barbershops.” In some cases, CDFIs have been able to leverage their professional relationships to convene peer learning networks, as one loan fund shared:

“Recognizing the power of collaboration and knowledge exchange, [we have] established peer learning cohorts that bring together development practitioners and stakeholders. These networks serve as platforms for sharing best practices, lessons learned, and innovative approaches to address community needs. By fostering these connections, we facilitate the transfer of knowledge, encourage peer support, and promote collective problem solving.”

CDFIs that are unable to provide development services in-house have partnered with providers to meet their clients’ needs. A few CDFIs have worked with state trade associations, community colleges, and universities to provide small businesses with technical assistance and entrepreneurship training. In other cases, CDFIs have worked with public or community-based providers or have contracted private providers as needed. One loan fund is considering combining both strategies to meet demand: “We have a great partnership with our statewide financial counselors to offer development services and are considering ‘buying’ a portion of a certified financial counselor’s time.”

Measuring outcomes isn’t easy

While innovations are clearly happening in the industry, CDFIs are limited in tracking and communicating the deeper impact of their work. Nearly all respondents reported tracking output or outcome metrics related to the products or services they offer, but most generally track output metrics closest to their operations, where they have ready access to the information. As examples, of respondent CDFIs that want to track the number of clients served, 99% do. Ninety-three percent track the dollar volume of their deployed products.

Apart from reporting on their outputs, tracking information related to client/customer outcomes is one way CDFIs can more meaningfully demonstrate the impact of their products and services. Many CDFIs collect at least some outcome data. Eighty-two percent of respondent CDFIs that are interested in recording client stories are currently able to and 81% collect client demographic information. With respect to collecting client demographics, 95% of loan funds that seek this information currently collect it, whereas only 58% of interested credit unions and banks do. Some credit union and bank respondents mentioned not being legally allowed to collect this information. However, as the Consumer Financial Protection Bureau (CFPB) explains, all certified CDFIs that receive financial assistance from the CDFI Fund are permitted to collect this type of information to ensure that CDFI target markets are being served.

Seventy-seven percent of CDFIs want to expand on the metrics they collect. But tracking richer outcome data—like financial performance of clients (e.g., income, financial stability, or resiliency) or the number and quality of jobs created—proves challenging for CDFIs due to external and internal barriers. Difficulties collecting client data after products close and client reluctancy to share data were cited by 57% and 44% of respondents, respectively. More than half of respondents also cited that staff lack the time needed to track the desired metrics. Understandably, the CDFIs reporting staff time as an issue tend to have fewer employees than the full sample. When asked which impediment rises to the top, responses were varied. Twenty-two percent of respondents said lack of staff time, and 21% reported difficulty collecting data after products close. Smaller but notable shares of respondents also cited client reluctancy to report data, a lack of standardization of which metrics to collect, and the cost of collecting the information.

When looking at the full sample, the most common reasons CDFIs collect the information they do are twofold: It helps inform staff, management, or board members of results, and it helps satisfy and attract funders. In some cases, CDFI board members may also be funders (or affiliated with a CDFIs’ funders). When looking at the most important reasons for tracking metrics, clear differences in priorities emerge. The largest shares of loan funds cite satisfying funder requirements (30%), tracking successes of their products (26%), and attracting new funding (23%) as the most important reason for tracking output/outcome metrics. Thirty-one percent of credit unions said their top reason is to attract new customers, 22% said tracking successes of their products, 17% said satisfying funder requirements, and another 17% said informing their staff, management, and board.

The road ahead

Looking back on CDFIs’ experiences over the past year provides some indication of what the coming year may hold. CDFIs also directly shared their expectations. They responded to questions about future demand, their ability to meet that demand, and what they consider to be the biggest difference-makers that would enable them to serve their clients and communities more fully.  

CDFIs expect further increases in demand

Nearly three-quarters of respondent CDFIs expect demand for their products to increase over the next 12 months. Even among CDFIs for which demand decreased in the past year, 42% expect this trend to turn around. These expectations reflect, at least in part, the countercyclicality of CDFI demand. For example, one CDFI loan fund shared: “As interest rates rise the traditional market, demand for CDFI loans will increase.” A rural-serving credit union that expects an economic downturn put it this way: “Heading into a recession, low-income families are hit the hardest.”

Alongside recent and expected increases in demand, CDFIs largely want to expand their product and service offerings. This is true for more than half of the CDFIs that have been fully meeting demand and is overwhelmingly the case for CDFIs that have only partially been able to meet demand over the past year.

Many CDFIs are optimistic about their ability to meet demand

To what extent are CDFIs positioned to meet future demand and grow? CDFI expectations were generally positive. Among the CDFIs that have been able to fully meet demand and expect future demand to increase or stay the same, 42% expect an increase in their ability to meet that demand and 53% expect to maintain their ability. Even among CDFIs not currently meeting demand, 40% expect an increase in their ability in the near term. For CDFIs with a positive outlook about their ability to meet demand, they offered explanations such as hiring and training staff, making technology investments, building partnerships and networks, and having the lending capital they need, including through programs such ECIP, ERP, and the State Small Business Credit Initiative (SSBCI). For CDFIs with a pessimistic outlook, explanations were the flipside of the optimistic ones: staffing changes or challenges hiring qualified staff, limited operational support, and increasing cost or lack of funds.

CDFIs are clear on the biggest difference-makers

These explanations—positive and negative—aligned with the biggest difference-makers that CDFIs shared when asked the question: “What are one or two things that would best enable your organization and/or the CDFI industry overall to serve clients/customers more fully?”

Unsurprisingly, many CDFIs identified additional funding for lending. As one loan fund shared: “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. With an increased capital base, we could offer larger loan amounts, more favorable terms, and innovative financial products that cater to the diverse needs of our clients.” In many cases, CDFIs that mentioned a need for lending capital specified the need for patient and low-cost capital in order to meet their clients’ needs. For example, another loan fund that has deployed a greater loan volume in the past three years than the prior 20 shared that, “to continue to be a force for good, [we] readily need access to capital that is patient and not extractive to the people and places we serve.” A few respondents mentioned links between lending capital and operational efficiency. As one respondent shared, “More fluid access to lending capital [would] reduce considerable staff time spent on ongoing capital acquisition that could be redirected to program development and services.”

In addition to lending capital, CDFIs also frequently mentioned a need for operation-specific capital, with a preference for grant or philanthropic funding. In the words of one loan fund: “Unrestricted grant capital for capacity building across our organization, from staff to infrastructure and systems, is paramount to create efficient and effective end to end solutions.” Some respondents elaborated on how they would use additional operational funding: Some would use it to offer more competitive salaries when hiring, others would upgrade their technology, and others would develop and provide new development services to clients.

CDFIs discussed staffing needs in terms of hiring, capacity, and training. CDFIs that mentioned hiring spoke about needing additional financial resources to offer and sustain competitive salaries; they also expressed a need to expand CDFIs’ labor supply. To the latter point, one respondent shared that they need a “broader, deeper human resource talent pool from which to recruit new staff.” Others mentioned a need for “qualified” staff, with some elaborating on a need for staff with specialized expertise related to lending, development services, or community engagement operations. With regard to training, CDFIs discussed needs related to professional development for established staff, as well as onboarding training to familiarize new hires with CDFI lending and development service practices. Those that elaborated on their staff training needs tended to focus on resources for learning about lending (such as “coaches with industry experience”) or technology.

While several CDFIs indicated a need for improved technology resources, few elaborated on what type of technology they had in mind. In some cases, respondents referred to client-facing technology, such as resources to “automate and improve the client experience.” Others referenced back-end technology to improve operational efficiency (including outcome tracking and reporting) and client satisfaction. For example, one loan fund expressed interest in “better technology for client management, outcome tracking, and client communication.” One credit union hopes to simultaneously improve both the client-facing and back-office aspects of their technology: “[We are] currently working to upgrade members’ online experience, and back-office decisions on those applications. Doing so would allow [us] to serve more people with upgraded technology and thus have a greater impact.”

What more can we learn from what CDFIs have shared?

The 2023 CDFI Survey Key Findings Report provides insight into common challenges CDFIs are facing, how they have been innovating, and what would help them continue to grow their products and services. Most CDFIs have experienced an increase in demand for their products over the past year, and they expect that trend to continue. The cost of lending capital has emerged as a significant challenge for many CDFIs, on top of previously reported staffing challenges, limiting their ability to fully meet demand. CDFIs also shared a common focus on finding solutions to meet their needs for: low-cost, patient lending capital; a sufficient number of staff with the necessary skills; unrestricted operational funding; cost-effective technology improvements; and development services to get borrowers capital- and credit-ready.

Even with many commonalities, each CDFI and the communities they serve have their own unique story. The distinctions highlighted in this report between CDFI loan funds and credit unions provide just some examples of such differences. Throughout the fall, we will be releasing additional articles that dig further into the 2023 CDFI Survey data. Stay tuned for deeper dives into:

Respondent breakdown

This year’s survey fielded responses from 453 CDFIs, 432 of which were certified by the CDFI Fund, representing 29% of all certified CDFIs at the time of the survey. (To prevent double counting, the analysis in this report excludes two bank holding companies for whom subsidiary banks were already included in the sample. The analysis sample for the key finding report includes 451 observations.)

The majority of survey respondents were loan funds (48%) and credit unions (35%). Banks or thrifts represented 10% of survey respondents, and the remaining respondents identified as venture capital funds, depository institution holding companies, or other. Among certified CDFIs, loan funds were somewhat overrepresented in our sample (48% compared to 39% of all certified CDFIs nationally). Credit unions represented about the same share (35% compared to 36%).

Respondents to the survey were able to further classify themselves based on several community identifiers. For example, 11% of respondents identified as minority depository institutions. Additionally, over two-thirds of Puerto Rico’s certified cooperativas and one-third of certified Native CDFIs responded to this year’s survey.

CDFI business lines

The top three reported primary business lines among this year’s respondents were consumer finance (36%), small business finance (27%), and residential real estate finance/home purchase (21%). By comparison, the CDFI Fund’s 2020 Annual Certification and Data Collection Report (ACR) showed the same top three primary business lines: consumer finance (32%), residential real estate finance/home purchase (23%), and business finance (21%). (The CDFI Fund’s ACR includes home purchase/improvement within the residential real estate finance category. For comparison purposes here, we have combined the separate categories of residential real estate financing and home purchase/improvement from the 2023 CDFI Survey.)

The top three secondary business lines in this year’s survey were residential real estate finance/home purchase (36%) and no secondary line of business (18%). Likewise in the 2020 ACR, residential real estate was the most reported secondary line of business (23%) followed by no secondary line of business (21%).

Nearly half of loan fund respondents reported small business lending as their primary business line; 18% reported residential real estate finance (e.g., construction, rehabilitation); and the rest were split among other primary business lines. Credit unions primarily offer consumer financial products (e.g., personal loans, auto loans) and community development banks and thrifts primarily offer commercial and residential real estate finance and small business lending.

Geographic coverage

When asked about their service area, the largest percentage of respondents reported serving multiple counties or county equivalents (31%), or a single state or territory (30%). Less than 10% of CDFIs indicated a national service area, but of those who did, 23% were respondents headquartered in New York.

The 2023 CDFI survey included responses from 46 states, the District of Columbia, Puerto Rico, and Guam. The states and territories with the largest number of responses were Puerto Rico (69 respondents), California (38 respondents), and New York (30 respondents). California has the highest number of certified CDFIs in the nation (119). Puerto Rico and New York have the fourth and fifth highest number of certified CDFIs (96 and 84, respectively). Relative to the number of certified CDFIs headquartered in each state/territory, Delaware, Puerto Rico, and Montana had the highest response rates (80%, 72%, and 57%, respectively).

Additionally, respondents were asked to indicate which states/territories they serve. Many CDFIs reported serving other states beyond where they are headquartered. This year’s survey respondents indicated that they collectively served areas in all 50 states, the District of Columbia, Puerto Rico, and Guam. The area that with the highest amount of reported service coverage was Puerto Rico (64 respondents). An additional five CDFIs headquartered in Puerto Rico indicated their service coverage was national.

Of the 50 states, California (42 respondents) had the most service coverage among the sample, followed by Texas (34 respondents), New York (30 respondents), and Mississippi (28 respondents).

When asked about the geographic area they served within their overall service area, 37% of CDFIs reported exclusively or primarily serving urban areas, followed by rural areas (25%) and suburban areas (4%). Thirty-three percent of respondents indicated that they serve two or all three of these areas equally.

CDFI size

Relative to traditional financial institutions like commercial banks, CDFIs are smaller institutions. Eighty-four percent of respondents cited having financial assets of $375 million or less. Of the different types of CDFIs, loan funds are smaller, on average, than community development banks or thrifts and credit unions. Twenty-three percent of CDFIs that identified as loan funds have assets of $5 million or less.

In terms of employment, over one in three respondents indicated that they had 10 or fewer FTE employees. Only 14% of CDFIs reported that they had 100 or more FTE employees. Based on almost 22,700 FTE staff (in total) reported from the 2023 CDFI survey, the average number of employees per institution was 53 and the median was 22. The CDFI Fund’s 2020 ACR reported average and median FTE staff of 52 and 13, respectively.

Survey Questionnaire, Data Appendix and CDFI Directory

The survey questionnaire and a data appendix are available to download. The data appendix provides the percent share of CDFIs that selected each response option for a given question.

We also provide an updated national CDFI Directory every two years when the CDFI Survey is fielded. Currently, it contains contact information for 393 CDFIs that responded to the 2023 survey. Separately, the CDFI Fund maintains a full list of Certified CDFIs.