The Community Development Financial Institutions Fund (CDFI), a small but long-running program in the U.S. Treasury that helps finance small businesses in underserved communities, is on the chopping block. Again.
On March 14, President Trump signed an executive order to cut or scale back seven federal programs, including the CDFI Fund. The order tells agencies to shrink operations as much as legally possible, keeping only what the law strictly requires.
This isn’t Trump’s first attempt to curtail the CDFI. In his 2018 budget blueprint, he called for eliminating its grants entirely, arguing that private lenders had plenty of capital and didn’t need government help to serve these communities. That effort failed. Now, with the stroke of a pen, he’s taking another shot.
What that means in practice isn’t yet clear. An executive order alone can only go so far, and Congress would have to step in to shut the program down entirely. But lobbyists for CDFI groups and members of the bipartisan congressional CDFI caucus aren’t waiting to find out. They’re already pushing back, warning that any move to weaken the fund could make life much harder for small businesses in underserved communities.
The CDFI was created through the Riegle Community Development and Regulatory Improvement Act of 1994. Congress allocates money to the CDFI Fund, which then awards it as grants to lenders that focus on underserved communities. These lenders don’t have to pay the money back, but they do have to meet certain requirements, like keeping loan terms fair and proving they serve businesses that struggle to get financing elsewhere. The fund supports a range of programs, including small business lending, affordable housing development, and financial services for low-income communities. The idea is to blend public funding with private capital, encouraging banks and investors to put more money into areas traditional lenders often ignore. Supporters say it’s a cost-effective way to drive economic growth without creating another government-run lending program.
Since its inception, the CDFI, according to its website, has awarded more than $8 billion to the 1,432 community development financial institutions (CDFIs), which comprises community development organizations and participating financial institutions. Additionally, it has allocated $81 billion in tax credits through the New Markets Tax Credit Program and guaranteed nearly $3 billion in bonds through the CDFI Bond Guarantee Program. For fiscal year 2025, it will have $324 million available for grants. Supporters such as the Opportunity Finance Network, a lobbying group for CDFIs, contend that outlay will ultimately drive more than $2.5 billion in economic activity with almost no loan defaults.
That kind of return has made the program hard to argue against, drawing support from both sides of the aisle and stretching from Main Street to Wall Street. Small banks love it because it helps them grow their business by giving them money to make more loans. Big banks like JPMorgan Chase, Bank of America and Goldman Sachs have chipped in money too (just over $2 billion, according to the Milken Institute), touting it as part of their efforts to give back to underserved communities.
Senators Mark Warner, a Democrat from Virginia, and Mike Crapo, a Republican from Idaho, put out a joint statement on March 16 opposing the executive order. They lead the Senate’s Community Development Finance Caucus and say the CDFI Fund has been a success, claiming that it pulls in at least $8 in private funding for every $1 from the government.
Hilda Kennedy, founder and president of AmPac Business Capital, a CDFI based in Ontario, California, sees the fund as a lifeline for small businesses that banks and traditional lenders overlook. Since 2018, AmPac has received $5.2 million in awards from the program, money she says has had a game-changing impact on the local community. She says the program flew under the radar for years, but the pandemic made its importance clear. When banks were overwhelmed and struggling to serve their customers, small businesses with 20 or fewer employees were left scrambling. It was CDFI lenders that stepped in and got the small businesses the financing they needed through the Paycheck Protection Program.
But there’s more at stake, says Kennedy.
Without the program, many small businesses wouldn’t just lose access to capital, they’d lose the hands-on support that CDFIs offer. “Quite frankly, banks and traditional lenders rely on CDFIs to provide that support to local small businesses,” says Kennedy.
Bolstering Kennedy’s argument is a 2014 study by the Federal Reserve Bank of Cleveland which examined whether the CDFI Fund effectively boosts lending in low-income communities. It found that for every dollar in grants awarded, 45 cents was loaned out in the first year, with that number growing to $1.60 within three years. The study also concluded that CDFI-supported lenders increased their overall lending by about 3% compared to similar institutions that did not receive funding. Researchers noted that this growth suggests the program successfully channels capital into underserved areas, reinforcing the argument that CDFIs help bridge gaps where traditional banks hesitate to lend.
Not everyone thinks it’s so clear-cut. The lenders benefiting from the program have every reason to talk their book, and critics argue that handing out grants creates a moral hazard. Lenders may be incentivized to issue more loans just to attract more funding. Beyond that, proponents arguing for the program’s effectiveness rely on the idea of a multiplier effect, where each grant dollar supposedly generates far more in economic activity. That may be true, but the math is fuzzy.
One 2019 study from researchers at Florida Gulf Coast University and West Virginia University found little evidence that CDFI funding significantly boosts small business activity. Researchers examined the program’s impact and concluded, “For the CDFI programme, we do not find any consistent evidence of an effect on new business activity.” However, they noted that the lack of measurable impact might be due to the relatively small size of the funding rather than a failure of the program itself. If the grants are too limited, they may not be enough to drive large-scale economic change.
Joel Griffith, a policy advisor at Advancing American Freedom, a conservative think tank founded by former Vice President Mike Pence, sees the CDFI Fund as unnecessary. He argues that access to financing simply isn’t a major concern for most small business owners, citing polling data from the National Federation of Independent Business showing that hardly anyone lists it as a pressing issue. The vast majority of small business lending, he says, already happens through private banks or the Small Business Administration, making the CDFI Fund redundant. More than that, he worries the CDFI Fund is just another example of “cronyism,” funneling taxpayer dollars to politically connected lenders.
What happens next is unclear. The Treasury Department, which oversees the CDFI Fund, has until March 21 to review its programs and cut those without statutory authorization.
Griffith doesn’t expect the CDFI Fund to disappear anytime soon, whether he likes it or not.
“There’s significant limitations to what the executive branch can do without Congress actually getting on board,” he says.
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