The stated purpose of CDFIs is to build wealth and assets among people and organizations in distressed communities by:
- Providing financing and development services for the construction and revitalization of low and moderate income affordable housing
- Financing the construction or rehabilitation of facilities for nonprofit organizations
- Creating entrepreneurial opportunities through the startup and expansion of businesses
- Creating living wage jobs for low and moderate income people
These objectives are met through loans to nonprofit community organizations, community development corporations, cooperatives, private entrepreneurs and occasionally for-profit developers. CDFIs frequently work in cooperation with banks and other conventional lending institutions when making loans.
Many communities in Michigan lack affordable housing, child care, health care and jobs that pay a living wage. Investing in underserved communities helps remedy economic disparity by providing access to capital, credit and housing to lower-income people.
Community investing is a sound investment practice. These investments earn competitive returns, similar to non-community development investments, with the added benefit of producing a socially responsible investing return, an attractive feature for many investors.
CDFIs are usually incorporated within the states in which they operate as nonprofit tax exempt financial institutions. Except as required for IRS nonprofit status, CDFIs are not federally regulated and investor loans are not insured. CDFIs are revolving loan funds in that their invested capital may go back and forth between the CDFI and several borrowers before it is repaid to the lender.