CDFIs and MDIs Make an Impact Through ECIP Funds

Jan 30, 2023

In simple terms, Community Development Financial Institutions (CDFIs) and Minority Depository Institutions (MDIs) need to bring in capital in order to lend it out in smaller amounts to businesses that need it most. The Emergency Capital Investment Program (ECIP) reduces the cost of that capital and adds incentives for supporting the neediest businesses. 

This program provides CDFIs and MDIs with more funds to lend. The more CDFIs and MDIs are able to lend, the greater impact they have on undercapitalized small businesses.

During the pandemic, Community Development Financial Institutions (CDFIs) and Minority Depository Institutions (MDIs) proved that they are the most effective at getting relief funds like Paycheck Protection Program (PPP) loans into the pockets of underserved communities. Their grassroots presence in low-to-moderate income (LMI) areas, and their mission to provide technical assistance, made them the ideal partner for business owners who lack relationships with traditional banks or experience applying for loans and grants.

ECIP is providing depository CDFIs and MDIs with more funding to do what they do best. Through ECIP, the U.S. Treasury has set aside $2 billion in preferred stock to be invested in CDFIs and MDIs with under $500 million in assets, and an additional $2 billion for those with under $2 billion in assets. 

CDFIs and MDIs benefit from decreased dividend and interest rates on these funds when they lend them out to underserved and low-income businesses. Underserved businesses are typically minority-owned, women-owned, or located in rural or low-income areas. The more CDFIs lend to these businesses, the lower their cost of capital. Historically, the CDFI Fund identifies geographical “tracts” where the community has lacked access to capital and would see the most benefit from responsible financing. They are expected to lend at least 60% of their portfolio in these communities. Funding businesses in these areas is seen as more impactful, and has been incentivized with rate reductions through ECIP. 

Additional credit is built into the program to encourage “deep impact lending”. Deep impact lending is providing responsible loans in low-income and persistent poverty counties. This incentive is built into the program because lending to these communities requires more time, resources, and risk on the part of CDFIs and MDIs.

ECIP helps small businesses by increasing the amount of funds CDFIs and MDIs have available to lend to them. Access to capital, in turn, increases prosperity in low-income and undercapitalized communities and gives them the stability to weather future disruptions