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U.S. Treasury to Invest $9 Billion in CDFIs and Minority Depository Institutions

  • Treasury providing $9 billion to community financial institutions and minority depository institutions
  • Along with $3 billion in other pledged funding, support is intended to incentivize lenders to provide loans to businesses in underserved communities
  • Previous relief programs came under criticism as being less accessible to minority-owned businesses

Summary by Dirk Langeveld

The U.S. Treasury Department is providing billions of dollars in support for lenders that cater to underserved communities, intending to improve access to financial products in these areas and promote a more equitable recovery from the COVID-19 pandemic.

A total of $9 billion will be provided to community financial development institutions and minority depository institutions. These lenders provide financial products to small businesses and consumers in low-income and underserved communities, including communities of color and rural areas.

A total of $2 billion will be set aside for institutions with less than $500 million in assets. Another $2 billion will be set aside for institutions with less than $2 billion in assets.

The funding will support long-term, low-cost equity and subordinated debt for the institutions. The Treasury says program highlights include direct investments in participating lenders at a capped low-cost dividend or interest rate, with no interest or dividends accruing or payable for the first 24 months, as well as preferred stock investments that qualify for beneficial capital treatment. The initiative aims to encourage CDFIs and MDIs to provide “impactful lending” in their communities and strengthen the institutions’ long-term role in low-income and underserved communities.

The application process for the funding is opening under the Emergency Capital Investment Program, which was established under the Consolidated Appropriations Act of 2021. The initiative is “designed to support access to capital in communities traditionally excluded from the financial system and that have struggled the most during the COVID-19 crisis.”

The Treasury says the funding is part of its effort to take steps within its authority to assist underserved communities while Congress deliberates President Joe Biden’s proposed $1.9 trillion American Rescue Plan to provide additional economic relief. The initiative also follows criticism that relief measures such as the Paycheck Protection Program provided insufficient support for minority-owned businesses.

CDFIs and MDIs previously received greater attention when the renewed PPP opened exclusively to them and other community financial institutions after the program was revived with $284.5 billion under the Economic Aid Act. According to the U.S. Small Business Administration, community financial institutions had approved 100,771 PPP loans totaling $6.84 billion as of Feb. 28.

The Treasury is also providing an additional $3 billion in grants to community financial institutions. The funding round for the $1.25 billion CDFI Rapid Response Program opened on Feb. 25, providing depository and non-depository CDFIs with money to “support, prepare for, and respond to the economic impact of the coronavirus crisis.” The $1.75 billion Emergency Support and Minority Lending Program, which is slated to open this summer, will provide funds to support grants and technical assistance to communities impacted by the pandemic.

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