Community development financial institutions around the country have been roiled by the Trump administration’s March 14 executive order targeting the CDFI Fund for elimination “to the maximum extent consistent with applicable law.”

The White House issued the executive order only hours after President Trump had signed a budget bill that maintained funding for the CDFI Fund at its 2024 level of $324 million.

More than 1,400 CDFIs help finance affordable housing, small minority-owned businesses, green energy, disaster recovery and other projects in underfunded communities — including in red districts.

Experts say the executive order, which orders the elimination of all nonstatutory functions, won’t kill the CDFI Fund – but it is crucial to act now to protect funding for crucial community development initiatives.

“It’s not the time to run around and say the sky is falling, because it’s not,” says Brett Theodos, senior fellow and director of the Community Economic Development Hub at the Urban Institute. “On the other hand, it is the time for every CDFI in every red district to call their member of Congress and express how important CDFIs are to their local economy.”

CDFIs are now rallying communities to call on Congress to push back against the administration’s new executive order — after passing a budget that allocates $324.9 million for the CDFI Fund. As legendary House Speaker Tip O’Neill famously said, all politics is local. This week will be a test for that.

What is a CDFI?

A community development financial institution, or CDFI, is a designation from the U.S. Treasury. It’s granted to financial institutions that “have a primary mission of promoting community development,” as defined by the Riegle Community Development and Regulatory Improvement Act of 1994.

The 1994 legislation also created the CDFI Fund, which is part of the U.S. Treasury Department. It provides financial assistance to CDFIs in the form of grants and other investments, tax credits and bond guarantees.

Banks, credit unions, venture capital funds and loan funds are all eligible to apply for CDFI certification. There are currently 1,432 CDFIs, located in all 50 states, the District of Columbia, Puerto Rico and Guam, which account for more than $450 billion in assets. They serve some of the most rural areas, most Republican areas, Tribal lands, and disinvested urban communities.

What does Trump’s executive order mean for the CDFI Fund?

So far, it’s unclear what the actual impact of the executive order will be on the CDFI Fund and other agencies targeted by the order.

The White House’s executive order directs the CDFI Fund and other agencies targeted in the order to eliminate “non-statutory components” and to “reduce the performance of their statutory functions and associated personnel to the minimum presence and function required by law.” It gives directors until this Friday to submit a report to the Office of Management and Budget “explaining which components or functions of the governmental entity, if any, are statutorily required and to what extent.”

“We’re not talking about the funding right now. We have funding for 2025,” Jeannine Jacokes, CEO of the Community Development Bankers Association, tells Next City. “What this executive order spoke to was directing these agencies to eliminate non-statutory activities. The bottom line is that all the programs of the CDFI Fund are fully authorized by statute, which we can show chapter and verse.”

The executive order has still raised alarms across the CDFI industry and its supporters, including Sen. Mark Warne and Sen. Mike Crapo, who co-chair the Senate Community Development Finance Caucus, a bipartisan group they co-founded in 2022.

“When the CDFI Fund was developed 30 years ago, it was created in the form of a private-public partnership to promote access to capital in our most underserved urban and rural communities,” said Warner and Crapo in a statement responding to last week’s executive order.

The story of the CDFI Fund really goes back much further. It’s consistent with the way the U.S. banking system emerged initially and evolved over time, while seeking to redress previous shortcomings. Many CDFIs existed as financial institutions long before Congress created CDFI certification and the CDFI Fund in 1994. The creation of CDFI certification and the CDFI Fund was in part a long overdue recognition for the work they were doing in communities that were long locked out of the banking system.

“We’re in a state of erasure, not erasing,” says Thelma Adams Johnson, executive director of Albany Community Together, a CDFI loan fund with a $7 million small business loan portfolio in the majority-Black city of Albany, Georgia. “Think about using a pencil — erasing is when you erase to correct a mistake or to make something better. Erasure is to get rid of. We can’t stand for erasure.”

What losing the CDFI Fund would mean for community development

All of the CDFIs that Next City has spoken with over the past few days have said some version of the same thing: Losing the CDFI Fund wouldn’t stop them from continuing their work, but it would slow them down.

“CDFI grants are very important to us,” says Carlos Naudon, CEO of Ponce Bank, a $3 billion Hispanic-led community bank and CDFI in the Bronx. Founded in 1960, Ponce didn’t become CDFI certified until 2018.

“We think it would be a huge mistake to close [the CDFI Fund],” Naudon says. “We are still going to continue in our mission, because that’s our mission. We’ll overcome whatever challenges, difficulties placed in front of us. But we can do a lot more good with the CDFI Fund grants than without them.”

CDFIs would lose a funding source that they helped design, a source that has, over time and with a lot of political groundwork, become reliable and credible enough to invite more and more communities to create CDFIs or seek CDFI certification for their existing local financial institutions.

“These grants are important in that they allow for leverage, unlock the balance sheet, allow for a technology investment, invest in a new branch,” Theodos says. “So it’s not like if the fund goes away — which, it’s not going to go away because of this executive order — but it’s not like if the support goes away then everything immediately stops. It’s more like the car can’t fill up its tank, and its speed decelerates.”

Since its inception, the CDFI Fund has provided more than $9 billion in financial assistance to CDFIs across the country. True to the original vision for the fund, those dollars have often served as the “money to get more money,” helping CDFIs attract funding from other public and private sources.

As a result, the CDFI Fund estimates that for every $1 it has awarded, recipient institutions have leveraged $8 in funding from other sources, including private investors and larger financial institutions.

The sources of those other funds have changed over time. In earlier years of the CDFI Fund, other funding sources for CDFIs were individual donors, investors and depositors, religious orders (mostly nuns like the Adrian Dominican Sisters), and foundations. While all of those groups are still actively funding CDFIs, larger banks have become more and more a dominant source of funding, as the banks can get credit for funding CDFIs under the Community Reinvestment Act of 1977, which is another anti-redlining measure.

In turn, CDFIs provide everything from personal loans to car loans (including TVs ) to home mortgages, financing affordable housing, small business loans, commercial real estate, and lately even solar arrays, EV charging stations and more.

According to the CDFI Fund’s most recent annual report, from 2010 to 2024, across the country recipients of financial assistance from the CDFI Fund financed 557,698 units of affordable housing, 42,000 commercial real estate projects, 17.9 million personal loans, and 1.3 million small businesses — including 1.6 million small business microloans, which go up to $50,000 (many clients repay a previous microloan then come back for a second or third time as needed).

“Down the line, potentially, losing the CDFI Fund would mean fewer small businesses, fewer employees, less innovation, fewer services overall,” says Andre Perry, senior fellow and director of the Center for Community Uplift at the Brookings Institution.

“It’s a hard pill to swallow, because as the administration is talking about reductions in bureaucracy, the trade-off of less production is not a good one.”

How our public-private banking system works

Since the early days of the United States, around 90% of banks have been locally-owned and locally-controlled, focusing on the specific geographic area where they are located.

Though small, together they helped shape a country (built on stolen land, with stolen labor). Places with local banks created more businesses and more jobs, more buildings for families and for industry than those without local banks. You can even follow the growth of the U.S. by the growth of its local banks.

And the U.S. banking system has always been a public-private partnership, from the country’s early days, when communities had to appeal directly to state legislatures for banking charters, to the transformative effect of federal deposit insurance.

According to the Federal Deposit Insurance Corporation, or FDIC, an average of 635 banks failed each year from 1921 to 1929 — and that was prior to the stock market crash and Great Depression. Around 9,000 banks failed from 1930 to the end of 1933.

Federal deposit insurance went into effect on Jan. 1, 1934. Only nine banks failed in that year. Between 1941 and 1979, an average of 5.3 banks failed a year. Outside of financial crises periods, bank failures today are still very rare. According to the Pew Research Center, there were an average of 4.3 bank failures per year from 1996 to 2006, and 3.6 between 2015 and 2022. Prior to the 2023 failures of Silicon Valley Bank and Signature Bank, it had been over two years without any bank failures.

Of course, it has been far from perfect. In the 1930s, also during the Great Depression, Congress decided to support fixed rate 30-year home mortgages as a way to create wealth and housing security, but limited to white households in whites-only neighborhoods — the green areas in those infamous maps.

Just as it had always been, it was a public-private partnership. Local lenders made the loans; behind the scenes, the federal government provided liquidity, mortgage insurance to protect against losses, and a secondary market to further boost local lenders’ ability to lend to eligible (white) borrowers in all-white neighborhoods.

The redlining maps represented misinformation sourced from white bankers, realtors and insurance agents, who all believed in both segregation and the idea that only all-white communities were safe investments. Immigrant neighborhoods were also locked out of access to these subsidized mortgages.

Based on the belief that Blacks, Hispanics and immigrants were too risky, their neighborhoods were shaded red on these maps, enabling lenders to avoid making loans in those areas — as many were already doing anyway. That’s where the term redlining comes from.

Designed intentionally to exclude certain groups, the public-private banking system still did big things. From 1934 to 1962, private and predominantly local lenders made $120 billion in federally-subsidized home mortgages — but only 2% of that went to nonwhite borrowers and the neighborhoods where they lived.

How the CDFI Fund rolls back redlining

Even in the few communities of color that created their own banks, they had to follow the same rules for federally-subsidized mortgages as white banks — so banks owned by people of color still couldn’t make those loans on the same terms in their communities.

The rarity of community banks or credit unions owned or controlled by communities of color is another, even more insidious kind of redlining, also by design.

Each community must come up with its own startup capital for a new bank or credit union. If certain communities have had wealth systematically stolen or denied, it will automatically be rarer that they can come up with the capital to start their own banks and harder to grow them in response to needs and opportunities that come up or make investments in new technology. For banks, as for the people and businesses they serve, you need money to get money.

Hence why, out of around 4,500 banks still open today, only 151 are owned or controlled by racial or ethnic minorities. Counting just community banks — locally-owned, locally-controlled banks — there are around 4,000 community banks, of which about 120 are controlled by communities of color.

Without the same level of access to capital as whites, Black, Hispanic and immigrant households and businesses couldn’t acquire and maintain the buildings in their neighborhoods. Redlining became a self-fulfilling prophecy as buildings in these areas fell into disrepair.

CDFIs and the CDFI Fund emerged as a component of the public-private banking system partnership meant to address previous shortcomings in the form of redlining. Banks serving formerly redlined areas needed to do more than just provide accounts and make loans. There was so much extra work needed to address deteriorating buildings and the trauma of disinvestment: incubating businesses, nurturing local developers from Black or Hispanic developers, rehabbing buildings that were already crumbling.

The prototypes for CDFIs

Redlining had even expanded beyond the original redlined areas. It followed Black folks everywhere they went. In 1960, Chicago’s South Shore was still almost 100% white, but close enough to the city’s infamous “Black Belt” that realtors could scare white families into buying homes out in the suburbs. Black families started moving into South Shore as mostly renters.

By 1970, South Shore was 70% Black, largely working class, with some new households earning more than the old ones that left. But absentee landlords were letting buildings start to deteriorate. The last remaining community bank in the neighborhood basically stopped making loans in the neighborhood.

Noticing what was happening, a mixed-race, mixed-background quartet of bankers and civil rights activists in the area hatched a plan. It required not just a bank, but a bank plus nonprofit and for-profit affiliate entities doing the extra work needed in the community as a result of redlining.

They thought they might start their own bank. But just then bank regulators denied an application from that last community bank in South Shore to move its branch to downtown Chicago, nine miles away. At that point in Illinois, each bank charter only permitted a single location. Application denied, the bank owners decided to sell. The quartet raised the capital to acquire it.

That bank was called South Shore Bank, later shortening its name to just ShoreBank. Over the next 37 years. ShoreBank invested more than $4 billion in South Shore and other parts of Chicago, financing more than 59,000 units of affordable housing.

ShoreBank pioneered the concept of pulling in deposits from outside its service area with the explicit mission to use those deposits to serve an area lacking access to credit otherwise. By 1992, the bank held $130 million in these kinds of deposits — 60% of its total deposit base, the rest coming from its community.

ShoreBank became one of the early prototypes, some say the archetype, for a kind of locally-owned, locally-controlled financial institution that was built intentionally to rectify the previous shortcomings of the banking system. These early prototypes duct-taped their models together.

In the mid-1980s, a group of philanthropists and civic leaders in Arkansas wanted to adapt ShoreBank’s model to reach underserved rural areas in Arkansas and the Mississippi Delta. One of them was then-Arkansas Gov. Bill Clinton. They chartered Southern Bancorp, in 1986. There were credit unions among these early prototypes, too. Self-Help Credit Union, in Durham, North Carolina, founded in 1983. Lower East Side People’s Federal Credit Union, in New York City, founded in 1986.

But all these prototypes were still using duct tape — there wasn’t any systematic support for these kinds of financial institutions created specifically to work in these low-wealth, low-income areas. It all depended solely on local and personal relationships.

“Low-wealth communities, communities that have had less access historically to mainstream banks, need high touch banks close by, people who know the backgrounds and the history and can see the production on the ground,” Perry says.

“I have always worried because I see in Black and Brown communities banks leaving at a higher rate and what’s left is a lack of visibility, a lack of attention to entrepreneurs, potential homeowners, and nothing grows without investment.”

Why the CDFI Fund was created

One of the challenges these prototypes faced was where to get capital for startup or expansion.

Conventional banks, even most local banks, can call on shareholders with inherited wealth, wealth tracing back to those $120 billion in FHA-insured mortgages or to profits earned from slavery. Banks serving communities of color don’t have that wealth to call upon. Credit unions don’t have shareholders at all — their startup or growth capital usually comes from donations, aside from the credit union’s own net earnings over time.

In 1983, Cliff Rosenthal was CEO of the National Federation of Community Development Credit Unions, today known as Inclusiv. Seeking a way to get past the duct-tape approach, he developed a proposal for what he called the “Corporation for Community Banking,” and sent it to New York state bank regulators.

Under Rosenthal’s proposal, the “Corporation for Community Banking” would serve as a source of startup and growth capital for credit unions and “similar financial institutions” serving primarily low-income neighborhoods. Among other services, it would also provide management support and training to such institutions.

Although the proposal gained some support in the New York state legislature, it ultimately stalled. But, it made its way around, and, with some political support from Clinton, Cliff’s proposal eventually helped inspire the Community Development Financial Institutions Act, which got folded into the 1994 bill that created CDFIs and the CDFI Fund.

True to the original vision presented in Rosenthal’s proposal, the CDFI Fund is rare among federal programs in that the money comes in up front, and does not have to be spent according to a predetermined line-item budget.

Typically, federal grant programs work on a reimbursement basis. The project has a budget, and as the recipient spends its own money upfront providing goods or services in line with the grant contract, then the recipient submits reimbursement requests with receipts to the federal government.

The CDFI Fund’s primary financial assistance program works more like a private sector investment fund — applicants submit business plans and evidence of past success, then the fund selects the strongest proposals and provides the award amount upfront, with requirements to report back later on how the institution is growing its reach and impact. Unlike a private sector investment fund, the recipients don’t need to eventually repay the CDFI Fund.

“From the very beginning, what we argued for was to make sure the CDFI Fund invests in institution building,” Rosenthal tells Next City. “It is not transaction-based. They have performance goals and things like that they want to see on your application, but it invests in the institution.”

Bipartisan support, bipartisan impact

It’s far from the first time the CDFI Fund has had to fight for its life. While the CDFI Fund has bipartisan support today, it has a history of being a political football.

As one of Bill Clinton’s campaign proposals, the CDFI Fund had a political target on its back from the start. The first federal budget after the 1994 bill didn’t come until after the 1994 midterm election, which famously saw Republicans take over both houses of Congress for the first time since 1952. The new congressional majority was more than eager to zero-out funding for a program that had been a Democratic campaign talking point.

The Clinton administration had originally requested $125 million for the CDFI Fund in its first budget proposal, and the new Republican Congress led by Speaker Newt Gingrich counter-offered with $0. After President Clinton vetoed that first budget bill, a compromise budget passed with $50 million for the CDFI Fund in its first budget appropriation.

The CDFI Fund’s battles for existence continued throughout the 1990s and into the 2000s under President George W. Bush, who often attempted to defund the CDFI Fund, only to have it saved, barely, by outside advocates pushing Democrats in Congress.

As of 2025, the CDFI industry has spent years building bipartisan support for the CDFI Fund. In 2022, a bipartisan group of legislators launched the Community Development Finance Caucus, chaired by Sen. Mark Warner and Mike Crapo. The caucus’ creation represented years of establishing relationships with politicians on both sides of the aisle, fueled by data showing that CDFIs do exist and work in urban areas dominated by Democrats as well as smaller towns and rural areas dominated by Republicans.

In fact, according to researchers at the Urban Institute, out of the 10 districts that have received the most CDFI-made investments since 1994, eight are currently represented by Republicans. Fifteen of the top 20 are represented by Republicans.

Thanks to that political groundwork, CDFI Fund appropriations have grown and stabilized over the past several administrations, even with the first Trump Administration also attempting to defund it on more than one occasion.

It isn’t clear at this point how much bipartisan support, statutes or court orders will matter, given how this second Trump Administration has been proceeding in its first two months.

“The appetite for status quo, for historical norms, is less than we’ve ever seen, and so we have to remain vigilant and proactive,” says Theodos. “Worst case scenario is the budget doesn’t get followed, that the functions don’t get carried out, that the staff aren’t there anymore.”

Institutional knowledge

There were 32 just recipients in the first round of CDFI Fund recipients in 1996. There are so many CDFIs today that the CDFI Fund typically only has enough funding to reach less than half of the CDFIs that apply every year to its main financial assistance program.

Not every CDFI applies for support from the CDFI Fund every year. It’s an arduous application process, user accounts created at three separate federal websites, and at least 17 application components, including some with multiple documents and steps under each component. There are four different deadlines across two months, some with multiple components due that day. This year’s application process is currently underway.

On the CDFI Fund side, the application process involves an army of staff as well as contracted application reviewers. To identify the strongest applications, every application gets reviewed and scored by at least three reviewers, including internal staff and external contracted reviewers, and then the three scores are averaged to produce a final score for each application. It’s not perfect, but it’s been continuously tweaked and improved over the past 30 years.

Last week’s executive order has renewed concerns across the industry that mass terminations — illegal or otherwise — of CDFI Fund staff or contracts with application readers would mean losing cumulative decades of experience administering this intricate application process. If let go, illegally or otherwise, those experienced staff won’t necessarily stick around in limbo for however long this tumultuous period might last.

“When you have drastic cuts with no understanding of those roles, it’s a concern of mine,” says Johnson at Albany Community Together. “When we deal with a federal government agency for personal or business reasons, we want to have confidence to know when we call they will be able to address our concerns.”

Those concerns extend to the experienced staff who administer CDFI Fund’s other major programs, including the New Markets Tax Credit Program (authorized by the Community Renewal Tax Relief Act of 2000), the Capital Magnet Program (authorized by the Housing & Economic Recovery Act of 2008), and the Bond Guarantee Program (authorized by the Small Business Jobs Act of 2010).

Apart from the CDFI Fund’s main financial assistance program, the New Markets Tax Credit program represents another $5 billion of investments in targeted communities a year, $91 billion so far since inception.

“CDFIs are really the fuel for small business development in areas where mainstream banks have left or don’t have great investments, in particular when it comes to the billions of tax credits through the New Markets Tax Credit program,” Perry says.

“There’s a reason why there’s bureaucracy particularly when it comes to lending to low-income communities, because these communities are often preyed upon,” Perry says. “You need safeguards. There are scammers and predatory lenders looking to get a fast buck in these communities. When you’re talking about eliminating bureaucracy in this case, you’re talking about eliminating consumer protection.”

This post was originally published on Next City.