How to Become a Certified CDFI

Published by Amanda Read on Saturday, May 8, 2021
Journal Cover Thumb April 2021

Question: What are the requirements for an entity to become a certified community development financial institution (CDFI) by the CDFI Fund?

Answer: In order for an entity to become a certified CDFI by the CDFI Fund, there are a number of requirements that must be met by the entity. CDFI certification is a designation that is given by the CDFI Fund to specialized organizations that provide financial services in low-income communities and to people who lack access to financing. CDFIs can include regulation institutions such as community development banks and credit unions, and non-regulated institutions such as loan and venture capital funds. Once an entity becomes a certified CDFI by the CDFI Fund, it is eligible to apply for awards through a variety of programs offered by the CDFI Fund.

In order to be eligible to apply for CDFI certification, an entity must have the following requirements:

  • be a legal entity at the time of the certification application,
  • have a primary mission of promoting community development,
  • be a financing entity,
  • primarily serve one or more target markets,
  • provide development services in conjunction with its financing activities,
  • maintain accountability to its defined target market, and
  • be a non-government entity and not under the control of any government entity (tribal governments excluded).

If an entity meets all of the requirements listed above, the entity needs to submit a CDFI Certification Application into the CDFI Fund through the Awards Management Information System (AMIS). The entity first needs to create an AMIS account. The entity needs to provide as attachments the legal organization and incorporation of the entity.

The entity needs to demonstrate that its predominant business activity is the provision of financial products and financial services, development services, and/or other similar financing.

For the target market criteria, the entity either needs to serve an investment area or a targeted population or both.

An investment area needs to meet at least one of the following economic distress criteria and has significant unmet needs for financial products and services:

  • poverty rate greater than 20%,
  • median family income at 80% or less of the area median family income, or
  • unemployment rate 1.5 times the national average.

The targeted populations criteria either needs to be low-income targeted populations or other targeted populations. For low-income targeted populations, the entity needs to be serving individuals whose family income is 80% or less of the area median family income. For other targeted populations, the entity needs to be serving any of the following populations:

  • African American,
  • Hispanic,
  • Native American,
  • Native Alaskan, residing in Alaska,
  • Native Hawaiian, residing in Hawaii,
  • Other Pacific Islander, residing in Other Pacific Islands, and
  • Other.

For the accountability criteria, the entity must have either a governing board or an advisory board that maintains accountability to its target market that it has identified above. An entity may use multiple methods of creating accountability in any combination to demonstrate its accountability to its target market.

For investment area accountability, the board members may be any of the following:

  • residents of the investment area,
  • business owners located in qualified census tracts in the investment area,
  • elected officials for the investment area, or
  • individuals who work for an organization that primarily provides services to residents of the investment area.

For low-income targeted population accountability, the board members may be any of the following:

  • low-income individuals who live or work in the geography served, or
  • individuals who work for an organization that primarily provides services to low-income people in the geography served.

For other targeted population accountability, the board members may be members of the other targeted population who live or work in the geography served.

CDFIs are encouraged to consult with their tax and compliance advisors regarding any questions on CDFI certification application.