The federal government plays several important roles in community and economic development. These roles include developing macroeconomic policy, investing in infrastructure, maintaining The federal government plays several important roles in community and economic development. These roles include developing macroeconomic policy, investing in infrastructure, maintaining a legal and regulatory framework to guide market exchange, investing in human capital, and developing social safety nets and related redistributive policies. a legal and regulatory framework to guide market exchange, investing in human capital, and developing social safety nets and related redistributive policies.

Opportunity finance, a recent addition to federal economic development policy, is defined as the application of capital-led initiatives designed to build wealth and opportunity for low-income or low-wealth places and people. The leaders in community and economic development are community development financial institutions (CDFIs).  The first CDFIs were created in the 1970s and early 1980s as private nongovernmental organizations. The more than 1,000 CDFIs operating in the United States today have, over the past 30 years, provided more than $23 billion in financing in markets that conventional finance does not reach.
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CDFIs and various governmental institutions, such as housing finance agencies and economic development authorities, make up what might be termed “public benefit lenders” or investors. They strive to be profitable and sustainable, but they are not profit maximizing. Federal investments into CDFIs or other public benefit lenders straddle three categories of economic development policy: macroeconomic (i.e., the credit system); redistributive strategies (targeting market failures); and infrastructure, both in institutions and information.

Since the mid-1990s, CDFIs have been supported through the U.S. Treasury Department’s Community Development Financial Institutions Fund (CDFI Fund) and, to a lesser extent, through almost every department in the federal government. This chapter highlights how CDFIs combine private-sector funding with federal resources to have a lasting and sustainable impact on America’s low-wealth and low-income people and communities. The departments, agencies, and programs highlighted in this chapter present examples of current federal policies and support.

This is an excerpt from The NEXT American Opportunity. The full text can be downloaded as an Adobe PDF Document.