Many years ago, at a national meeting of community development financial institutions (CDFIs), a debate took place about whether they composed an industry or a movement. On one side were “movement” voices, arguing that we should make loans only to borrowers who passed muster for a range of strictly defined mission, environmental, and labor criteria. On the other side were “industry” proponents, “principled pragmatists” who pressed for straightforward capital access first and foremost. The industry proponents argued that a CDFI’s job was to put money on the street where banks did not reach—not wait for the perfect deal and sacrifice production. They argued that CDFIs could work on related mission aspects over time, but if they didn”t do “deals,” they  were sunk. Although industry pragmatists prevailed, the debate continues to this day. It goes with the territory that CDFIs operate within a set of trade-offs, balancing mission effectiveness on the one hand against the need for financial strength and effectiveness on the other hand.

Since that time, CDFIs’ kinship with the for-profit side of the equation has taken root and flourished. The then-emerging industry has experienced explosive growth in numbers, assets under management, and sophistication with a commercial bent that is the rule rather than the exception. Partnerships with banks and other for-profits have become routine.
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The field now boasts several diversified CDFI holding companies that operate for-profit venture capital funds, bank consortia, New Markets Tax Credit entities, and microloan providers, not to mention regulated community credit unions and community banks. Many (if not most) CDFIs are agnostic about their own (and their borrowers’) tax status, using nonprofit corporations as a means to an end within a spectrum of corporate forms and financial tools. And beyond CDFIs, hybrid social enterprise business models have multiplied across all social sector markets from healthcare to education, including those in community and economic development.

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