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Publication Date

August 2008


Danielle Spurlock, Haiou Zhu, Janneke Ratcliffe, Spencer M. Cowan


U.S. Department of the Treasury Community Development Financial Institutions Fund under contract with Abt Associates

Researchers examine whether certain attributes of community development financial institutions correlate with greater success serving racial and ethnic minority populations.

This research is a preliminary examination of whether certain attributes of Community Development Financial Institutions (CDFIs) are correlated with greater success in serving racial and/or ethnic minority populations.

The first question is whether minority-owned CDFIs are achieving higher levels of service among minority communities. The second issue is whether two factors are affecting CDFIs that have been successful in serving those communities. The factors are: 1) whether the CDFI specifically targets its services to members of the community; and 2) whether understanding the cultural norms of the community contributes to the success.

Limitations in the data limit the extent to which one can generalize from the results. Minority-owned CDFIs in the sample are providing higher levels of service to historically underserved minorities, measured by the percent of transactions. Measured by the mean loan amount, however, all of the CDFIs in the sample are providing larger loans to whites. That suggests that ownership may affect performance in attracting minority customers, but it may not affect the amount of the loan for which the customer is qualified.

The key informant interviews offer some tentative explanations for the percent of transactions, in that all of their CDFIs were located in target-rich environments. Analysis of the location of the borrowers confirmed that minority-owned CDFIs are more likely to lend in census tracts with large minority populations. However, they are not more likely to lend in areas that meet the CDFI definition of a lower-income census tract. The key informants also suggest that familiarity with the cultural norms of potential customers is important. The informants noted that familiarity breeds a higher level of comfort among potential customers, allows the marketing approach to resonate with the customer and creates a level of trust that might not otherwise exist.


Topics(s): Affordable Homeownership, Community Development Finance, Financial Capability, Financial Inclusion, Financial Services Industry, Mortgage Finance