A transatlantic learning journey
Four weeks on from our visit to Washington DC for the Opportunity Finance Network (OFN) Conference, the Responsible Finance team, and the CDFI members who joined us, are buzzing with ideas.
With support from our partners JPMorganChase and Lloyds Banking Group, we joined U.S. CDFIs to see how they are tackling some of the same challenges we face in the UK, from scaling funding that opens doors for communities, to harnessing data and technology, to strengthening partnerships with mainstream banks and government.
The U.S. community finance sector is larger, older, and differently shaped than ours. US CDFIs grew out of the 1960s–70s civil rights era and gained momentum with the 1977 Community Reinvestment Act. Today, there are 1,400+ CDFIs across the States compared with under 60 in the UK.
UK CDFIs, inspired by the US model, only really took off in 2002 with the launch of the CDFA (Community Development Finance Association – now Responsible Finance) and initiatives like Community Investment Tax Relief and the Phoenix Fund. The energy, innovation, and impact we witnessed were inspiring. Whilst there are differences between the U.S. and UK sectors, there are important insights as we look to grow the reach and influence of the UK’s community development finance sector.
Mission first: From access to wealth-building
For the U.S. CDFI sector, mission clearly drives everything. Across every session, the narrative wasn’t just about “access to finance”, it was about wealth-building, economic mobility, and the American Dream.
This mission influences product design, technical assistance (known as business support or wraparound services in the UK), and partnerships. Many CDFIs provide extensive business support alongside lending – regardless of whether the business gets a loan.
In contrast, our narrative in the UK has often focused on “access to finance” as a problem statement, helping those “who can’t get bank finance.” The U.S. model reframes the conversation around the end goal: opportunity, prosperity, wealth, and stronger communities.
This is an important difference. Wealth isn’t a dirty word in the U.S. context, it’s viewed as a path to resilience, dignity and empowerment. Could we adopt a similar mindset here? Responsible Finance can help lead this shift, moving our message from “access to finance” towards “creating opportunity and prosperity.” We have so many customer stories showing people holding onto more of their incomes, and entrepreneurs increasing their turnover and providing good jobs; let’s shout about that transformation more.
Under the bonnet of how CDFIs work, this could mean exploring technical assistance models more deeply, both as standalone services and as integral to lending. The “4-2-1” approach (where every loan includes a number of business support sessions over the course of the loan) was frequently cited as driving higher success amongst business borrowers.
Banks as partners
The Community Reinvestment Act (CRA) in the U.S. (enacted in 1977) catalysed decades of bank-CDFI partnerships. Banks lend to and refer customers to CDFIs. They sit on boards, co-design programmes, and share staff talent. Many described these partnerships as “secure and symbiotic.”
The CRA may have been the catalyst, but today the relationships go far beyond compliance. CDFIs are seen as essential partners for reaching communities banks cannot serve effectively. Put in the words of Dan Letendre, a Managing Director at Bank of America:
- Lending to CDFIs is good business (they repay)
- CDFIs make banks better organisations (by strengthening the economy and sending customers back to them)
- CDFIs are a fixed part of the financial system (going the last mile to reach customers that banks can’t)
And those words are backed by investment. Bank of America is the largest private investor in CDFIs with $2+ billion in loans, deposits, capital grants, and equity investments, and others including like JPMorganChase have invested over $210million in the sector.
In the UK, we’ve made great strides based on these three principles, with strong partnerships with Lloyds Bank on funding and referrals, JPMorganChase and NatWest on capacity building, and Unity Trust Bank, Triodos Bank and Shawbrook Bank all being long-term backers of the sector.
These partnerships are growing because there is a strong business case for them. The banks partnering with CDFIs are leaning in further. For those banks not yet partnering, the opportunity to expand reach, strengthen reputation and drive inclusive growth through working with CDFIs is clear.
In addition, CDFIs can do our part to enable these partnerships as well. Being transparent and investing in data, processes and systems can help banks understand CDFIs better and mitigate reputational risks around partnering with small lenders. We can learn from how the CDFI ratings company, Aeris, which provides this infrastructure in the U.S., has increased investor confidence through transparency.
The power of place
Even the largest U.S. CDFIs, some covering territories larger than the entire UK, are deeply connected to the places they serve. Local branches, in-person relationships, and community partnerships are key, even as technology is enabling faster decisions in the background.
CDFIs collaborate with local organisations across all aspects of community life: chambers of commerce, universities, hospitals, housing organisations, and local authorities. This embeddedness builds trust, strengthens repayment rates, and ensures CDFIs reach those who might otherwise be missed.
In the UK, our members are embedded locally but often lack the full range of partnerships that allow community finance to influence regeneration and enterprise development at scale.
There’s a real opportunity for serving our communities more fully: starting with mapping and strengthening local relationships, identifying where connections already exist and where gaps remain.
Government: Partner and enabler
One of the striking differences between our two countries is the level of public sector support for CDFIs in the U.S. Multiple government departments, at federal, state, and local levels, see CDFIs as the mechanism for getting resources directly to communities. Whether responding to natural disasters or economic shocks, CDFIs are viewed by the government as ”economic first responders”.
By comparison, in the UK there is a higher level of state support for health, welfare and housing. Even so, CDFIs represent a great opportunity for the government and others to get money into communities quickly and responsibly. Due to lack of the long-term funding they have in the U.S., UK CDFIs have had to become self-sustaining, a strength undoubtedly, but we must be aware of what that means. Without equivalent government support (particularly for areas like personal lending), UK CDFIs tend to charge higher interest rates, offer less technical assistance, and sometimes may serve slightly less risky borrowers. There’s an important lesson we can take away: sustainability is vital, but government support such as funding, guarantees and tax reliefs have a multiplier effect in terms of more affordable lending and more communities given a step up.
Technology, data and the future
Surprisingly, the U.S. isn’t dramatically ahead in technology adoption. Open Banking, for instance, is still in its infancy there. Yet OFN and CDFIs are investing heavily in data infrastructure and digital transformation, recognising that technology is the key to sustainability.
The message was clear: AI won’t replace your job, but someone using AI well might. The U.S. sector is investing over $25 million in technology and data initiatives.
For the UK, this is a moment to lead. Many of our CDFIs are already using Open Banking to find ways to say yes or give bespoke support; and a few are using AI tools and machine learning to make manual processes more efficient, delivering a faster loan outcome to the customer. There are a couple ways UK CDFIs can invest to stay ahead:
- Harnessing the huge amount of data the sector has could support new investment, impact measurement, business management, and reaching and supporting more customers.
- Making the use of AI ethical, controlling for the biases in machine learning and truly using it to further inclusion and community development.
Looking ahead
Our time at the OFN Conference showed what’s possible when community finance is fully recognised as an engine of inclusive growth. It also reminded us that innovation, scale, and collaboration are entirely within reach for the UK, and we’re already on the path.
The Responsible Finance network has the talent, track record, and partnerships to build a sector that delivers opportunity and prosperity for every community, we must tell that story proudly and powerfully.
With continued collaboration with our CDFI members and partners, we can take the lessons from Washington DC and apply them to build wealth in communities across the UK.