Vice President Kamala Harris and Treasury Secretary Janet Yellen on Tuesday announced a $1.25 billion plan to help underserved communities acquire federal funding as the country continues to wade through the aftereffects of the coronavirus pandemic. Harris and Yellen said the Treasury has awarded the relief funds to 863 community development financial institutions (CDFIs).
CDFIs, which provide a range of financing products to low-income and minority borrowers, play an important role in promoting homeownership opportunities for borrowers and communities that have been historically denied access to mainstream sources of credit.
The grants will be disbursed via the Treasury’s CDFI Rapid Response Program, which Harris and Yellen said will provide the necessary capital for CDFIs to respond to economic challenges created by the COVID-19 pandemic, especially in underserved communities.
Yellen explained in remarks following the announcement how the grants will address economic disparity.
"For most of the 20th century, our economy was undergoing a convergence. There were richer areas of the country, and poorer areas, but the latter were catching up with the former," Yellen said. "The country was rising together. Today, this is less true. There’s a divergence among local economies, and one of the trends we see is that some places don’t have access to much capital while others have an abundance. In fact, some forms of investment are heavily concentrated within just a handful of cities. Last year, for instance, 71% of all venture funding went to just four metropolitan areas."
Yellen calls such disparity an "unhealthy aspect of our economy."
"If you were designing a well-functioning American economy, you wouldn’t have 70% of capital, in any form, flowing to just four cities. Because that’s not where 70% of the opportunity is."
The Secretary added that every dollar injected into a CDFI, catalyzes eight more dollars in private-sector investment, meaning that today’s announcement might lead to an additional $10 billion in investment.
She says the existing disparity in who can access capital also falls along racial lines.
"About 16% of America’s population lives in areas that are majority minority areas, but that 16% of the population only receives about 9% of investment from mainstream financial institutions," Yellen said. "Indeed, it’s part of the reason the racial wealth gap persists. When I started studying economics in 1963, the average Black family owned 15% of what the average white family owned, and that number hasn’t changed in half a century. It’s as close to a constant as we come in economic data."
The CDFI RRP grant funds will be used to support eligible activities such as financial products, financial services, development services, and certain operational activities, and to enable CDFIs to build capital reserves and loan-loss reserves, according to a Treasury Department press release.
CDFI Fund Director Jodie Harris says that these awards will provide CDFIs with "an unprecedented level of flexible capital to help distressed and underserved communities across the country take meaningful steps towards recovering from the debilitating economic impacts of the COVID-19 pandemic."
Awardees include CDFIs that serve rural, major urban, and minor urban markets. The Treasury provides a full CDFI RRP Award Recipients List here.