Innovative Approaches to Expand Capital Access for CDFIs & To Drive Financing Into Underserved Communities

June 25, 2024
Kristen Scheyder, Senior Program Officer

Community Development Financial Institutions (CDFIs) proved themselves as financial first responders during the COVID-19 pandemic, when they stepped up as Paycheck Protection Program (PPP) lenders to support small and financially underserved businesses. Rising to the occasion, CDFIs achieved a lending volume that exceeded expectations, reaching more than $34 billion  in PPP loans. Importantly, CDFIs maintained their commitment to financing underserved communities and focused on smaller local businesses that many larger financial institutions were unable to reach.

To provide financing to underserved communities and small businesses, CDFIs have historically relied on government, philanthropy and program-related investments from banks for the liquidity they need to make loans in communities. But now, for these organizations to be able to sustain or expand the level of loan volume they achieved during the pandemic, they need to develop new partnerships and capitalization strategies. This means exploring the adoption of new approaches to financing and methods to access capital markets and institutional investors that are interested in a social return on their investments.

There are many organizations across the U.S. working to design, pilot and test different approaches for CDFIs to access new sources of institutional capital and expand their impact in local communities. The Citi Foundation has made significant grant investments in several of these innovators, including three trailblazing ideas being implemented by Momentus Securities, Calvert Impact and Scale Link. The strategies of these three innovators vary, yet their end goal is the same: help CDFIs unlock new sources of capital so that they can scale their lending and impact in low-income and underserved communities across the country.

Three Innovative Approaches to Expand Capital Access for CDFIs


The innovation

Calvert Impact, a global nonprofit investment firm, is advancing a new loan participation model with CRF and Grow America to help state governments catalyze CDFI small business lending. Through these partnerships, CDFIs are able to deploy state economic development funding to underserved communities and small businesses that could not otherwise access these resources. In addition to forging new partnerships between state government and CDFIs, Calvert Impact is building a secondary market for CDFI loans so that they can be packaged and sold into mainstream capital markets. This capital innovation unlocks new sources of loan capital and generates liquidity for CDFIs so that they in turn can originate new loans that benefit low-income communities. 

Why it matters

Recognizing the need to support the resilience and recovery of small businesses impacted negatively by the COVID-19 pandemic, Calvert Impact first brought together investors (including the Citi Foundation), Empire State Development Corporation and several CDFIs to launch the New York Forward Loan Fund (NYFLF). NYLF expanded capital access for small businesses in New York and made 1,719 loans totaling $96.2 million to underserved small business owners. The model’s success led to a second iteration of the program, which enables state governments to leverage their State Small Business Credit Initiative dollars to support underserved small businesses through regional and local CDFIs. Calvert Impact has since launched this new model in two additional states, New Jersey and Nevada and is looking to replicate and scale in several other states. 

"The NYFLF was an innovation for the broader community finance sector, which supports small businesses and consumers that are not served by traditional capital markets due to size, location, or perceived risks. The sector has a long track record of success but was struggling with access to the liquidity needed to scale small business lending. By creating a viable market for CDFI-originated small business loans via a scalable and replicable model, Calvert Impact seeks to help propel the entire industry forward."
Joe MeginnesDirector of Strategy, Calvert Impact


The innovation

Momentus Securities is a newly launched investment bank focused on developing social impact as an investable asset class for institutional investors. This socially-focused investment bank is a full-service registered broker-dealer and FINRA member working to help institutional investors make mission-focused investments in underserved communities. Their work includes helping mission-driven lending organizations overcome balance sheet constraints that limit their ability to deploy capital investments at scale, guiding CDFIs through the credit rating process, structuring transactions for community facilities such as affordable housing, charter schools and health care facilities and educating institutional investors on opportunities to invest in low-income communities.

Why it matters

Momentus Securities’ focus on addressing the scale and liquidity limitations that are barriers to CDFIs accessing institutional capital sets it apart from other broker-dealers and FINRA members. Core to their approach is cultivating and educating the ecosystem of mission-driven investors, explaining the importance and value of CDFI assets and helping them champion new paths for CDFIs to access institutional capital.

"Early milestones – including the U.S. Small Business Administration (SBA) approving Momentus Securities to serve as an SBA Pool Assembler in the 7(a) Loan Guarantee Program – indicate the need and appetite for Momentus Security’s approach to developing the secondary market for mission-driven lenders. With these accomplishments and more to come, Momentus Security is poised to help unlock new, mission-focused opportunities for institutional investors."
Jaime AldamaPresident, Momentus Securities


The innovation

Scale Link is helping unlock new ways for banks to purchase CRA business loans directly from CDFIs. Specifically, they developed a marketplace through which CDFIs can sell small and micro small business loans to Scale Link, which in turn pools and sells those loans to banks seeking to boost their community impact and receive positive consideration for their Community Reinvestment Act (CRA) lending test. A unique feature of the approach is that the CDFIs not only receive capital to grow but earn new revenue through the support of banks and through servicing, which enables them to disburse new loans and continue their existing relationship with borrowers.

Why it matters

In 2019, the team that would eventually launch Scale Link worked with the Microfinance Impact Collaborative on tools to address the challenge at the heart of small dollar business lending: growing the scale of fairly underwritten and priced loans despite the very difficult economics of doing the lending. Realizing the challenge was all the more difficult with the COVID-19 pandemic, Scale Link accelerated its launch plans to help meet the needs of CDFI small business clients. While CDFIs had historically not sold loans, Scale Link created new mechanisms to address CDFI concerns, making transactions easier, more consistent, profitable and better mission aligned.   To date, Scale Link has purchased over 3,600 loans representing $57 million, sold $38 million to banks and delivered $6 million in revenue sharing back to CDFIs.

“Scale Link’s model helps to address the economic gap at the heart of mission-based small dollar lending – raising affordable capital to lend and subsidy to cover operating costs. The ultimate goal is to create an industry-wide change that allows CDFIs to better manage their P&L and balance sheets towards more impact and sustainability over the long-term.”
Brett SimmonsCEO, Scale Link


CDFIs have demonstrated their ability and commitment to deploying capital in traditionally hard-to-reach low-income communities. To further build on the community finance industry’s track-record and high loan volume achievements in COVID-19 now requires innovation across the capital flow spectrum. Calvert Impact, Momentus Securities, Scale Link and others are doing just that – each working on unique models to expand capital access for CDFIs. In turn, CDFIs stand to expand and deepen their work investing in community impact at scale across low-income communities.

Calvert Impact and Momentus Securities are Citi Foundation Community Finance Innovation Fund recipients. Scale Link, formerly Entrepreneur Backed Asset Fund, is a Citi Foundation Community Development Financial Institution Initiative recipient.