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Bank Partnerships With Community Development
Financial Institutions
and Benefits of CDFI Certification
Community Developments Fact Sheets are designed to share information about programs and initiatives ofbankers and community development practitioners. These fact sheets differ from OCC bulletins and regulations inthat they do not reflect agency policy and should not be considered regulatory or supervisory guidance. Some of
the information used in the preparation of this fact sheet was obtained from publicly available sources. Thesesources are considered reliable and current, as of September 2019, but the use of this information does notconstitute an endorsement of its accuracy by the OCC.

This Community Developments Fact Sheet
explains how national banks and federalsavings associations (collectively, banks)
can partner with community development
financial institutions (CDFI) to promoteeconomic revitalization and community
development. This fact sheet also explains
how those partnerships are considered under
the Community Reinvestment Act (CRA)
and describes how banks can become
certified as CDFIs.

types of institutions are included in thedefinition of a CDFI: community
development banks, community
development credit unions, community
development loan funds (most of which are
nonprofit), and community development
venture capital funds. Some, but not all,
CDFIs are certified by the CDFI Fund. 1

CDFIs are mission-driven financial
institutions that create economic opportunity
for individuals and small businesses, quality
affordable housing, and essential community
services throughout the United States. Four

Certified CDFIs are specialized financial
institutions with a primary mission ofpromoting community development. 2 CDFI
Certification is an official designation of the
CDFI Fund. CDFI Certification is the U.S.
Department of the Treasury’s recognition
for specialized financial institutions serving
low-income communities. Regulated
institutions, such as banks and credit unions,and nonregulated institutions, such as
nonprofit or for-profit loan funds and

1

2

What Are Community Development
Financial Institutions?

The CDFI Fund, part of the U.S. Department of theTreasury, in part provides financial and technicalassistance to community-based financial institutions
that provide affordable credit, capital, and financial
services to underserved people and communities.
Refer to 12 USC 4703.

September 20191

Refer to the Riegle Community Development andRegulatory Improvement Act (12 USC 4701 et seq.,
implemented by 12 CFR 1805). Refer to
12 USC 4702(5)(A) for the definition of a “CDFI.”

Office of the Comptroller of the Currency

venture capital funds, may be certified as
CDFIs. 3loans, or equity-equivalent investments, or
through participation lending with CDFIs.

Why Partner With a CDFI?

CDFIs and CRA Consideration

CDFIs can help banks reach and serve theneeds of underserved populations andcommunities because they have access toand expertise in serving these populations
and geographies, or because they offer
customized products that meet unique needs.
Banks may partner with CDFIs to deliver
lending products that are outside of thebanks’ risk profile or business model. Thesemay include loans to start-up businesses orcommunity facilities or for uses such as
acquisition or predevelopment. CDFIs may
be able to offer greater flexibility in loan
terms, including high loan-to-value ratios,
deferred principal repayments,
subordination, and unsecured loans. A CDFI
may finance all (through a referral) or a
portion (through a loan participation) of acustomer’s loan request.
Banks may partner with CDFIs to provide
educational services, such as businessplanning, credit counseling, and homebuying classes, to help borrowers use credit
effectively.
Banks often partner with CDFIs to
implement community revitalization
strategies. Many public agencies andphilanthropic institutions provide subsidies
to CDFIs, which can be an efficient andeffective way of addressing community
issues. CDFIs blend subsidies withspecialized expertise and traditional debt,
expanding the scale and impact of thosesubsidies. Banks are a significant source oflending capital to CDFIs through grants,
3

Refer to 12 CFR 1805.201.

4

12 CFR 25 (national banks), 12 CFR 195 (federalsavings associations), and 81 Fed. Reg. 48505,

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The information in this section is consistent with
the CRA regulations and “Interagency Questions
and Answers Regarding Community
Reinvestment.” 4

Certain bank loans, services, andinvestments in CDFIs may be eligible for
CRA consideration if the CDFI’s activities
promote community development and meet
the CRA’s geographic requirements.
Specifically, banks may receive CRA
consideration for qualifying activities
located in the bank’s assessment area(s) orloans located in a broader statewide or
regional area that includes the bank’s
assessment area(s) that have a purpose,mandate, or function to serve the bank’s
assessment area. Qualifying activities in a
broader statewide or regional area that do
not serve the bank’s assessment area may
also be considered, as long as the bank has
been responsive to community development
needs and opportunities in its assessmentarea(s).
The Office of the Comptroller of theCurrency (OCC) will consider any
information provided by a bank thatreasonably demonstrates that the purpose,mandate, or function of the activity meets
the CRA definition of community
development, and the activity meets the
CRA’s geographic requirements. Suchinformation could include, for example, aprospectus, loan proposal, community action
plan, or other relevant information provided
to the bank by the CDFI.
“Community Reinvestment Act; Interagency
Questions and Answers Regarding Community
Reinvestment; Guidance.”

Office of the Comptroller of the Currency

According to the “Interagency Questions
and Answers Regarding Community
Reinvestment,” there is a presumption thatany loan or service to or investment in a
CDFI that finances small businesses or small
farms promotes economic development, andthereby meets the definition of community
development.
Loans to CDFIs
A bank may receive CRA consideration fora loan to a CDFI in different ways,
depending on the size of the bank and theloan amount and structure. For CRA
purposes, banks are effectively classified
into categories, which have somewhat
different evaluation standards: large banks,
small banks, intermediate small banks, andwholesale and limited purpose banks.
For banks evaluated as large banks, and forsmall banks other than those that areintermediate small banks, examiners willconsider loans to CDFIs that meet thedefinition of a small business loan under thelending test as a small business loan, even if
the loan also has a primary purpose ofcommunity development. Loans to CDFIs inamounts greater than $1 million, however,will not meet the small business loan
definition and, therefore, may be considered
as community development loans if theloans meet the geographic requirements andhave a primary purpose of community
development.
Under the community development test forwholesale and limited purpose banks,
examiners will consider loans that have a
primary purpose of community development
regardless of the loan amount. Intermediate
small banks can elect to have examiners
consider any loans with a primary purposeof community development as community
development loans, so long as the loans are

September 20193

not otherwise considered as a homemortgage, consumer, small business, or
small farm loan.
As discussed previously, banks may receive
consideration for community development
loans generated by the CDFI if the loans
meet the CRA geographic requirements.
Specifically, a bank may receive
consideration for community development
loans, qualified investments, and community
development services that benefit thegeographies or individuals in the banks’assessment area(s) or, in certain
circumstances, the broader statewide or
regional area(s) that includes the bank’s
assessment area(s), as explained previously.
Bank Purchase of CDFI Loans
A bank may receive CRA consideration forpurchases of small business, small farm, orhome mortgage loans originated by a CDFI
to low- or moderate-income borrowers in the
bank’s assessment area(s). These loans are
considered under the retail portion of thelending test for large banks and the lending
test for small banks and intermediate smallbanks.
Qualified Investments in CDFIs
A bank can invest in a certified CDFI
through the OCC’s public welfare
investment authority for national banks andthrough the general lending and investment
authorities and community developmentrelated investment authorities for federalsavings associations. Those investments
may also be eligible for CRA consideration.
Under the CRA, qualified investments in
CDFIs can take a variety of forms,
depending on whether the CDFI is a
nonprofit or for-profit entity. Qualified
investments in nonprofit CDFIs might

Office of the Comptroller of the Currency

include deposits, 5 membership shares,
equity equivalent investments, and grants.
Qualified investments in for-profit CDFIs
may include limited partnership interestsand stock.
A bank may receive CRA consideration
based on either (1) the full amount of its
equity or equity-like investment in the CDFI
(investment amount approach), or (2) ashare of the CDFI’s loans and, if applicable,
the CDFI’s qualified investments (pro rata
share approach). The bank’s share of the
CDFI’s loans is based on its equity or
equity-like interest in the CDFI. Its share ofqualified investments is based on the ratio of
the CDFI’s qualifying investments to the
CDFI’s total assets. The following examples
illustrate these approaches.
CRA consideration based on investmentin the CDFI: Under the investment amountapproach, a bank making a $1 million equity
or equity-like investment in a CDFI may
receive consideration for the $1 million
investment under the bank’s investment test
(large banks) or community development
test (intermediate small banks, wholesalebanks, and limited purpose banks). Smallbanks that meet the lending test standards
for satisfactory performance may request
consideration of qualified investments toachieve an outstanding performance rating.
CRA consideration based on pro rata
share of a CDFI’s loans and qualified
investments: Under the pro rata shareapproach, a bank may claim consideration
for a pro rata share of the CDFI’s loans ascommunity development loans under theapplicable lending test. The bank’s pro rata
share is based on its percentage of equity or
equity-like interest in the CDFI. For
example, if a bank made a $1 million

investment in the CDFI that has a total
capitalization of $10 million, the bank’s
percentage of equity or equity-like interest is
10 percent. If the CDFI originated$18 million in loans during the examination
period under review, the bank could receive
consideration for $1.8 million in community
development loans ($18 million x 10 percent= $1.8 million). To receive consideration,
the loans generated by the CDFI andclaimed by the bank would need to benefit
the bank’s assessment area(s) or a broader
statewide or regional area that includes thebank’s assessment area(s).
In addition to claiming the pro rata share of
the CDFI’s loans as community
development loans, a bank may also claim apro rata share of any qualified investments
made by the CDFI. If the investing bankopts to have a portion of its equity or equitylike investment evaluated under the lending
test by claiming its pro rata share of the
CDFI’s community development loans, thebank would receive consideration under theinvestment test for only the amount of its
investment multiplied by the percentage of
the CDFI’s assets that meet the definition ofa qualified investment. As in the previous
example, if a bank makes a $1 million
investment, and qualified investmentscompose 6 percent of a CDFI’s assets, thebank could receive consideration for aqualified investment of $60,000 ($1 millionx 6 percent = $60,000) and its share ofcommunity development loans($1.8 million).
Services to CDFIs
Financial services provided to CDFIs, suchas technical assistance, are eligible for CRA
consideration. Examples of technicalassistance to CDFIs include

5

Community development loan funds do not takedeposits, unlike CDFI banks and credit unions.

September 20194

Office of the Comptroller of the Currency

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developing loan application andunderwriting standards.
serving on the board of directors or on
loan review committees.
developing secondary market vehicles orprograms.
assisting in financial product marketing.
furnishing financial services training forstaff.
contributing accounting or bookkeeping
services.
assisting in fundraising.

Loan referrals may receive CRA
consideration if the bank refers borrowers to
a CDFI after the bank reviews theborrowers’ eligibility for bank financing anddetermines that they do not qualify for aloan from the bank.
How Does CDFI Certification Benefit
Banks?
Many banks have obtained CDFI
certification to access financial and technicalassistance from the CDFI Fund through thefollowing programs:••

CDFI Program and Native American
CDFI Assistance Program
Special purpose programs, including theCommunity Development Capital
Initiative and the CDFI Bond Guarantee
Program

CDFI certification is also required to accesscertain benefits under the Bank EnterpriseAward Program to support an organization’s

established community development
financing programs. 6
Additionally, a bank with CDFI certification
can register with the CDFI Fund and be
automatically designated as a community
development entity (CDE). The CDE
designation is necessary to access the New
Markets Tax Credit Program. 7
CDFIs are exempt from the Consumer
Financial Protection Bureau’s ability-torepay requirements for dwelling-securedtransactions if they meet certain otherapplicable requirements. 8
Some CDFIs have found that CDFI
certification increases their ability to raise
capital from other sources, such as banks,
foundations, and government agencies at alllevels.
Generally, under the regulatory capital rules,
investments in entities designated as CDFIs
may be exempt from certain deductions andreceive more preferential risk-weighting
than investments in entities that are not
CDFIs. 9
How Does a Bank Become Certified?
Banks can apply for CDFI certification bysubmitting a certification application at any
time to the CDFI Fund. The application andadditional materials can be downloaded
from the CDFI Fund website. Generally, anapplicant will receive a determination of
CDFI certification status within 90 days
from the date the application is received. 10

6Refer to 12 CFR 1806.200 and Program Overview.

9

7

Refer to 26 USC 45D.

10Refer to 12 CFR 3.2.
Refer to Application Guidance.

8

The ability-to-repay requirement is under the Truthin Lending Act (Regulation Z) at 12 CFR 1026.43(a)(3)(v)(A).

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Office of the Comptroller of the CurrencyA certified CDFI must meet the following
criteria: 11
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Be a legal entity.
Have a primary mission of promoting
community development.
Be a financing entity.
Provide development services, such as
training and technical assistance, that
prepare borrowers to access the bank’s
financial products.
Principally serve one or more target
markets, as defined by the CDFI Fund.
Be accountable to the target markets
served, either through a governing board
or advisory board with board membersthat are representative of the target
market, or through other methods,
approved by the CDFI Fund, that areincorporated into the applicant’s
decision-making process.
Be a nongovernmental entity and not be
controlled by a government entity(excluding tribal governments).

Resources
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CDFI Fund
OCC, Community Developments
Insights, “Community Development
Loan Funds: Partnership Opportunities
for Banks”
OCC’s CDFI and Community
Development Bank Resource Directory
OCC’s District Community Affairs
Officers
OCC’s Public Welfare Investments
Resource Directory

Refer to CDFI Certification.

September 20196

Office of the Comptroller of the Currency