Abstract

Community Development Financial Institutions and the Segmentation of Underserved Markets [PDF]
Prepared for the Community Development Financial Institutions Fund of the U.S. Treasury Department under contract with Abt Associates
Prime Contract GS-10F-00886K, Task Order TPD-ACR-07-0057)
Authors: Spencer Cowan, Danielle Spurlock, Janneke Ratcliffe, Haiou Zhu
September 2008

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. That said, minority-owned CDFIs in the sample are providing higher levels of service to historically underserved minorities, measured by the percent of transactions. Key informant interviews offer some tentative explanations, 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.